With all the hype that surrounds ad tech companies, it’s easy to forget that most aren’t actually making any money.
Metrics like revenues, transactions and impressions served help them paint an impressive picture for investors, journalists and potential clients, but when it comes to questions about their profitability, most ad tech firms keep quiet. That’s because despite rapid growth, they continue to lose millions each quarter and to burn their way through VC funding.
Video ad network Tremor Video, for example, lost a total of $16.4 million in 2012 according to its recent S-1 filing. Rocket Fuel isn’t profitable yet. Mobile ad network Millennial Media lost $3.8 million during the first three months of 2013. Appssavvy recently laid off multiple staff, introduced pay cuts and is subletting part of its New York office space in an attempt to turn a profit. AppNexus CEO Brian O’Kelley says his company is technically still in the red.
Those are just a few examples, but chances are not many companies on the much-cited Lumascape currently operate in the black. Those that do probably aren’t pulling in big bucks either; they’re barely breaking even.
That’s not necessarily a problem. Ad tech remains in its infancy, and most companies in the market are focused primarily on scaling their businesses. For them, investing in things like technology, sales teams and marketing is more important than near-term profits at this point in their evolution. It makes sense.
But that won’t be the case for long. According to some in the industry, money for ad-related startups is already getting harder to come by, and investors are turning up the pressure on their companies to show them not only revenues but profits, too.
The huge influx of VC money that online ad firms have received in the past five years has caused a bit of a mess across the industry. Most agencies and clients don’t know where to begin evaluating the options available to them, let alone have the time to test them. As a result, many of the players will innevitably consolidate or fall by the wayside, it seems.
As more ad tech companies go public we’ll get a better idea of how, exactly, the market might shake out. It’ll slowly become more evident which players have actually carved out sustainable businesses for themselves, as opposed to those that shout the loudest.
When that happens, conversations will soon move beyond metrics like revenues and impressions to ultimately more important ones like profits.
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