Industry Leaders Emerge as Ad Tech Winter Freezes Out the Undifferentiated

Sloan Gaon

MarTech Advisor

May 22, 2019

Recent years have seen a rapidly accelerating spider web of consolidation and obliteration in the ad-tech space. According to Sloan Gaon, CEO of PulsePoint, players need to double-down on efforts and embrace differentiation, specialization and verticalization if they want to succeed.

The compound effect of poor profitability in an overcrowded market long threatened obliteration of ad tech as we once knew it.  The outcomes of Sizmek, the failed rollup of Sizmek, Rocketfuel, Peer39, and StrikeAd by private equity firm Vector, cemented these once high-profile players as cautionary tales amongst advertising circles and the VC world that funded and fueled the overheated market.  They join the ranks of ad tech’s many dead soldiers; companies like Videology, Yieldbot, Visto (formerly known as Collective), and AudienceScience, who fell prey to industry winnowing without demonstrable scale or clear, defensible differentiation.  Meanwhile, other companies like Turn and Sorenson clung desperately to their slice of the ad dollar until surrendering to acquisition.  Those playing the long game are wise to consider what precipitated these seismic fallouts as a harbinger of things to come.

Recent years have seen a rapidly accelerating spider web of consolidation and obliteration.  Analysts forecast 219 net operating companies in ad tech by 2020, down from 1,478 in 2013.  As large industry players fall, debt payments have snowballed, leaving only the strongest to survive: Organizations with scalable, pressure-tested business models, sound focus, savvy specialization, and healthy balance sheets.  As the proverbial buck is passed, companies will see more and more collections past due or worse.  The domino effect of bad debt, coupled with general upheaval within the industry, has strong-armed Ad tech companies into an ultimatum: Differentiate or die on the vine. Jack Welch was right: “Change before you have to.”

Today’s market demands specialization, not a generalization.  The value of vertical integration is abundantly clear.  Verticalization enables companies to understand an industry’s problem better than anyone else in the market: to define the market issues, and to effect powerful infrastructural change, while setting the pace for unprecedented and groundbreaking innovation and integration. In e-commerce, vertically integrated digital native retailers like Warby Parker, Casper, Chewy, and the Dollar Shave Club, focus on a specific vertical market with a formidable incumbent or legacy contenders and design, produce, market, and retail a competing product at a lower price point and via channels that directly connect brand to consumer.

Each day, we’re seeing traditional brands bring programmatic technologies in house.  Consider McDonald's recent acquisition of Dynamic Yield to create a more customized drive-thru, dynamically tailored to weather, current restaurant traffic and wait times, and trending menu items; or Walmart’s acquisition of Polymorph to supercharge its digital advertising and draw brands closer to their customers.  In the travel sector, Sojern acquired ad tech firm Adphorus, a Facebook and Instagram Marketing Partner (FMP), to scale reach and maximize revenue opportunity, and AirBnB purchased ad tech startup AdBasis for its digital creative testing and optimization technology.  The trend’s traction points to the ubiquitous adoption, application, and integration of technology and data to efficiently effect real, transformative change.

Ad tech remains a huge market, though today’s technology offerings bear redundancy and overlap across both feature and functionality. In an industry that turns on a dime, those that harness smart technology horsepower and differentiated data to uniquely solve for specific market challenges in a specialized and scalable manner are primed to drive efficiency and innovation across the sector, with applications across financial services, transportation, manufacturing, healthcare, and more.

It bears repeating: Winter’s here.  To successfully weather the storm, players are wise to batten down the hatches for the long game, doubling down on efforts and positioning their technology as a vehicle of change through differentiation, specialization, and verticalization.

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