Adam Lehman is president and COO of Lotame Solutions, an advertising technology provider. Follow him on Twitter @adaml.
This summer has ushered in a steady stream of articles from Digiday predicting a reckoning of some form for the advertising tech. For “Ad Tech Isn’t Making Money,” “The Ad Tech Shakeout is Coming” and “Time to Cut the Ad Tech Tax.”
The truth is, ad tech is creating value today, and it’s going to create even more in the near future. And it’s going to do this for the main players in media: marketers, agencies and publishers. Let’s look at the specifics.
Contrary to what you might have read, ad tech has already proved itself to marketers, agencies and publishers.They pay for services initially based on perceived value, and only continue to pay for those services if they’re in fact capturing that value. The abstract assertion that ad tech companies are claiming too high a share of the dollars being invested by digital marketers misses this point. For example, if an advertiser or its agency is investing in third-party targeting data, it expects to see lift in campaign performance to justify that investment. On the flip side, when a publisher invests in a DMP, the publisher expects to generate measurable ROI from utilizing the DMP through increased sales, higher CPMs and otherwise.
But that’s today. This is all small stakes compared to where ad tech is going. We’re only in the first inning when it comes to leveraging data and technology to transform consumer marketing experiences. We have yet to fully solve a whole host of relevant challenges and opportunities – for example, scalable cross-channel targeting, reliable cross-channel attribution and sustainable consumer privacy standards, to name a few. As ad tech companies continue to innovate, we will enable our clients to become even more efficient and effective in executing on their marketing objectives.
There is no ad tech bubble. Yes, many ad tech companies have raised capital from venture capitalists. This funding dynamic has led some commentators to assume that VCs have over-invested and that many or most ad tech companies will be washed out as VCs cease to over-invest in the segment. Again, VCs are also rational (and highly selective) buyers. While it’s true that the VC business model assumes some failed investments, VCs have placed their bets on businesses they believe will succeed (based on a well-established diligence process). Notwithstanding the shots taken at ad tech as a segment, it actually presents a lower risk profile to investors than many other segments, since ad tech companies are often quick to generate revenues, sustain solid margins and can, in many cases, achieve profitable scale without needing to be the sole or lead player in a category.
This isn’t to whitewash the realities of the market. For an ad tech company to thrive, it will need to advance beyond a cool technology innovation, to a full-fledged enterprise that delivers predictable value to its customers and can scale as a business. Ad tech companies need to be smart capital allocators, who can invest wisely with the capital they’ve raised and make a relatively smooth transition from cash-burning growth to profitability. For VC-backed companies, exit presents a challenge in that the IPO market has fundamentally re-set to a higher bar, and the M&A market is dominated by value buyers.
And yes, there will inevitably be consolidation, both through larger ad tech players absorbing complementary point functionalities and established media and marketing playing catch up. This is also normal. These are the same challenges faced by all emerging technology businesses. And even with these challenges, the future for ad tech as a segment remains bright.
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