Marketing Clouds And Ad Tech Financial Forces Poised To Collide

LouisMoynihanUpdatedV3Data-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 Louis Moynihan, vice president of product innovation at Demandbase.

Data management platforms (DMPs) are outgrowing the siloed advertising channel and evolving into multichannel management within the larger marketing clouds.

This is a seismic shift. I expect many more tremors caused by the marketing clouds in the coming year, and I see a few possible events that could affect the whole ecosystem.

These macro changes fall into two categories: marketing cloud forces and advertising financial forces. I don’t think one is more important than the other; I actually think they are intrinsically connected. If one of these events occur, another is likely to quickly follow.

Let’s dive into the marketing cloud forces first.

The Marketing Cloud Advantage

While independent DMPs and demand-side platforms (DSPs) continue to serve a growing and healthy customer base, the large software companies with DMPs have one huge advantage: They naturally have more siloed data to join on behalf of their large existing customer base.

Case in point: For large B2B brands like Cisco or Fedex, Oracle may manage their enterprise resource planning, business intelligence and data warehouse, while Adobe may manage their website content management system and analytics.

Do you honestly believe an independent DMP will have a shot of winning Cisco’s business if competing with Adobe’s or Oracle’s DMP offerings?

A white-labeled offering from a trading desk has even less of a chance of winning the DMP business. Large brands have many large silos of data that need mapping and joining, currently housed by some of the largest marketing clouds.

This is one of the largest industry trends hatching in front of our eyes. Advantage: marketing clouds.

Marketing Cloud Forces: Will CRM Get More Involved In Onboarding And Activation?

As onboarding businesses such as LiveRamp, Datalogix and Neustar scale at impressive rates, it’s obvious that marketers agree on the value of onboarding their offline data and syncing with cookie IDs for digital activation. Much of the offline data is being sourced from CRM systems.

CRM providers tout themselves as marketing clouds but some lack their own destination for the onboarded cookie IDs. Even without onboarding, all marketing clouds need DMPs and data warehouse offerings to make good on the marketing cloud promise.

The rapid growth in the onboarding business is essentially forcing CRM providers to fuel competing marketing clouds. Salesforce recently announced an onboarding-type deal with Google, for example, which starts to fill the gap from its own lack of a DMP. But the deal means that Salesforce now fuels the Google DMP in addition to other DMPs. Granted, the inventory and search implications via Google will bring more visible value to Salesforce clients.

Regardless of the tactic, CRM providers will want to start to control more of the onboarding process. CRM is also more aligned with B2B, so the Google/Salesforce partnership will bring real ROI and attribution to B2B marketers; hence, I expect decent adoption and trending in this area. As CRM gets more involved in onboarding, DMPs and B2B, it will only further the marketing cloud trend and its positive affect on ad tech. 

As Marketing Cloud Forces Grow, Expect More Data Acquisitions

The pipes are worthless without quality data running through them.

It was only five years ago when ad servers, DSPs and video and mobile ad tech providers were valued far more than pesky data providers. Initial IPOs and venture capital funding of ad tech were very impressive and far overshadowed the valuations of data businesses.

There seems to be a turning of the tide here. Wall Street now undervalues transactional CPM-based business models and Oracle just spent more than $150 million on AddThis, adding fuel to its already growing data-as-a-service business. Its purchases of AddThis, Crosswise and Datalogix (a rumored $1.2 billion acquisition), all now piping through BlueKai software, seem like a robust strategy.

MediaMath just announced its own proprietary data business, also piping data through its combo DSP and DMP.

I think it is fair to say that controlling the very best third-party data on the market and overlaying it with clients’ first-party data might separate the winning DMP providers from the losing DMP providers.

I believe we are only seeing the beginning of this type of data M&A. There are other data sets that, if combined with a marketing cloud’s DMP, could be greater than the sum of its parts. If this trend materializes, it will only bolster the forces already fueling the marketing clouds.

Ad Tech Financial Realities

The second category of forces at work here are the natural technical and financial evolutions within the ad industry.

Let’s start with agencies. I love how agencies are always at the tip of the pendulum. As brands in the last few years brought media buying in-house because of how “easy" ad tech providers made media buying, brands quickly realized the programmatic stack requires constant oversight and dedicated staff, something that large reorganizations don’t allow for.

