January 31, 2017
Programmatic Consolidation Is Coming, But Where?
The programmatic landscape has recently seen a rise in generic core platforms, forcing participants to look more closely at the factors that truly differentiate one platform from another. This has led to discussions of differentiation, commoditization and consolidation.
With the number of players nearly doubling each year and limited venture funding to go around, it is far more difficult for companies to differentiate themselves and remain in business. Some within the industry have even gone so far as to say the future is obliteration, not mere consolidation.
The larger question is, what areas of the ad tech landscape will see consolidation and what factors will drive it?
While consolidation has already emerged on the sell side, the buy side has recently gained some steam. There were 112 ad tech and mar tech deals in Q3 2016, for a total value of more than $7 billion. Multiple suitors courted the demand-side platform (DSP) TubeMogul before Adobe eventually acquired the company. Meanwhile, the continued absorption of smaller DSPs into larger ones shows that DSPs and ad servers could be the two buy- side areas that experience the most movement.
Much of the consolidation to come on the buy side will be determined by how much advertisers reduce the number of technology companies they work with. But that’s not the only area ripe for potential consolidation. If we simplify the current advertising and marketing tech landscape to three workflow layers of connectivity between the buy side and sell side, it gets a bit easier to see where contraction can occur.
The first core execution layer, composed of the ad servers on both the buy and sell sides, previously connected directly to execute the entire media plan. The second layer, made up of relatively new programmatic media players that interface with the buyers and sellers, including DSPs, exchanges and supply-side platforms, still use the ad server to execute but have created a new workflow.
The third and final layer is composed of the technology companies that have flooded the market in recent years, such as Data Management Platforms (DMPs), viewability and attribution partners, fraud detection companies, third-party data providers, cross-device targeting solutions and yield managers, to name a few. This space is where we’re likely to see many companies begin to look more generic, while others are likely to be acquired and become point solutions within a larger stack.
The trouble these companies face is that they must either work as independent providers with massive global scale and interoperability across the ecosystem, or become part of giant companies that may currently sit outside of the core advertising technology ecosystem. Many will never get to a global scale because they lack the funding and time needed to achieve market adoption. Those more likely to be acquired will present a niche solution that fits into larger players’ business needs and manage to establish sufficient market share.
One perfect example is the burgeoning field of location-based data suppliers. While this technology is currently on the cutting edge, it will eventually become standardized due to the finite set of locations in the world. At some point, every marketer will have access to the same information about location, and the primary issue becomes translating the data, rather than acquiring it. Whoever develops the best mechanism for optimizing the data drawn from beacons and latitude/longitude coordinates, while properly dealing with the related privacy issues, will own location the way Google owns search. All other players will become generic commodities that either fade away or get scooped up by larger companies.
Of course, if the rate of growth continues, this only describes a fraction of the types of new companies starting and dissolving each year. While they may offer good point solutions, the biggest price paid is by the advertisers, agencies and publishers who must use trial and error to continuously evaluate which providers offer the best return.
The rise and evolution of metaDSPs and ad server/SSP combinations show that workflow, reporting and machine-learning optimization will be key areas of focus for the industry. Consolidation is one means through which the industry will achieve the flexibility needed to continue to evolve.
This post originally appeared in AdExchanger.