Based on reactions to recent acquisition news in the ad-tech space, the glass for startups is either half empty or half full. As Keith Petri, chief strategy officer, Screen6, writing exclusively for ExchangeWire, explains, some have said that recent consolidation is the sign of an 'Ad Tech Apocalypse'; and others see how innovative companies are finding their rightful place amongst the larger ad-tech stacks – able to meet market challenges and provide value in ways that the established ad-tech giants of today simply cannot.
Some even have gone so far as to say that the jig is up and that ad-tech startups are essentially doomed. I agree that things have changed from 5-10 years ago, and that the number of sizeable companies that can make acquisitions has thinned, but I do not think it's time to throw in the towel and head home.
Today, valuations for ad-tech startups change based on the strength of the market and, as a result, there has been a significant shift in the way startups operate in terms of scale, margin, and profitability. Some get big quickly and some stay small and agile. But one thing has stayed the same: startups excel at innovation and are mostly focused on solving new challenges.
Ad tech is a market that is clearly evolving and rife with new challenges. In the last two years, the advent of header bidding has completely changed the programmatic space; and blockchain will likely have a significant impact on the media business. And it is no secret that large, established media and tech companies are challenged to innovate from within to deal with these seismic shifts. Their focus is typically on today’s revenue and startups are often looking at the future.
This is the core of the Innovator's Dilemma, one of – if not the most – important books examining the nature of innovation and why established tech companies are challenged to develop from within. Most like to point the finger at management within established tech, but the issue is two-sided:
– Established tech needs to be able to spot the opportunity and plan to organize around it.
– Startups need to develop new technologies and market solutions that provide immediate value to the mature markets in which established tech operates.
The need to deal with transparency, data integrations, privacy issues, and partner integrations has most of the established tech companies at capacity. They simply don’t have the bandwidth to deal with the constant nature of change.
We see this every day. In order for ad tech to evolve, one of the biggest challenges has been to address the individual, instead of the cookie/device. It’s strange that large ad-tech companies, with loads of smart people, haven't jumped on the band wagon, and continue to treat cookies as the 'holy grail' of identification. This approach has become antiquated and having siloed profiles simply isn't how the internet and connected devices work today. Not only do consumers have multiple devices, but each of those devices have multiple IDs. Established companies need ways to solve for this.
Reflecting on today’s cross-device ecosystem, we see a number of vendors acting in a reactionary manner to meet client’s needs, focused purely on continued revenue and growth from current clients. These short-term strategies, with negative long-term implications, include providing additional reach by comingling clients' data sets and also providing subpar matching to cookieless environments (like connected TVs) by simply syncing on IP address.
We are acutely focused on identifying opportunity and building solutions that become apparent when you look further ahead and align technology innovation with market opportunity in the future. Larger companies are often not agile enough to implement change and tend to focus on updating their current products instead of innovating entire new solutions. They can become blinded by short-term revenue opportunities and, in the end, do not develop a product that is futureproof.
As the market dynamics have shifted, established tech is now in a position where they need to adjust to the market. This can either be done by taking your eyes off your current business model and focusing on innovation to deal with the changing nature of the market, or through acquisitions.
There is room for nimble new companies – built from the ground up, correctly. Most of these established companies are cruise ships that are too large to course correct or are simply looking for a safe harbour. They need to fill client demand and build reactionary technology and operations that support today’s revenue. And they can't start building it today – they will have look for new technologies and innovation outside of the company, or risk being overtaken by smaller, more nimble competitors.