The Digital AdMedia Industry is ready for Consolidation

With the evolution of digital advertising, the industry seems to be at a particular inflection point in terms of evolution and sophistication. The way people consume content has changed, and the typical business models that used to support media is ripe for disruption. There are many players in the industry taking care of small parts of the value chain between the advertiser and publisher, creating an opportunity to integrate throughout this fragmented value chain.

Growing Sophistication

The digital media business used to mirror the traditional media business, where business deals would be built on relationships and closed over beers at the local bar. Though a lot of publisher deals (supply-side platforms, publisher aggregators, etc) are still won primarily on relationships, the demand side (DSPs, ad agencies, certain ad networks) is getting more sophisticated. With that sophistication come performance based metrics, especially as new analytics, tracking mechanisms, audience segmenting, targeting/retargeting tools are developed.

Ripe for Disruption

There are lots of middlemen in the digital admedia industry. Agencies are becoming advertiser aggregators and certain exchanges and networks are becoming publisher aggregators. There are also real-time bidding algorithms, and so on. With all of these different companies “mushrooming”, it brings back images of Wall St. being over-leveraged and over-securitized. Aggregators are aggregating demand (advertising) and supply (prime real estate space for display ads).

Expect Increasing Consolidation

Based on the comments above, many players are acquiring others in the value chain. DSPs and others are becoming commoditized services, claiming very little money from the advertising budget (10% of budget) and trying to differentiate themselves. In addition, they are also competing for a shrinking share of the market as publishers that are integrated through the value chain, like Facebook and Google (who own the eyeballs and have their direct relations with advertisers and agencies) are “eating their lunch”.

Used to be Overhyped, now Valuations are Lower.

Ad Tech was great place to be, but now there are many companies playing in this commoditized playground. Due to the current valuation of Ad Tech companies by the investor community, it seems to be a good time to acquire assets in the value chain from advertisers to publishers (integrate ad networks, DSPs programmatic tech stacks and bidding engines for example) to emulate the integrated experience advertisers are currently getting in social media channels like Facebook or Google. This could be accomplished by leveraging audience info and ad analytics to provide a better and more meaningful sponsored experience to users. We have seen some of this in play with Viant’s acquisition by Time Inc, and Opera’s acquisition by a conglomerate of Internet firms and investors.

To conclude, the Ad Tech space has evolved and is very fragmented, with many different companies offering services throughout the value chain. Social channels provide a more direct, integrated experience for advertisers so they can track how their advertising dollars are going and if they are working. The growing sophistication and performance based media buying, coupled with the lower valuations in the industry make for an environment ripe for disruption.