Internet mysteries: Why do ad tech companies rarely die?

Although 5,000 ad tech companies exist today, the industry is full of dead men walking.

Unlike other tech industries, struggling ad tech companies rarely die swiftly, even if they’re not on the path to growth. Instead, they take a cut of the disappearing ad dollar while pivoting through various business models until they can sell off some of their assets.

In this edition of internet mysteries, we examine why floundering ad tech companies tend to linger.

False positives
The conventional wisdom that 90 percent of tech startups fail has been applied to ad tech. However, in ad tech, failures are harder to spot because ad tech has a lot of false positives.

Global ad spend will exceed $550 billion this year, according to a Zenith Media forecast. With that much money running through the system, there’s opportunity for many ad tech companies to reach high revenue run rates of more than $100 million.

“Rising tides lift all boats,” said Jonathon Shaevitz, president of ad research firm Industry Index, in reference to how the growth in digital ad spend helps ad tech companies stick around. 

Even if these companies run out of funding, it takes a long time for them to die because they can glom off media buys to slow the bleed.

Perpetual pivoting
Ad tech companies frequently pivot whenever a business model doesn’t work out. And sometimes, this really pays off. Moat became an ad measurement juggernaut after it scrapped its crowdsourced marketplace meant to connect ad creators with brands, while Index Exchange became a popular header bidding vendor after it pivoted away from being an ad network.

Other pivots help ad tech companies hang on by their fingernails. Tremor Video’s stock is worth less than half of what it was worth four years ago, and its CEO resigned earlier this year. But the company has seen a nice bump in its stock price — from $2.05 a share on Aug. 1 to $3.87 a share on Sept. 11 — since it announced it was selling its demand-side platform to focus on the supply side. The company made this pivot at a time when ad tech companies are choosing one side to meet the increased demand for transparency.

While companies across various industries evolve to avoid irrelevancy, pivoting is “easiest in industries where there is the least amount of regulation and the sales cycles are the shortest, such as ad tech,” said Michael Katz, CEO of data platform mParticle.

Fighting inertia
Even if a marketer is using a vendor that charges more than its competitors for what is essentially the same service, the marketer may delay shifting vendors because it takes a lot of effort to integrate a new platform and then train co-workers how to use it, said Davis Rosborough, vp of investment bank Progress Partners, which has invested in ad tech companies like MediaMath, Dstillery and Integral Ad Science through its venture capital arm.

So even though the DSP herd is thinning as marketers move from high-margin managed-service vendors to low-margin self-service vendors, the high-margin firms will stick around for a while because marketers are slow to move their budgets toward vendors with lower fees.

Publishers are also guilty of being slow to adjust their tech stack. Lloyd Berry, head of partnerships at ad tech firm Advrtas, said he still sees publishers making ad calls to vendors like Right Media Exchange who have been shuttered.

Berry noted that “no one likes to change out ad codes.”

More in Marketing

Why angel investor Matthew Ball still believes in the metaverse

Matthew Ball’s 2022 book “The Metaverse: And How It Will Revolutionize Everything” was a national bestseller in the U.S. and U.K. On July 23, he plans to publish the second edition of the book.

Marketing Briefing: Why sustainability is ‘not a priority’ for marketers right now

Anecdotally, there have been noticeably fewer requests from marketers on ways to market sustainability efforts in recent months, according to agency execs, who say that requests had been commonplace in the late 2010s and early 2020s. 

‘We’re watching the war’: Tubi hits growth spurt, but isn’t part of the streaming wars, CMO Nicole Parlapiano says

On the latest episode of the Digiday Podcast, Tubi CMO Nicole Parlapiano shares her perspective on the so-called streaming wars, pitching Tubi’s multicultural viewers and the streaming platform’s growth track.