"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today's column is written by Mark Smith, president at Kitewheel.
Marketers’ essential need to reach consumers with the right messages along their journeys has stayed the same, but the amount of solutions available to them has soared.
Accordingly, CMOs have become some of the biggest technology spenders at many companies, and Gartner’s prediction that they will outspend their CIO counterparts in 2017 appears likely to come true.
I don’t, however, see this glut continuing for the foreseeable future. I believe that, for a couple of reasons, 2017 will likely be the high point for both the amount spent on ad tech and mar tech solutions and the overwhelming number of players in the market.
There’s A Bubble At The Bottom
If you look at the current technology ecosystem, there are a few huge players at the top and innumerable niche players forming the majority. These can be broadly divided into suites or platforms – Facebook, Google, Adobe and Salesforce – and solutions, which would be everyone else operating within the broad environments that the platforms have constructed.
Many platforms, echoing the walled-garden strategies seen in other industries, are not interested in being open and flexible with third-party solutions. Instead, they see an opportunity to control as much of the marketing stack as possible and lock it down. Whether it’s a big cloud vendor like Salesforce or a vertically integrated media, advertising and publishing platform like Facebook, the strategies are similar and the results are the same: limited opportunities for new market entrants.
Since these platforms are now becoming entrenched and have grown in dominance, the market opportunity for upstarts lies in filling the capability gaps left by the biggest players. Hence, 10% of last year’s Inc. 500/5000 companies were in ad tech. A lot of companies are competing to solve very specific and narrow problems left behind as gaps by the behemoths.
This is not lost on investors.
Last year, with the exception of The Trade Desk’s strong entrance into the public markets, publicly traded ad tech players saw an overall decline in their values, according to LUMA Partners. This, to me, indicates that investors don’t see a long-term opportunity in ad tech at the moment.
They do, however, see an immediate opportunity in the short term. Per the same report from LUMA, 2016 saw a large number of strategic exits and an influx of venture capital to differentiated upstarts. This tells me that there’s a short-term opportunity for smart companies to solve problems relatively quickly, then get snapped up.
The issue is that, with few long-term options, point solutions must either get acquired fast or likely fail because many exit strategies depend on an acquisition rather than entering a weak public market. This combination of a short-term opportunity for a minority of companies and a dim long-term outlook for the majority looks like a bubble. There are a lot of highly leveraged players competing for a few opportunities to exit. This means that marketers will soon be left with a narrower range of shiny new solutions to invest in.
M&A Isn’t The Only Way To Consolidate
We’re clearly going to continue seeing consolidation and feature integration taking place through M&A over the next couple of years. At the same time, over the shorter term, companies are going to take it upon themselves to better understand the tools they’ve already invested in and use them in a more integrated and efficient way.
Lately, quite a bit of research has been conducted into the state of advertising and marketing tech investments. Much of it identifies a lack of organizational capacity and necessary skill sets as barriers to effective utilization, according to David Raab. In most cases, companies know what they want to accomplish in terms of strategy but fall short of the skills and frameworks necessary to execute that strategy using the tools they’ve acquired – often at great cost.
I predict that this “mar tech fatigue,” as Raab terms it, will lead marketers to strictly evaluate their current tech stacks with an eye toward ROI and usability. Usable, practical tools that deliver consistent results will remain while more complex suites or point solutions will fall by the wayside. In this way, absent any industry moves, marketers will drive consolidation toward a specific and smaller tool set that works in an integrated way, rather than waiting for the perfect holistic cloud solution to finally emerge from the chaos.
User-driven consolidation and pushes for increased efficiency and usability, combined with clear market trends toward consolidation through M&A and a reduction in solvent players, suggest to me that we have reached the peak of advertising and marketing technology as we know it. As both platforms and users snap up the best solutions, there will be fewer gaps for point solutions to fill and weakened demand for shiny new additions to already-robust and efficient in-house tech stacks.