The market correction is coming and it’s good news for marketers
Ad-tech’s rapid emergence has changed the face of marketing forever. It's big business that's going to get a lot bigger. In this guest post, Adam Furness reveals two catalysts that will shape the future of marketing ad-tech.
When The Big Short hit cinemas last year, people across the world came away from the feeling amazed and a little scared that the story was real.
The global economy and millions of lives had been compromised by a flawed financial system, and the market was inevitably forced to confront the truth and start correcting itself.
I feel something not dissimilar is taking place in the ad tech space right now.
Demand for advertising technology as an enabler of effectiveness and efficiency is high. Ad tech’s rapid emergence has changed the face of marketing forever and it’s already a big business.
The reality though is that some of the fundamentals underpinning the sector are flawed. There are too many similar players clambering over each other, with brands and their agencies trying to get a piece of the action. Many are serious cash burning machines and investor appetite is much lighter than it was a few years back. A correction is inevitable.
Here’s my view on the two primary forces at play.
1) The money is going to run out for many while the big guys get bigger
The majority of ad tech players globally (most are present in Australia) are propped up by funding from venture capital. Digital advertising spend in Australia continues to grow at enormous rates. Recent IAB/PWC figures peg the upswing at 29% YoY to June 2016, reaching $6.8 billion AUD (that’s nearly half of all media spend nationally).
With this much money floating around, it may come as a surprise that most ad tech companies aren’t profitable. They’re running on investment and scrambling to get revenue and profit to match the bold projections they’ve promised to their shareholders.
The other key point here is that the impressive growth in YoY spend into digital and programmatic is not spread evenly across the various tiers of operators. Most of the growth is going to very few and that list isn’t growing.
Just like in The Big Short, where huge demand for housing bonds compelled the banks to package, buy and sell subprime mortgages as AAA rated certainties, ad tech faces a similar problem. There aren’t enough AAA rated quality ad tech players, outside of the big few, to sustain the market or meet investor expectations. With standard VC practice dictating only 1 in 4 investments need to pay off, an enormous oversupply of cash has sprouted a litany of unproven companies.
The differentiated and proven operators are self-selecting and their prospects are bright. The key to this group is that they will continue to demonstrate that they can positively impact business results for their customers, rather than meeting or ‘gaming’ yesterdays flawed success metrics set up and defended by bottom-feeders. For companies less strong, less different, and not making a profit, the end of their series A or B funding will likely also mean the end of the road.
2) Lack of talent at the top
1800 ad tech businesses need 1800 management teams – the Australian industry doesn’t have the headcount to meet this demand. Good organisations are built around good people, strong leadership and real-world experience. That final component, experience, is lacking from the makeup of many ad tech companies’ leadership teams both here and globally. Just like financial markets, advertising technology is rather complicated.
Managers who don’t fully understand how business works and how the technology works are far too common in ad tech. Adding to this, many managers are on accelerated career paths and find themselves in leadership positions without being given a chance to professionally develop and mature. These factors combine to create plenty of businesses without the experience or expertise to build and sustain success.
The Big Short again acts as a guide. The enormous amounts of money to be made in the subprime mortgage market attracted plenty of ambitious and intelligent people. Unfortunately, many of these people had only a cursory understanding of how the markets worked.
They focused primarily on keeping the wheels spinning and earning good money, without having the experience to spot hidden threats or opportunities. If you’ve seen the film, recalling the trading convention in Las Vegas might help.
Ad tech is still a new, immature and very fast moving aspect of the marketing industry. People on both the demand- and supply-side who genuinely understand fully how it works are rare. Crucially, those who get it understand that surviving long-term is about more than telling good story and jumping on the gravy train.
So, given all this, what can the market expect from the ad tech correction? Here’s what I’m predicting. Some of it is already in play.
The Big Short showed there was an enormous amount of money to be made in the subprime mortgage markets but many people had only a cursory understanding of how the markets worked
Increased transparency
Those with good technology and a defendable proposition will naturally rise to the top. When they do, the industry will move more comfortably towards increased transparency and visibility, without being ashamed to make a profit. My feeling is that if you’re technology produces reliable results and if you can genuinely solve real business problems, marketers and their agencies deserve to understand how.
Partnerships
Ad tech companies with pragmatic, effective leadership will focus on partnerships and integrations with multiple suppliers. The goal will be to make digital marketing easier for brands.
The reality is that no single company has the silver bullet, and 1800 voices competing to be heard isn’t helping. A more rationalised marketplace will generate more engagement and investment from advertisers.
A downturn in the media relationship economy
Measurable ROI that ties directly to business outcomes, coupled with actionable consumer insights, will replace the backslapping, crony capitalism we still see today. While it may fly in other branches of media, ad tech operators who rely on this relationship economy to ‘buy’ client business will be forced to either fix their tech, or shut up shop.
Don’t get me wrong, relationships will always be essential, but business outcomes will increasingly cement themselves as the strongest relationship currency. Boozy lunches and ‘media junkets’ will increasingly fall further down the order of importance, as they should.
If you haven’t enjoyed The Big Short yet I strongly recommend it as great watch – it’s on Netflix.
Adam Furness is managing director, APAC, at Radium One
OK, OK, you made your point .
Why so repetitive??? (see below)
We expect better editing, please …
“Unfortunately, many of these people had only a cursory understanding of how the markets worked.They focused primarily on keeping the wheels spinning and earning good money without having the experience to spot hidden threats or opportunities. If you’ve seen the film, recalling the trading convention in Las Vegas might help.
They focused primarily on keeping the wheels spinning and earning good money without having the experience to spot hidden threats or opportunities. If you’ve seen the film, recalling the trading convention in Las Vegas might help.
Unfortunately, many of these people had only a cursory understanding of how the markets worked. They focused primarily on keeping the wheels spinning and earning good money without having the experience to spot hidden threats or opportunities. If you’ve seen the film, recalling the trading convention in Las Vegas might help.
They focused primarily on keeping the wheels spinning and earning good money without having the experience to spot hidden threats or opportunities. If you’ve seen the film, recalling the trading convention in Las Vegas might help.”
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Thanks for flagging Floyd, I’ve fixed the repetition.
Cheers,
Miranda – Mumbrella
nope – repetition still awful. amazingly bad.
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Thanks for getting in touch to let us know about these errors, they are ours and not Adam’s and are the result of trialling a new cross-platform proofing software which was duplicating content for reasons unknown. I have uninstalled the software and notified the company of these flaws. I have also reimported Adam’s original submitted text and apologise for the continued inconvenience this has caused Adam Furness and our readers.
Some good points here. I haven’t watched the movie but most certainly will now.
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Yes – the movie is well worth seeing.
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Too many intermediaries who are handlers not value adders is the issue. Add to this the same intermediaries not being aligned with what clients really want (legitimate results) and you have the present mess of myopic ad tech garbage.
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