3 reasons why the ad tech firm you use won’t be around in 2018

David Reed, director of research and editor-in-chief, DataIQ

Ad tech is in trouble. That might seem an odd statement for a sector that has attracted 562 vendors (at last count) and supports global digital ad spend of some $223 billion this year. A lot of web site publishers rely on these companies to do things they can’t afford to do for themselves, while advertisers need them to connect their demand to the supply side.

So what is wrong? Fundamental changes to the eco-system in which they operate look set to wrong foot many of these operators, while at the same time revealing deep-rooted flaws in their business models. As a result, by next year, that number of players could dip considerably. Here are three reasons why:

1 - Consumers don’t know who they are (and won’t like it when they find out)

Ad tech is going to have major trouble with the c-word in 2018 - consent. The General Data Protection Regulation brings two major changes that it is not well set-up to cope with. Firstly, the hitherto invisible world of tagging will become visible. With the expanded definition of personal identifiable information now covering digital trackers, consent has to cover their usage.

Secondly, web site publishers will have to separate first-party and third-party data consents, rather than including all third-parties under a single first-party cookies consent as they do now. Every partner in the ad tech eco-system will have to be named by a web site publisher for the consent to be valid.

The alternative is for those ad networks and ad tech players to seek their own first-party consent. Highly unlikely, this is an outside possibility for a handful of large vendors, but the markets are not betting on it - just look at the falling valuations for companies like Rubicon or RocketFuel. Stepping out of the shadows to get permission to carry on doing something that consumers didn’t even know about is not an easy move.

2 - Publishers may not care

Nobody really wants to do ad tech. It is hugely complex, with far more transactions than are dealt with by stock markets, currency exchanges, derivatives markets and the like. That means a lot of ongoing engineering effort which can be quickly undone if a major player changes their code or a new channel springs into life.

For smaller web site publishers, using ad tech is a necessary evil if they want to sell their inventory and monetise content. A bare handful of the largest players, like Google and Facebook, can build their own in-house and require users to adopt their technology.

Among those 500-plus vendors there is a lot of duplication and also many solutions which do not meet their own claimed goals. So when some start to struggle, they can not expect much client loyalty or support. What publishers really want is consolidation into the bigger marketing tech stacks which they are more reliant on, something that even Adobe has been hesitant to undertake, perhaps mindful of the volatility in this industry.

3 - Most are loss-making already

Given the engineering costs and the complexity of the market, it is no surprise that nine out of ten ad tech companies are running at a loss. Even their revenue model alienates clients, with hidden margin being made during the arbitrage of demand and sale side trades. When you have to rely on sleight of hand to turn a penny, things do not look too healthy.

In the absence of a white knight riding to the rescue with a consolidation strategy, it looks like many ad tech companies will end up closing their doors, losing their investors substantial sums in the process. This sector will not turn out to have been the breakout success they were hoping for.

 

So when you next get shown one of those eye-test diagrams of the marketing tech and ad tech sector, you might notice some white space where there used to be a vendor. If you rely on one of them to handle your digital advertising needs, from tag management to programmatic trading, now might be a good time to run a competitor evaluation and find two or three alternatives. They won’t all fail (or at least not at the same time…)

Please note that blogs are the sole view of the author and that they are not neccesarily the view of IQ ddg Ltd and should not be interpreted as advice. Please read our full disclaimer

Director of research and editor-in-chief, DataIQ
An expert commentator on all things data, David has been editor of DataIQ since its inception in 2011.

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