Commentary

Ad-Tech Vets Weigh In On Rubicon's Potential Options, Scenarios

With the news last week that ad tech stalwart Rubicon Project is exploring strategic options, including a sale, RTBlog asked industry vets for their take on the situation. Clearly, Rubicon is not the only ad tech firm undergoing changes as the industry consolidates. Rocket Fuel recently announced a restructuring and layoffs.

Dave Zinman, COO of RadiumOne, called Rubicon a “pillar in the programmatic market with a critical role in enabling publishers to realize yield from programmatic demand.” Rubicon is a long-time partner of RadiumOne. “Consolidation is a necessary step in the maturation of the digital advertising ecosystem, and Rubicon's willingness to pursue this path is healthy for the industry in the long run,” Zinman said.

Rubicon was late to join the header-bidding party. Zinman explained that it wasn’t just that it was late to header bidding: “a bigger challenge is that header bidding is commoditizing the role of SSPs [supply-side platforms] because it forces them to compete to monetize each impression. This is hastening the day when SSPs no longer have lock in with publishers, which will squeeze margins across the industry,” Zinman said.

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Rajeev Goel, CEO of PubMatic, said Rubicon finds itself in this situation because of its late entry into header bidding. “The company has clearly stated that their being late to header bidding has had a negative effect on their financial performance,” he said. However, “it’s important to note that this isn’t a short-term situation. Any company that has built its business on waterfall tactics to access inventory is in a difficult situation in a header-bidding world where inventory access becomes somewhat democratized,” Goel explained.

Goel went further: “More broadly, there’s a new opportunity to help publishers take back control of ad decisioning. Header bidding, wrapper, and holistic ad-serving across programmatic and direct channels are significant growth opportunities that redefine the market. Rubicon’s gap in header bidding represents a broader gap in helping publishers better control and manage their ad decisioning.”

Goel suggested that publishers and advertisers are seeking more control over both direct and programmatic demand, and this is challenging for Rubicon to change in a short period of time.

As for potential interest in Rubicon’s business, Goel says: “I suspect there will be interest in Rubicon from two primary categories -- strategics and private equity buyers. Strategics could come from a variety of different fields -- media companies looking to take back control of their destiny from the competitive threat and duopoly of Facebook and Google, telcos looking to extend further into advertising, software companies expanding their marketing execution capabilities as we saw recently with TubeMogul’s execution, ecommerce companies that are increasingly driving profitability via advertising, and other ad tech companies looking for complementary capabilities.”

Goel thinks private equity buyers would be interested in Rubicon because of its relatively high cash balance and continuing profitability and cash flow, “all sitting inside of a company that’s trading at a low multiple. This asset has many of the characteristics that private equity firms look for in a take-private, including scale.”

Goel said that from a strategic perspective, a prospective buyer would be acquiring a “media and data gateway” to the programmatic ecosystem. “Virtually all market projections indicate that the vast majority of, if not all, digital advertising will be traded programmatically in the not-too-distant future.” Furthermore, “any platform that allows publishers to control ad decisioning is critical to the ecosystem. Similarly, from the sell side vantage point, there are significant data assets that can be unlocked due to the proximity to the consumer and scale of the platform. From a financial perspective, the buyer would be acquiring a scaled operation with the potential for significant cash generation once it is put on the right trajectory.”

Hector Pantazopoulos, chief revenue officer, SourceKnowledge, told Real-Time Daily via email: "An SSP [supply-side platform] in today's ecosystem shouldn't be a public entity. Rubicon was primarily an SSP that, because of the pressures around being public, shifted focus away from publisher-centric tools. They drifted into trying to be all things in one, serving multiple masters. This was ultimately a failure in strategy and long term vision."

"The investment community is looking for the real value in ad tech," Pantazopoulos said. "It means transparency both in costs and traffic, and ultimately driving real performance for advertisers. It's getting harder to prove the value of ad tech -- but it's up to the companies involved to change that perception."
 

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