With Big Issues Facing Adtech, Here's How the Industry Can Adapt
Jul 13, 2016 / By Vanessa Horwell
The advertising technology market is shifting – and whether it's thriving or stagnating is a matter of perspective: One on hand, the market is huge and poised for continued growth. On the other hand, VC investment activity is slowing. What gives?
Adtech sits at an unfortunate influx point of a multi-industry evolution. Fueled by the rise of digital media and consumers' appetite for mobile video, U.S. internet ad revenues hit $59.6 billion in 2015, (marking six consecutive years of growth), and stakeholders expect global digital advertising to grow by more than 10 percent in 2016 to a projected $160 billion.
Yet the financial markets have mixed feelings about adtech. Following a large number of IPOs in the space in 2013 and 2014, few companies have gone public since – and those that listed prior to 2015 have underperformed on expectations. As a result, VC investments and M&A activity in adtech declined significantly last year. Plus, with ad blocking, clickbait issues, and malicious-ad concerns seizing tech-news headlines, adtech is more foe than friend in the eyes of many consumers (and brands).
Some consider the drop in adtech investing to be an overdue market correction, given oversaturation in the space. But the industry's challenges may be as big as its opportunities: Practically no other sector has such a direct stake in (or impact on) the future of media, or is as important to the digital-first future of businesses in both the B2C and B2B technology markets. Adtech has to succeed for advertising and tech to continue to drive results (and deliver value) in multiple markets. Adtech can't be dead... so it must adapt to thrive in a changing landscape.
With worldwide ad spend at $570 billion, there are many questions for the adtech sector to answer: How can the industry evolve to deliver stronger value on ad spending? How can it drive stronger interest among the VC investors who think "adtech" is a dirty word? How can it raise its status among skeptical brands and consumers? It will be up the stakeholders inside the adtech space to decide, but three industry-wide steps are key.
Adtech-Martech? Get Specific. What companies and products fall under the umbrella of "advertising tech" is almost impossible to define, given that marketing and advertising can feel interchangeable in the digital-first business world. "Martech" essentially encompasses adtech, but amid the whopping 3874 marketing technology companies active in the space in 2016 (according to the dizzying annual compendium created by chiefmartech.com), only 562 are focused directly on advertising and promotion.
In the eyes of investors and buyers, that's a good thing; it proves the adtech market is not oversaturated – and that when it comes to specific digital advertising disciplines like programmatic advertising, social advertising, and video advertising, there truly are a smaller number of companies competing against each other (and seizing different segments of the market). Adtech companies shouldn’t let the massiveness of "martech" work against them; they should apply their niche expertise to innovate inside their exact disciplines and broaden awareness of how they solve advertising industry problems.
Resolve the Measurement Problem. For investors and clients/buyers in the adtech space, outcomes matter above all else: Investors won't gravitate to solutions that don't deliver on market needs or demands, and clients won’t utilize products that fail to earn them measurable improvements in their advertising performance. Data will be the driver of developments – positive, or negative – across the adtech space, and right now data isn't a friend of the industry.
Why so? Because data shows that ad fraud – stemming from nonhuman traffic, pirated content, and malicious "malvertising" – is costing the U.S. marketing and media industry an estimated $8.2 billion each year. Metrics like "viewability" are also abstract and easily manipulated (as recently discussed on Poynter.org), which makes adtech's viability and value seem exceedingly murky to investors and buyers alike. For the industry to grow and thrive, its stakeholders need to collaborate in support of cultivating standardized, high-quality data (and be more straightforward about the impact of fraud in the space, and how they intend to combat it).
Proactive Approaches & Partnerships. Five years ago, few could have predicted Snapchat's stunning rise in significance as an advertising channel. Likewise, we can't know now what advertising approaches will take off by 2021. But with agencies reportedly predicting that digital ad spend will surpass TV ad budgets some time in the next eighteen months, adtech industry stakeholders should know what trends are coming next – and should be at the forefront of making them happen.
Rather than wait for new channels to emerge (and then retroactively building infrastructures around distribution and measurement) adtech industry stakeholders need to be fostering the disruption. By leveraging their legacy media knowledge and creating long-term partnerships with innovative upstarts in the space, executives can shape the changing world of advertising – rather than respond to it with ineffective tools.
Ultimately, that's how the adtech industry becomes more friend than foe to consumers and brands (and wins back investors' respect in the process): By driving long-term change and improvements that help people make money off of multi-industry evolution, rather than try to respond to it.
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