The ad tech power game
AppNexus’ Nigel Gilbert looks at the driving factors behind consolidation in the ad tech space – and why things are only set to intensify from now on.
It’s said in ancient philosophy that cycles of life occur every seven years. And it’s a theory that has frequently been upheld by cyclical economic activity, stock market crashes and political upheaval.
In the ad tech world, the renaissance that followed the dot.com bust culminated in the Great Consolidation of 2007. In a six-month period that year Google bought DoubleClick, Microsoft bought aQuantive, Yahoo bought Right Media and WPP bought 24/7 Media.
Fast forward seven years and seismic shifts in the ad tech space are again starting to fundamentally change the way the industry operates. The internet goliaths are making significant strategic bets at an accelerated pace, through consolidation, acquisitions and, often, unexpected partnerships, all with the goal of monopolising consumer eyeballs and the ensuing ad dollars.
Facebook went full-throttle into ad tech in 2014 with the relaunch of Atlas ad server in September and a number of other acquisitions. In its Q4 earnings call COO Sheryl Sandberg emphasised its commitment to “large” and “strategic” investments in areas they had previously neglected.
The past few years have nurtured unprecedented levels of ad tech innovation.”
Meanwhile, Apple’s belated announcement that it is working with programmatic partners came just a week after Yahoo announced plans to buy programmatic video platform BrightRoll. This followed Twitter’s acquisition of MoPub, TapCommerce and Namo Media; Millennial Media’s acquisition of Nexage and Jumptap; alongside AppNexus’ acquisition of OAS earlier in 2014 – to name just a few.
Furthermore, AOL has raised hundreds of millions of dollars to establish itself as an ad tech company, and Google has continued to push for industry and world domination.
So the ad tech power game that kicked off in 2014 looks only set to intensify in 2015, and here’s why…
Firstly, the past few years have nurtured unprecedented levels of ad tech innovation, starting to solve the problems that have long challenged digital marketing and its role in building brands. There is now a thriving and, some might say, overcrowded industry with cutting-edge technology across social, mobile and video.
Meanwhile, the internet giants that had been focused elsewhere, often fixing or monetising their core business as it struggles to adapt to the real-time world, have realised the risk of being late to the game.
Coupled with the recognition that programmatic is here to stay, big firms with free cash flows are now looking to acquire, or partner, their way into businesses that are reshaping digital advertising. They understand that doing nothing is simply no longer an option.
This process has also been accelerated by the fact that the convergence of paid, owned and earned media is remaking the social media pioneers into pure audience advertising businesses.
So Facebook and Google find themselves in an arms race with each other; not just to build their media capabilities in order to capitalise on social, mobile and programmatic, but also to define the currency, platforms and measurement, and to safeguard their profits.
This time, with programmatic already on track to account for as much as 70% of digital media, it’s not about scale.”
Facebook’s recent Atlas activity is almost certainly a move designed to protect itself from a world in which Google controls advertising and advertising technology. Not to be left out, global agency businesses are investing more aggressively in digital and programmatic at the same time as the content publishers ratchet up their efforts. Both buyers and sellers see the risk in a future where a small oligopoly of internet companies turns the web into series of walled gardens.
So what of the future; how will the ad tech power game play out in 2015?
Last time around the driving force for consolidation was knitting together disparate technologies to ensure ad tech could scale to deliver on its promise. This time, with programmatic already on track to account for as much as 70% of digital media, it’s not about scale. Instead it’s a clash of two competing philosophies.
On the one hand, that the internet works best as an open system where advertising drives value for the content creators, the internet users and the brands that finance the whole thing. And on the other, that enormous amounts of money can be made by annexing large parts of the web through controlling the platforms on which they operate.
The latter may offer some initial hope to participants that the challenge and complexity of digital advertising can be managed more easily inside a walled garden, but over the longer term it’s easy to see where that might lead.
No matter how 2015 plays out, the long-term future of the internet and thereby its value to consumers, publishers and brands depends on it remaining an open and vibrant place of competition and collaboration. At times this will be messy, as the current industry challenges with quality and attribution attest, but it will ultimately deliver more value than the route that at first looks easier.
Nigel Gilbert is vice president of strategic development, EMEA at AppNexus