Brands are now licensing their own DMP software and asking their agencies to work on top of the brands DMPs. This gives the brand the best of two worlds. They take ownership and control over their first-, second- and third-party data and get access to a dedicated and qualified staff to run the brands’ ad stack, which is not so easy to run after all.

I suspect the service agencies and system integrators that propose DMP ownership to brands will have a shot at running some of that ad stack. Publicis’ acquisition of Sapient Nitro is only the beginning of more service agency acquisitions by the holding companies.

Agency-led system integrators and consulting companies already advise on the marketing tech stack, so it’s not a stretch for service agencies to start advising on combined mar tech and ad tech stacks.

This will allow agencies to realize revenue growth on strategy and technical services, making up for the reduction in media margins caused by an overly competitive and commoditized programmatic media trend.

The Move To SaaS

But if you think about the evolution of ad tech, advertising now needs to be connected to wider marketing activities. Online ad spend just surpassed TV spending, and at this level ad spend can’t keep growing without it being orchestrated across the much larger aggregated marketing budgets.

Many advertising folks agree that ad tech companies are undervalued by Wall Street. Non-advertising folks would disagree and suggest non-software-as-a-service (SaaS) revenue is not as predictable, and growth or margins have not been strong enough. Some publicly traded ad tech companies are also not profitable yet, hence the expected cyclical push for profitability more recently. I do agree unprofitable ad tech should have a lower valuation multiple but I think the whole sector has been dragged well below true value.

Perhaps not for long. Regardless of your position, I truly believe as marketing cloud software companies partner and acquire more ad tech they will force undervalued ad tech firms to move to SaaS business and pricing models, which can increase valuation up to 10 times.

If a software company is valued at seven times its earnings and an ad tech company is valued about equal to its earnings, acquiring the ad tech company and transforming into a true SaaS business could within a few years realize seven times the benefit. I’m not sure ad tech can do this alone – it might take major influence from the software giants to make this happen.

I’m surprised that we have not seen this happen more often. But watch for this phenomenon through 2017. The timeline is impossible to predict but ad tech valuations will likely recover. Once the M&A advisors smell the value of shifting ad tech companies to SaaS models, watch out.

I see a massive separation of the ads from the tech, but the marketing clouds and their need for DMPs, data and SaaS revenue growth will all play leading roles.

Follow Louis Moynihan (@louismoynihan), Demandbase (@Demandbase) and AdExchanger (@adexchanger) on Twitter.

5 Comments

  1. Louis -- Love this and I'm with you. More SaaS models are coming for adtech-rooted technology because that's what marketers understand. Any platforms emerging in the converging martech-adtech space will benefit huge on valuation.

    Reply
  2. Lou, I'm glad someone (besides me) finally noticed the value Sapient could bring to Publicis, and why Publicis made the decison to put Sapient execs pretty much in charge of the entire company. It's about data and tech development expertise, which Sapient has in abundance. They are much more than Sapient Nitro, and the sprawling tech services units outside marketing remained with Sapient after the acquisition. That's why.

    Reply
  3. Great points and perspective Louis. I agree with the trending convergence of marketing clouds, CRM, DMPs, and data. However, marketing clouds need to do a better job of integrating their past acquisitions by more than name alone. Many have not done a great job integrating the functionality and capabilities. Personalization/Decisioning capabilities are also another function needed by the clouds. We also still see many companies looking for best of breed solutions instead of marketing clouds with broader functionality.

    Reply
    • Hi Mike, you bring up a good point on Marketing Clouds manufacturing their clouds through acquisitions and many times those integrations take longer than Marketecture would have us believe. However, a DMP IS an integration layer (at least by cookie ID's) so in theory a DMP should be the easiest integration possible, especially for the clouds that acquire later in the product evolution cycle. Also, as bad as some of the integrations are large enterprises do care about less vendors and see a 3 year integration as acceptable. Adtech moves so much faster its hard to believe that, but large enterprise also want to buy stability and security. Your points are more than fair, thank you for sharing.

      Hi Henry,
      Services and Strategy will replace media as a source of revenue growth and Sapient Nitro is at the right side of that trend, this is its own article for sure. Thanks for sharing

      Reply

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