Amid gloomy forecasts can ad tech weather the storm?
The anticipated economic storm has the entire media industry bracing itself for (yet another) realignment with belt-tightening already taking place as clients cut budgets, buyers reduce forecasts and the trimming of headcounts follows suit.
In particular, this poses questions over ad tech – a much-hyped and widely misunderstood sector of the industry – and the value it generates for the industry’s primary actors, especially as high-profile transparency investigations are underway.
In fact, some experts are asking if the market is on the precipice of the bursting of another digital bubble?
Central banks, think tanks plus any number of other forecasters cite chilling economic warning signs pointing to an expected recession with some believing it will last longer than a year. Predictably, precautionary measures include layoffs in an echo of the widespread cuts which took place in 2020 as the Covid-19 pandemic took hold.
In fact, even the boom sectors of esports and gaming are starting to feel the pinch as the optimism surrounding all things digital subsides with some presaging that the contagion will spread to ad tech.
In the last 18 months, a slew of such companies listed on the public markets in a move that (presumably) should bring more clarity to the above question. And in the last two-week period the leading names of this cohort have disclosed their earnings for the latest quarterly period with executives there all putting their best foot forward.
On face value, the numbers look good with the arrows pointing in the right direction for the June quarter this year – even if the stock price for every company in this sector is down considerably compared to their 2021 highs.
The Trade Desk reported revenues of $377 million, up 35% year on year, while Magnite recorded $123 million (ex-TAC*), up 23%, while Criteo’s revenue was $215 million (ex-TAC) a decline of 3% with most pinning this on challenges to its legacy retargeting business.
Elsewhere, PubMatic reported revenues of $63 million for the period, a number representing a 27% rise. Meanwhile LiveRamp – a company whose strategy hinges on the acceptance of alternate identifiers to third-party cookies – posted revenues of $142 million for the period, a 19% hike.
‘Narratives’ can be misleading
Speaking with Digiday, Brian Wieser, global president, for business intelligence, GroupM, spoke of his belief that widely held narratives over the inevitability of a severe global recession run contra to key data points.
“It certainly doesn’t map to consensus expectations among economists and others,” he said, noting how GroupM-parent WPP has raised its 2022 revenue guidance, along with a number of its Madison Avenue peers.
“To be clear, everything is relative, and everything is not sunshine and roses … there are great risks ahead but the degree of certainty with which you hear negative opinions expressed are just out of whack.”
For Wieser, there is a “conflation of deceleration and decline” that leads many to jump to conclusions that fail to take into account that digital rose exponentially after the initial shock of the Covid-19 pandemic.
“There’s so many noisy parts of the pandemic that are so difficult to identify,” he added. “For example, e-commerce, as a general concept was growing at far too rapid a clip relative to what turns out to have been sustainable,” he added.
Additionally, the “generalized comments” provided as a rest of year outlook by executives at Big Tech companies – this is often used as a proxy for the rest of the market – make it difficult to divine how smaller digital players will fare in the months to come.
Most public independent ad tech companies gave relatively positive guidance for rest-of-year earnings with the upcoming U.S. elections cited as a particular boon for those with ambitions in the CTV space.
Albeit, leadership at both Magnite and PubMatic telegraphed their “conservative” outlook given the softening of market conditions in Europe where complications exacerbated by Russia’s invasion of Ukraine continue to have widespread economic effects.
The long goodbye
Macroeconomic conditions aside, all companies in the digital media space are subject to the whims of the internet’s major platforms’ policy decisions – namely the sunsetting of traditional ad targeting tools such as third-party cookies or MAIDs.
Google’s most recent delay to cookie depreciation means many will make hay while the sun shines, a tactic that will only work for so long. Although speaking on the Magnite earnings call, CEO Michael Barrett spoke of some media buyers’ complicity in such retrograde attitudes.
“As long as third-party cookies are around, it’s kind of the easy button,” he said. “I just don’t think you’re going to see a rabid appetite [for alternatives] on the buyer side as long as there’s third-party cookies, and that’s what they’re used to.”
Meanwhile, Jeff Green, CEO of The Trade Desk, seemed to suggest that allegations of monopolistic practices surrounding Google’s ubiquitous ad stack continue to capture public attention – Bloomberg reported the Justice Department may sue Google as soon as next month earlier this week – is a tailwind for independent ad tech.
“Walled gardens like Google are being downgraded in priority,” he told equities analysts, explaining how such wariness among those controlling media budgets means his company is able to build more direct relationships with marketers. “They have run a marketplace with questionable integrity.”
More scrutiny, but little change
The assertions made by The Trade Desk’s Green may be true, but less well-known companies in the ad tech sector must also be wary of marketers’ focus on transparency, a tendency borne out by the Association of National Advertisers’ probe into the practices of programmatic media buying.
Nick Manning, founder of Encyclomedia and former cofounder of media agency Manning Gottliebb OMD, pointed to the latest ANA Procurement report which highlights that practices have changed little over the last decade.
This is despite digital growing to account for the majority of marketers’ spend during that time, and programmatic, with its well-documented transparency issues, accounting for more than half of digital media spend in many cases.
“When things start to get tough, which they’re starting to be, the thing to do is cut out wastage,” Manning told Digiday. “And the ANA is trying to do that at an industry-wide level. But in many cases, you have marketers charging their partners to cut out redundancies.”
“They still want to spend ad dollars, but they want less of those to go to the supply chain,” he said, adding that progressive advertisers are doing so but, in many cases, “the fact that media agencies earn so much from the supply chain, very little has changed.”
For Nandi Gurprasad, a veteran of the ad tech space and CEO of YEARXERO, transaprency will be crucial for smaller ad tech players, particularly for sell-side players, when it comes to remaining on media buyers’ plans.
He also advised that smaller ad tech players need to find a unique selling proposition in the near term. “If you look at those players that have been able to get by, they’re either smart, nimble or able to evolve,” he said, “you look at the companies in tier-two [outside of Big Tech] and they all managed to find a product or solution that gives them an edge — be it refined targeting or header bidding.”
*Excluding Traffic Acquisition Costs
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