How Ad Tech And Mar Tech Will Come Together (Or Not)

Managing the Data" is a column about customer and audience data strategy written by longtime AdExchanger contributor Chris O'Hara.

Gartner’s Marty Kihn recently made an argument that ad tech and mar tech would not come together, contrary to what he had predicted a few years ago. When Marty speaks about ad tech, people listen.

Like many people, when I read the headline, I thought to myself, “That makes no sense!” But those who read the article more closely understand that the disciplines of ad tech and mar tech will certainly be bound closer together as systems align – but the business models are totally incompatible.

Advertising technology and the ecosystem that supports it, both from a commercial business model perspective (percentage of media spend billed in arrears) and the strong influence of agencies in the execution process, has meant that the alignment with software-as-a-service (SaaS) marketing technology is not just an engineering problem to solve.

Marketing leaders and brands need to change the way they do their P&L and budgeting and reevaluate business process flows both internally and with outside entities such as agencies to ensure that even if the technology may be right, the execution needs to be optimal to achieve the desired results.

There are also plenty of technical hurdles to overcome to truly integrate mar tech and ad tech – most notably, finding a way to let personally identifiable information and anonymous data flow from system to system securely. While those technical problems may be overcome through great software engineering, the business model challenge is a more significant hurdle.

I remember getting some advice from AdExchanger contributor Eric Picard when we worked together some years ago. I was working at a company that had a booming ad tech business with lots of customers and a great run rate, operating on the typical ad network/agency percentage-of-spend model.

At the time, we were facing competition from every angle and getting disrupted quickly. Eric’s suggestion was to transform the company to a platform business, license our technology for a fixed monthly fee and begin to build more predictable revenues and a dedicated customer base. That would have meant parting ways with our customers who would not want to pay us licensing fees and rebuilding the business from scratch.

Not an easy decision, but one we should have taken at the time. Eric was 100% right, but transforming a “run rate” revenue ad tech business into a SaaS business takes a lot of guts, and most investors and management didn’t sign up for that in the first place.

This is a long way of saying that Marty is right. There are tons of ad tech businesses that simply cannot transform themselves into marketing software stacks, simply because it requires complete change – from a structural financial perspective (different business model) and a people perspective (different sales skills required).

Follow Chris O'Hara (@chrisohara) and AdExchanger (@adexchanger) on Twitter.

2 Comments

  1. Chris, the process changes you describe constitute too much pain for too little gain on the part of pure ad tech firms (as opposed to mar tech with more functionally extensive product suites, including your own firm Salesforce,) as well as their agency clients. Then perhaps the near term solutions be devised by the brands themselves, and consultants they hire who have the expertise in process transformation. These stakeholders can integrate the business process and tech products in use to meet the specific needs of the ultimate end users, the brands. They are the ones paying the agencies, the martech providers licensed by the brands already, and the ad tech providers collecting fees (usually percent of spend) from the agencies. So they have direct incentive to get the most efficient results from bringing the pieces together in the most effective way.

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  2. Chris -

    Great piece. the more likely outcome is that the ad tech economic model ultimately flips - as Martech software providers controlling the marketing strategy development (the "head" of the dog) get directly in front of the lower-valuation activation the ultimately follows (the "tail"), the software companies will inevitably change the pricing model by which they enable programmatic activation, which is becoming increasingly self-service for marketing organizations to handle, whether directly or through a trading desk at their agency. Witness when Adobe bought Neolane (email automation), they relatively quickly changed pricing model from 'volume of emails sent' to a 'per customer profile' model. Send as many emails as you want, the value is in knowing the customer. Same will happen here. The tail has been wagging the dog for too long.

    Andy

    Reply

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