Terence Kawaja is Founder and CEO at LUMA Partners, a boutique investment bank focused on the digital media sectors.
Ad tech is over. The landscape is overcrowded, venture capitalists have moved on, and real action is elsewhere in tech.
If you work in and around the digital media industry you have likely heard this refrain. Nothing could be further from the truth. In fact, I could make the case that we are entering a golden age of ad tech. Though ad tech may not be the right descriptor since much of the data-driven technologies effect marketing in general, beyond advertising. Other areas like content management, marketing and distribution, CRM, ecommerce, even product design are being redefined by the manipulation of consumer data. Sure the ecosystem is fragmented and requires rationalization and consolidation. Venture money has tightened as well which is actually a good thing – it is forcing the capitulation of companies that can’t make it independently (which is in full swing), creating more capable scaled players that will build comprehensive solutions for marketers and publishers that ultimately benefit the consumer.
There is huge opportunity that leverages the application of data-driven technology to marketing and media. Here are seven trends that bode well for the ad tech sector:
- Big Data Science. Lots of players in ad tech leverage data: every DSP, DMP, SSP, Ad Network and lots in between. However some companies have built very scalable data architecture with sophisticated technology stacks that are showing real results that stand to fundamentally improve the effectiveness of digital marketing campaigns. It is these companies that are changing advertising from a discretionary expense to a cost of goods sold (and in some cases a revenue driver).
- Perfecting Down Funnel. The growth of media bought in real time has been incredible – from next to nothing in 2009 to an estimated $2 billion in 2012 and projected to grow at 50% annually thereafter. Much of this is direct response advertising targeting a particular audience with some of the best ROI coming from retargeting. While this is likely to continue, I can’t help but think that retargeting largely addresses the symptom, not the underlying issue: lack of conversion on the marketer’s website. Recently, innovations around content personalization and cookie integration have materially improved conversion on the initial visit. Whether the customer converts the first time or when found later on, this part of the digital ad world is humming.
- Moving Up Funnel. While lots of innovation is happening down funnel, there is a palpable rally cry for technologists to focus on brand objectives that are so needed to capture an even greater share of advertising budgets for the digital channel. On the supply side, technology is being applied towards helping publishers sell their premium inventory, both direct and indirect.
- Social CRM. Social data and conversations are becoming a critical aspect of customer relationship management. The past few months have seen a rash of deals where SaaS players (so far Adobe, Oracle and Salesforce) have made moves to acquire capabilities to enhance their social marketing. If social turns out to be such an important a component to CRM and media buying, expect many more deals.
- Mobile. This is the year of mobile. Seriously, this long espoused tag line may finally be true. Device proliferation and changing consumer habits towards uses of mobile connected devices (driven largely by the iPad) are rapidly accelerating the mobile marketing opportunity. We are now seeing mobile-first applications and formats designed for non-PC devices. If the valuation of Millennial Media is any indication of investor desire for exposure to the sector, expect more activity.
- Digital Video. The intersection of digital and TV is an alluring one, based largely on the huge spend by major brand advertisers (over $70 billion in the US alone). Innovative companies are fashioning solutions that help with the distribution, monetization and analytics of digital video. This will continue in the hopes that at some point the current TV distribution cabal is upended.
- Cross Channel. While many companies are busy optimizing media within a particular channel, today’s CMO has a broader issue. She needs to leverage data sources from all channels and optimize – and measure - marketing spend holistically. As offline data becomes more usable and all media channels become digitally addressable, this is the Holy Grail. Of course once the optimal mix is determined based on what works, this becomes a lead-in to implementation – undoubtedly a coveted strategic role.
One of the consequences of a fragmented ecosystem with few barriers to entry is that innovation comes from all over. For leading companies in the sector and new entrants forging opportunity, that usually means that inorganic growth options are the best alternative versus cumbersome build alternatives. We are well into a wave of consolidation that is likely to continue for some time. Sure there are capitulation deals where a stronger private player picks up another (recent examples include 33across/Tynt, SAS/aiMatch, DG/Peer39, OpenX/LiftDNA, Pubmatic/MobiPrimo, Rubicon Project/Mobsmith and Syncapse/Clickable) but this is healthy for the ecosystem. What is more interesting is the expanding universe of buyers. Besides the usual suspects (Google/Admeld, Google/Meebo, Yahoo/Interclick, ValueClick/Greystripe), there are large players from other sectors from media, marketing, software, data and communications that are interested in ad tech capabilities. We have recently seen acquisitions by software giants (Adobe/Efficient Frontier, Oracle/Virtrue, Salesforce/Buddy Media, IBM/Core Metrics), with many more in the wings eyeing the sector (SAP, Accenture, EMC, HP, Dell, Acxiom, Experian, Comcast and AT&T) not to mention large players on the sidelines (Amazon, Apple, Samsung). And of course there is now Facebook with a currency and a need to grow their advertising business. Expect lots of activity.