The Competition In Ad Tech Is Just Getting Started
Another week, another headline mourning the death of ad tech.
Pundits have been quick to call an end of competition in digital advertising as Google and Facebook’s market shares grow. According to recent articles, companies that aren’t members of the duopoly are better off packing up their things and going home.
But I’m optimistic for the future of our industry as long as smaller companies continue responding to market needs.
Investors move past ad tech
Investors are feeling bearish on digital advertising lately, according to a TechCrunch article that says venture capital investment in ad tech startups has declined by nearly 80% in the last five years.
A probable cause of VC disinterest is the growing market share of Google and Facebook. It’s no secret that the two companies control the majority of digital marketing spend and are only growing stronger every year.
Between the first quarters of 2016 and 2017, Google advertising revenue grew $1.9 billion in the U.S. and swallowed half of overall growth in ad tech. Facebook displayed strong performance as well, growing by $1.2 billion with a 33% share of growth.
The other 16% of growth was split between everyone else, representing $5.5 billion in advertising revenue in the first quarter.
Leaving $5.5B on the table
Investors are wise to avoid backing competitors to heavily established products, but ignoring the potential of smaller players in ad tech is shortsighted.
Google and Facebook might be growing faster than everyone else, but $5.5 billion in ad revenues in a single quarter is significant—and that only represents sales made in the U.S.
For anyone suggesting advertising is ‘so over’ and ‘owned by Google and Fbook’: You’d walk away from $ 5.5 billion p. q. in the US alone. https://t.co/nR9HNG3Q62
— Wolfgang Blau (@wblau) June 14, 2017
Sure, that $5.5 billion is split between a lot of competitors including Amazon, Snapchat, Twitter, and thousands of smaller companies (including us). But big ad tech companies will never be able to offer every solution and placement a marketer needs, creating opportunity for smaller companies to continue growing and competing for their share of new revenue.
Publishers also fit into this space, as Kevin Gentzel, the CRO of USA Today Network explained on the Digiday podcast. In his interview, Gentzel pointed out that money is shifting from traditional to digital advertising every day and it’s up to the scrappier, smaller companies to find ways to attract it from the duopoly. Most of the time, this means providing better services and unique products that cater to niche audiences like small businesses away from large urban centers.
Providing new solutions is key
Digital advertising is always changing based on needs from publishers, advertisers, and users. This flux creates a lot of chances for smaller players to compete against Google and Facebook.
In the last year alone, we saw header bidding emerge as a new solution to help publishers gain more revenue from digital ads. This new, more efficient way of serving ads was created because publishers were annoyed that Google gave its bidders priority, meaning the highest bid might not win at auction. Through header bidding, OpenX and AppNexus were able to gain traction and take business from Google and Rubicon, which were slow to adapt.
The presidential election and rise of “fake news” websites also triggered brand safety questions about the supply chain and the quality of programmatic inventory. These concerns boosted popularity of programmatic direct, which connects publishers and advertisers while using technology to speed up the ad buying process. It also led to more interest in native advertising in brand-safe environments, and programmatic companies were able to jump on the trend by creating exchanges built with brand safety in mind.
Finally, ad blockers continue to create opportunities for smaller companies to compete against ad tech leaders. Companies that protect user privacy and provide a great user experience are eligible to be whitelisted on Adblock Plus, a major diversifier for marketers looking to reach tech-savvy audiences in particular.
These examples show that giants might set the industry tone, but scrappier companies that respond to market needs will always have space to compete. As long as the “everyone else” group offers better solutions to problems, we can continue disrupting the industry for the better.
Being small is an asset
The competition for advertising revenue is far from over, despite what headlines say. A lack of new investment for startups might even be a silver lining for the industry, allowing existing companies to focus on solving ad tech’s problems instead of listening to external partners that are more interested in profit than user experience.
Maybe the “everyone else” is better off seeing investor disinterest as a sign of the ad tech apocalypse… but instead of burning everything to the ground, we should challenge the duopoly’s status quo and build a better system from the ground up.