In the last month or so we’ve seen the effects of overvaluations and over-extended promises in ad tech. Public companies in the sector are getting crushed, and private company valuations are unstable across the board.
While the floor is higher and significantly more stable than in years past, it’s eerily similar to a cycle we saw back in 2001, when one evolution of the business was literally phased out. Around that time there were a ton of rep firms and ad networks whose businesses started to falter simply because they were based on media and impression volume. The death of the ad network led to the rise of the ad exchange, which ultimately led to DSPs and programmatic platforms. While these businesses offered better scale, they were still fundamentally tied to impression volume and advertising.
While I still love advertising (and probably always will), it’s a subsegment of overall marketing. You need to be able to deliver value across the entire marketing ecosystem, which is why the category of simple ad tech is doomed — and the broader, more inclusive marketing tech category is proving its value across the entire enterprise. It’s why so many companies (as Dave references, including the one where I work) have paid to acquire other technology companies and are developing their own marketing stacks.
Marketing is inclusive of advertising, along with website customization, CRM, general email communications, customer service and more. Marketing addresses the entire customer journey and the various stops along the non-linear path consumers take in today’s environment.
Advertising, while still extremely important, is really only about impressions. Marketing is about experiences beyond a simple exposure, and many of those experiences can be fueled by data. Data is the driving force behind marketing tech, while impressions were the driving force behind ad tech. The two are related, but if you examine the value of companies that trade solely in impressions they tend to have lower valuations than companies that trade in data.
The companies that historically were tied to advertising impressions are valued at 1-1.5x revenue, while SaaS marketing platforms and platforms that focus on data or insights are anywhere from 5-10x revenue valuations. VCs are still putting money into the impression market when they find the companies that can deliver at scale, but they are looking for growth in areas that diversify beyond the impressions for the long term.
The stock market in general is down because of uncertainty in foreign markets as well as uncertainty in our own market due to the looming election cycle. Concerns about oil have bled over to concerns about technology, and the overinflated valuations of some companies are taking a hit. This is the year of unicorns losing their horns and of ad tech being valued for what it is: short-term revenue applied to impressions, which can come and go at the drop of an insertion order.
All the points in Dave’s column hold true, such as the focus of the business being on business outcomes, speed of optimization, data protection, consumer privacy and supply chain challenges. These are indicative of where things have to go in 2016, but the industry needs to understand that it’s not simply about the impression -- it’s about the total consumer experience moving forward. That is the core of marketing, which will be the core of the industry for 2016, and even on into 2017.