Move over Don Draper. The slick, martini-drinking, chain-smoking smooth talkers of Mad Men no longer rule Madison Avenue. It’s geeky quant jocks like Dr. Rajesh Koothrapalli from Big Bang Theory who rule in the world of advertising today.
Far from living by John Wanamaker’s maxim about not knowing which half of advertising spend works, the explosion of measurable real-time data has transformed the world of adtech (advertising technology) away from the traditional “ad” and much further towards the emerging “tech.” Here are some trends we are seeing:
Networks Shift to Platforms: Technology, data, and audience targeting have evolved the world of display advertising from basic ad networks to ad exchanges with real-time bidding in a marketplace. That requires demand-side platforms such as Turn on one side (for brand advertisers) and supply-side platforms like Rubicon Project on the other (for publishers). (Disclosure: Mayfield is an investor in Rubicon Project.) Humans are becoming less involved in decisions to buy and sell ad space, as those trades are made in milliseconds through a market that looks more and more like a Wall Street trading desk. The industry is shifting away from older ad network and agency business models, which investors tend to disdain because of inherent challenges with scalability and arbitrage.
Beyond Google? As advertising becomes more and more about data and technology, Google seems to be in a great position to be dominant, with offerings across the DSP, SSP, mobile, video, and now social space. However, the ecosystem outside of Google is just starting to flex its muscles, and not all publishers are content with giving Google the keys to their user data kingdoms. Yahoo, Facebook, and Microsoft are the knights to save the day as they ramp up efforts to compete, while Twitter is expanding the market with new social ad formats. They are joined by technology vendors like Adobe, Salesforce, Accenture, IBM, and Oracle, who are now starting to get into the game.
Click Through Ain’t Enough: With the rise of multiple new formats of rich, interactive media (including social, mobile, video, gaming, etc.), we need better and more real-time measurement of ad effectiveness and engagement. Tracking basic “clicks” and “page views” are no longer enough in today’s world. The Internet Advertising Bureau has even put forward new display units to keep up with the times. Companies like MOAT (disclosure: Mayfield is an investor) go beyond clicks to measure in-view impressions, in-view time of ads as well as user interactions. Companies like these are terrific examples of next-gen brand intelligence and analytics software-as-a-service (SaaS) platforms that provide deeper insight. Similarly, intent-based search and sentiment analysis are playing important roles in the worlds of search and social sedia.
Point Solutions Squeezed: The market landscape is littered with a plethora of “point solution” adtech startups, usually trying to capture a small percentage of ad expenditures. As a result, these companies face challenging exit opportunities, because their IPO and M&A options are limited, and their valuation multiples are often limited.
However, it’s important to recognize whether a company is building a niche solution or is vulnerable because it’s dependent on a single platform. For example, the entire social media ad agency category looked extremely promising at first, but the leaders ended up getting acquired quickly as the market consolidated in less than 24 months. Meanwhile, the rest of the social ad space never grew much beyond the Facebook platform.
SaaS Rising: The next generation of adtech companies are product/platform plays with a SaaS business model, which benefits from recurring revenues and deeper tech and data defensibility. To be fair, SaaS startups typically take longer to scale up and tend to grow linearly instead of exponentially, but they are less susceptible to the “easy come, easy go” ups and downs of ad networks and performance-based advertising companies. In response, incumbent ad companies are attempting to morph or bolt-on SaaS components to their offerings. The truth is that most SaaS ad solutions are sold as “tech-enabled services” (with the majority of early revenues coming in the form of professional services). Still, an adtech SaaS company that has an underlying technology or proprietary data set that enables it to scale will have stronger appeal for the public markets or a tech-oriented acquirer.
Managing Across Screens: The complexities of managing and measuring multi-platform campaigns in real-time across many screens (PC web, tablet, smartphone, set top box, connected TV, social apps, etc.) is a growing need that is still largely unmet. Today different groups at agencies and brands buy mobile and display ads, and they and aren’t communicating with each other. As a result, there is lost value as most buyers aren’t tracking the user across these different screens. Meanwhile, incumbent ad networks will attempt to expand onto newer platforms, while pure-play startups optimized for each emerging format will seek to land-grab and dominate new territory. Systems that can help advertisers and publishers manage across multiple networks and screen types will be critical.
Consumerizing Adtech: Adtech interfaces have typically been quite dry and non-intuitive (much like enterprise software overall), but we’re seeing the front-ends of next-gen adtech products benefiting from the same beautiful chrome, intuitive design, gamification elements, and mobile app interfaces that consumer software products have adopted. Tomorrow’s adtech offerings will have user interfaces aimed at delighting the worker using them, simplifying their daily workflow, presenting relevant and actionable insights, and perhaps even making the marketer or salesperson’s job more fun in the process.
As we often hear in the boardroom at our adtech companies, trends like these force adtech companies to reinvent themselves — or die — every 18 months or so. It’s a very dynamic and tough space, but it’s poised for impressive growth as advertising extends across all the many new screen types. Furthermore, the exit prospects grow better as the value chain begins to resemble the tech-oriented world of Geek Boys rather than the relationship-based, old-school world of Mad Men.
Overall, the future for adtech looks promising in our view, and at Mayfield Fund, we continue to hunt for disruptive startups riding these waves.
Mayfield Fund partners Tim Chang and Raj Kapoor are active investors in advertising technology. Past and current Mayfield portfolio companies include adKnowledge, Adchemy, Audience Science, Black Arrow, MOAT, Rubicon Project, and Viralheat.
Photoshop by Tom Cheredar/VentureBeat
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