The duopoly is real, and independent ad techs are feeling it.
Citing research by LUMA partners, the New York Times reported that the number of independent ad tech firms fell by 21% since 2013, amounting to just 185 as of last quarter.
Meanwhile, of the $88bn spent on digital ads last year, over 90% went into Facebook and Google’s pockets, leaving a remaining market worth just $9bn for those smaller outfits.
The result is that venture capital investments – which reached a high just shy of $3bn in 2015 – are beginning to now dry up, forecasted to be less than $1.5bn this year.
Just 53 deals between ad tech companies and investment firms have taken place this year, stated the report (citing Pitchfork), compared to 122 in 2017 and 260 in 2014.
That cut back in spend is behind the “wave of consolidation” that we’ve seen most notably in the recent bout of dizzying acquisitions such as those of AppNexus by AT&T, Salesforce and Datorama, and IPG’s bid for Axciom.
“While all industries go through a maturation curve, this one faces a particular need for consolidation,” said Terry Kawaja, the chief executive of LUMA Partners. “So many of these companies were not profitable.”
It’s suggested, however, that a third member shouldering its way to a seat at the ad tech titan table could level things out, not least AT&T, which has acquired the ability to serve addressable ads to its 170m-strong customer base.
Backed by vast reserves of first-party consumer data, Amazon is also a firm contender. It reported a huge increase in ad spend following the launch of its own advertising arm, which could reach $4.5bn in revenue by the end of the year – a 61% increase on 2017.
Amazon could be given a further leg up as consumers use search engines less to find products, heading straight to e-commerce platforms instead.
“Search engines such as Google will lose some of their appeal for shopping as Amazon and other retail websites gain favour and advertiser dollars over the next few years,” a recent Forrester report stated, that estimated digital advertising spend to grow by 55% by 2023. “The shift gives Amazon a reason to strengthen its search features – text and voice – for organic traffic, as well as its search advertising platform.”
But while the e-commerce firm’s rise could help to dissipate some of that spend away from the current leaders, the idea may not be so heartening for the smaller players in the space just yet.
For those hardier hangers on though, the advice from Kevin Hunt, senior vice president of video ad platform SpotX, is that companies remain “technically flexible” and agile to the movement and evolution of the market and technology.
Meanwhile, the notion that these smaller firms have often been the real pioneers of new advertising technology is leading to a new breed of investors interested in attracting the industry’s most entrepreneurial, such as venture capital fund MathCapital.
“We want the best entrepreneurs that want to build ad tech companies to come to us,” Eric Franchi, the fund’s co-founder, told the Post. “Over time, hopefully we can be a force for good in the space to help these companies get started.”