'There's too many lookalike companies:' Ad-tech and mar-tech firms will battle to get profitable in 2019 or risk extinction
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The ad-tech industry could have a tough 2019.
- A number of high-profile advertising and marketing-tech deals happened this year, including AT&T's $1.6 billion acquisition of AppNexus and Adobe's $4.75 billion acquisition of Marketo.
- Sources say while there's still opportunity for consolidation, 2019 will be quieter than 2018.
- One reason is that hundreds of ad-tech companies have the same pitch for marketers.
- Meanwhile, independent companies like The Trade Desk and MediaMath are well-positioned because they create custom tech stacks for agencies and brands.
From AT&T's blockbuster deal to acquire Time Warner and AppNexus to Adobe's $4.75 billion bet on Marketo, 2018 was a big year for advertising and marketing-tech deals.
For years, venture capital firms and acquirers have chased "mad-tech" companies with the goal of loosening Facebook and Google's chokehold on digital advertising. Meanwhile, Amazon has emerged as a new threat to both the duopoly and smaller ad-tech companies.
- AT&T purchased AppNexus for a reported $1.6 billion
- Private-equity firm Vista Equity Partners acquired a majority stake in Integral Ad Science, rumored to be worth $850 million
- Adobe shelled out $4.75 billion for Marketo, which automates and runs digital campaigns with data.
Facebook, Google and Amazon loomed over such deals. According to eMarketer, Facebook and Google controlled 56.8% of US digital ad dollars this year while Amazon will take 2.7%. Google has its tentacles deep into ad tech, powering and managing the data from ads served on millions of websites.
Ad-tech firms need to prove that they can make money
Increasing pressure from the tech giants means that there could be less M&A activity in 2019, Jay MacDonald, CEO of the investment bank Digital Capital Advisors, told Business Insider.
Meanwhile, investors are concerned with ad-tech companies' profitability.
"Companies out of necessity and survival are going to need to get profitable. They've known that, but now they're really starting to work on it," he said. "The ad markets tend to be fickle - they like the shiny, new object. If you're not profitable, you're no longer the new, shiny object."
There's a glut of companies who do the same thing
MacDonald said a growing number of ad-tech and mar-tech firms are vying to solve the same problem, making it hard for ad-tech firms to build bigger businesses. Take mobile marketing. A group of location-based companies like Verve, GroundTruth and PlaceIQ have long pitched their data to marketers as a way to better target ads, but these companies struggle to build big-enough audiences to attract advertisers.
Competition is stiff in programmatic advertising, too, where a growing number of vendors are vying for the same commoditized display ad impression. Companies like MediaMath and The Trade Desk have started to pitch technology like artificial intelligence and roots in connected TV advertising to set themselves apart.
Both OpenX and MediaMath went through leadership restructuring and layoffs this year.
"There's too many lookalike companies that are not the dominant player in their vertical," MacDonald said.
The growth in lookalike companies has led ad-tech firms to be more transparent in how they package ad deals, said Nate Woodman, U.S. chief data officer at Havas Media. As more marketers scrutinize so-called ad-tech taxes, companies like MediaMath are starting to break down the costs involved in media for buyers, then bundle the ad deals with data costs.
"The last couple of years have shed a lot of light on the ad-tech tax, and I'm putting out next year as something dramatically being done about it," he said. "The conversations with the data and media owners are turning more into bundling across technology, hardware, data and media and finding a combined price for all of that."
Marketers are looking for less "off the shelf" tech
One advantage that independent ad-tech and mar-tech firms have over giants like Google and Adobe is the ability to customize tech stacks for brands.
Instead of pitching marketers on the same generic set of tools, ad-tech companies can build tech pipes that are specific to them, which can be a big selling point with brands.
That's why Mac Delaney, SVP of media investment and innovation at Merkle, believes that marketers will lean harder on smaller ad-tech firms in 2019.
"Marketers will centralize on one platform for a much longer period of time, maybe forever, and that may not be [Google's] DoubleClick Bid Manager all the time," he said.
