The collision between ad tech and martech has been dubbed as "inevitable" by ExchangeWire contributors for some time; but few have explored what the fallout might be. In this piece, Vincent Potier, Captify, COO, delves deeper.
Despite its phenomenal growth, the ad tech (advertising technology) industry is considered as the somewhat less attractive sister of martech (marketing technology).
Recently, when ad tech does attract attention, it is sometimes for the wrong reasons: great companies that are down by 80% since their IPO; investment drying up; lack of confidence from analysts who are preaching the merits of consolidation, etc.
Now, compare this to the fortunes of the martech giants: Salesforce, Oracle, Adobe, Marketo, etc – and the news is much more positive. Oracle purchased DMP Bluekai and marketing analytics company, Datalogix, while Adobe purchased Omniture, an analytics company, and Acxiom acquired Liveramp. The reality is that ad tech companies are busy talking about martech, while martech companies are busy looking at their next ad tech acquisitions.
If you go to the US and attend any conference, talk to people, listen to CEOs of large ad tech companies, you’ll hear the same story over and over again: ad tech is discrete, martech dominates discussions.
So, why is martech the talk of the town, while ad tech is uninvited to the family reunions?
What is martech?
Martech is any sort of software, platform, database or interface that helps marketers and marketing departments to do their daily job: CRM platforms and systems, CMS, analytics packages, data management platforms, visualisation tools… It's as simple as that.
So, it is easy to see the potential of martech coming to ad tech: all those reliable data layers and platforms and practices injected into advertising technology. Martech would simply make ad tech more mature, more professional. No wonder everyone is calling for martech to merge, collide and converge with ad tech: ad tech would become more reliable, accountable, predictable, professional. Not necessarily.
Is it all talk?
The source of the martech and ad tech rivalry is straightforward: the business model, the client base, the investment attractiveness, and the market valuation. Ad tech is still perceived as an IO (insertion order) business, dependent on agencies, with few barriers to entry, cut-throat competition, constant innovation, and very short business cycles.
Martech is seen as an enterprise solution, SaaS model, and a recurring revenue model based on long-term contracts with clients. In addition, those businesses don’t only thrive on recurring revenue, they also 'scale', i.e. margin goes up for every additional dollar of growth, as revenue grows much faster than costs.
There is just one problem that’s rarely mentioned by martech admirers; growth in this industry is slower and margins are lower. Current market valuations of martech companies are not a product of actual revenue growth, but rather of expectations of future faster growth and growing margins. In addition, the rush to martech is rather recent, driven by the digital transformation of marketing departments at most corporates, and therefore somewhat uncertain.
What would happen if marketers felt they were just piling up unnecessary complexity by adding layer after layer of information software? What if the economy would take a downturn? Would the digital media spend dip, or would expensive martech contracts be culled first?
So, why do the markets love martech?
The markets love martech because it is closer to the client. As creative agencies lost a fantastic business opportunity in the 90s when they were leapfrogged by the strategic consultancies that were dealing directly with CEOs, ad tech companies now have the same problem in relation to martech ones.
Ad tech companies mostly deal with agencies, because agencies remain the guardians of client media budgets. Moreover, when ad tech companies do have access to the client, it is at digital director level; martech companies talk to the global media director or sometimes to the CMO.
CMOs will spend more on technology by 2017 than CIOs (Gartner). In the last few years, the large software companies such as Oracle or Adobe have been waking up to the fact that the CMOs they’re trying to sell technology to are often not tech-literate. For the CMO, who had been losing power internally for the last 25 years, this was the great opportunity.
Pressured to churn out data pack after data pack for the last 10 years, and be constantly grilled about their spend in board meetings, CMOs have started to like companies that render their data analysis task simpler. This has helped them provide transparency to what they’re doing and seeing, and needed justification for most of their spend. Bottom line: CMOs love martech, CEOs love martech, CFOs love martech, investors love martech.
In the martech versus ad tech battle, martech companies seem to have the upper hand. Everyone recognises that martech would benefit enormously from colliding or merging with ad tech, probably more than ad tech would benefit from a merger with martech; as experience from recent acquisitions of ad tech companies by martech companies seems to prove.
Undoubtedly, ad tech companies would gain a lot by accessing attribution modelling tools, client CRM platforms, or analytics packages; but is that desirable? Maybe, maybe not. Before we rush into merging martech and ad tech, to the point where the distinction will disappear, we need address three interesting challenges:
• Privacy: the privacy debate and its impact on the ability to measure target audience engagement with ads, or the way ads influence them, is far from over. For 50 years, CFOs have been complaining about this 50% of marketing spend which is wasted. Now law makers are complaining about that 50% which won’t be so wasted anymore. The advancement of marketing tracking techniques poses real concerns, having everything (analytics, algorithmic targeting, CRM and new audience integration, DMP…) under one roof would pose an even bigger problem; and a line has to be drawn. The line will only make sense if industry experts, consumers, advertisers, and law makers get together.
• The media ecosystem: with the increasingly large martech giants – an uncertain future for ad tech concerns would challenge even more the shaky status of media agencies within the increasingly client-dominated ecosystem; as ad tech companies work primarily with agencies, merger activity could redraw the boundaries of the always changing digital marketing ecosystem
• Innovation: ad tech companies are able to innovate faster. This is due to the extraordinarily complex nature of what they do and create and the diversity of clients they deal with (a product of their non-direct business model). Merger of the two industries would either slow down the ability of ad tech companies to innovate or exacerbate and the never-ending changes in digital advertising. This would not be desirable.
As advertising-focused marketers complement consumer-focused marketers and creative marketers complement numerical ones, so too do martech and ad tech. That’s why a family reunion between the two seems likely and each will increasingly have to talk to each other and work together. There are only three ways in which it will happen: merger of assets (happening), ad tech companies pushing into martech (happening), or new ecosystem between partner, agency and client, with the client at the core (not really happening).
There is little doubt that martech and ad tech are complementary, but they’re also very different. Martech companies create marketing software and sell it. Ad tech companies constantly reinvent the ecosystem, and because they live in the data world (like martech), they can run campaigns on any metric, and also deliver rich and unique pre-campaign and post-campaign insights. Martech helps construct the digital marketing foundation of the client, ad tech is its execution layer. Martech looks safer, more established, less risky, but digital innovation will still come from advertising technology.