Ad tech has had another casualty. The news of Sizmek’s bankruptcy filing has shaken digital ad executives, who regarded the company’s ad server business as an important contender to Google’s. But the company’s vision of becoming a fully integrated buy-side tech stack was built on a crumbling foundation, according to ad tech sources. What didn’t help is the growing power of big tech in the ad tech space, as well as the likelihood of more brands taking parts of their media buying in-house.
Overall, Sizmek’s bankruptcy filing is a chilling reminder that it’s a challenging time for the overcrowded ad tech market where independent vendors face serious cost pressures to their pricing structures.
Rather than build its own tech Sizmek made a string of small acquisitions from 2011 to 2017, ranging from semantic tech tool Peer49 in 2012, mobile tracking tool Aerify in 2014, and mobile DSP StrikeAd in 2015, to its acquisition of Rocket Fuel for $145 million (£110 million).
“Sizmek was incredibly slow and incompetent entering the programmatic ad space,” said Ari Paparo, CEO of ad tech vendor Beeswax. “While their primary competitors [Google] DoubleClick Campaign Manager and DoubleClick Bid Manager became a powerhouse solution, Sizmek was on the back foot for years and did a number of small, crappy acquisitions buying two or three DSPs, and didn’t make it work.”
The strategic vision was to build a cohesive buy-side ad tech stack combining DMP, DSP and ad server. Yet the reality of stitching together numerous disparate tech businesses is a tall order. It requires deep pockets to finance the integrations, and huge engineering investment — the kind not many businesses (aside from Google) have.
Sizmek didn’t respond to a direct request for comment but issued a statement on its website: “Importantly, Sizmek is open for business. The U.S. Chapter 11 process – unlike bankruptcy schemes in other geographies – is specifically designed for companies like ours to operate as usual while working to resolve financial issues. Rest assured, we are committed to serving our clients to the same high standard you’ve come to expect from us and are working diligently to ensure our platforms experience as little interruption as possible.”
In 2016, Sizmek was acquired by private equity firm Vector for $122 million (£93 million). A year later, it bought Rocket Fuel — a business that had been dogged by controversy for allowing fraud onto the platform. But which also became known for its insertion order-based, non-transparent ad network model, which raked in massive margins running a managed service business.
Many of the 11 digital ad executives from ad tech vendors, agencies, and consultancies interviewed for this article believe it was the purchase of highly controversial DSP Rocket Fuel in 2017 that sealed Sizmek’s fate. “I consider the acquisition of Rocket Fuel a primary driver of this demise,” said Ruben Schreurs, CEO of digital media consultancy Digital Decisions. “Debranding it and consolidating it into Sizmek didn’t yield the results they expected, and they never managed to effectively compete with the likes of The Trade Desk and others.”
Others were more blunt in their criticism. “The Rocket Fuel acquisition was a massive mistake,” said an ad tech executive who requested anonymity. “It was a poisoned chalice. It’s public record how much dodgy shit they [Rocket Fuel] were doing.”
Of the 48 businesses Sizmek listed as creditors, the top seven are SSPs — including Index Exchange, Rubicon Project, OpenX, and Pubmatic — collectively owed just under $40 million. BidSwitch, which connects SSPs and DSPs was at No. 8. That inventory would have been bought via Sizmek’s DSP Rocket Fuel, albeit branded as Sizmek.
Compared to the glory years of ad tech mergers and acquisitions, Rocket Fuel was sold for a song at $145 million (£110 million) in 2017, a fraction of its peak $2 billion valuation. “They were desperate, and so they acquired RocketFuel, which was clearly on the way down, so it was a bargain,” added Paparo. “Rocket Fuel itself was a tragedy. It went out with a very aggressive salesforce and a non-transparent model. But then agencies realized it wasn’t transparent and probably selling them fraud.”
That loss of trust among some agencies wouldn’t have helped. Agencies have been shedding ad tech partners in order to clean up their ad supply chains, while an increasing number of advertisers have brought larger parts of their media-buying operations in-house.
“The company seems to have lost its way regarding its own identity since the acquisition of certain non-disclosed managed service businesses,” said Craig Tuck, managing director of publisher tech alliance Ozone. “That may have damaged its quest for a transparent way of working.”
Large overheads was another major challenge for the company. Sizmek has a very large workforce spread across three continents, with 14 offices in the U.S., 22 across EMEA, and a further 20 in APAC regions, according to its website. LinkedIn lists more than 1,000 staff to the company.
“That shiny object status is wearing off from ad tech,” said an agency executive who requested anonymity due to the fact their clients use Sizmek. “It’s not as easy as it once was to start an ad tech company and then exit with a huge amount of cash. In the past two years, you could have used the excuse of a soft IPO market but 2019 isn’t profiling itself as such.”
Some agencies fear that there is more bad news to come. After all, Sizmek’s ad server is prevalent among advertisers and transitioning is no simple task. “We’ll have to wait for details and see if them going out of business is an actual risk,” said the same agency executive. “But I wouldn’t be surprised if brands and agencies were already starting to think of a plan B.”
Still, several agency executives spoken still root for Sizmek as an important independent solution that provides necessary competition in a market dominated by Google. “Sizmek is one the few viable partners for ad serving who offer a fuller stack instead of just a point solution,” said a director at a major agency holding group. “It would be good for competition in the market if they found a path through their financial difficulties.”
Even Sizmek rivals, like Adform, haven’t welcomed the news despite the fact they may benefit.
“It does reduce the breadth of choices outside of the walled gardens,” said Jakob Bak, CTO of Adform. “So from an industry point of view that is not welcomed, particularly as this then can lead to an even more dominant position of Google.”