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March 23, 2016, Article

Article

Tech in a Cold Climate: Should the Industry Consolidate or Cooperate?

Winter has not yet come for the ad tech industry, but its fire has been distinctly dampened.

After years of rapid expansion, industry growth is slowing, and reports from the World Economic Forum in Davos indicate venture funding for ad tech start-ups will be increasingly hard to find. Issues of ad blocking, fraud, and viewability may have dented investor confidence, public ad tech companies aren’t faring well in the markets, and overfunded start-ups are looking for an exit strategy.

A major shake-out of the ad tech industry is imminent and there are two options for the unwieldy ecosystem – consolidation or cooperation. So which route will be the most effective in the long term and why?

Consolidation of the ad tech market is sure to continue as an oversupply of point solutions provides the opportunity for good value acquisitions. Although M&A activity is unlikely to return to the dizzy heights of 2014, enterprise companies are still buying up vendor solutions to expand their stacks, and Oracle is leading the way, buying Maxymiser and AddThis recently. Agency holding companies are also looking to purchase tech propositions with WPP recently buying MediaLets and The Exchange Lab. A new breed of acquirer is also emerging in the form of the forward-looking traditional publisher, with News Corp’s acquisition of video ad tech company Unruly providing a fine example.

There are clearly some benefits to consolidation. Advertisers may prefer to work with a single provider who can offer multiple integrated products and services rather than having to manage a variety of point solutions; after all, consolidation should theoretically mean simplification and standardisation. But, regardless of how many solutions it buys, no provider can meet all the individual needs of every customer, particularly in a global market exposed to diverse local market forces. There are many negative consequences of consolidation, including limited choice in tech providers, and confinement of valuable data within walled gardens where it cannot easily be ported. Hasty acquisitions can leave companies with an asset that is hard to scale and costly and impractical to maintain.

A more sustainable alternative to consolidation solely through acquisition is required and a different solution is emerging in the form of interoperability. Validated partnerships, where providers enable their solutions to communicate and share data with other systems, result in far more choice over tech solutions and vendors. To make interoperability work, individual tech providers must put their egos to one side and embrace partnerships, even when there is some competitive crossover. Their goal should be to deliver best-in-class products that will be chosen on merit, rather than trying to defeat the competition. This move towards interoperability has begun with providers such as Appnexus and MediaMath encouraging integration with other tech solutions through an app within their platforms.

Increased collaboration and the rise of interoperability will result in amplified adoption of end-to-end management solutions.  Advertisers won’t need to cobble together multiple point solutions themselves but can select providers to work together on integrated, seamless executions with a single view of aggregated data. Server-to-server integrations will become ubiquitous, allowing data to move more easily between platforms, and interoperability will boost the importance of second-party data – where audience data is pooled by multiple publishers to improve targeting capabilities. The use of data management platforms (DMPs) to combine data from multiple sources will increase, and these platforms will begin to offer additional services through their own validated partnerships.

Vendor partnerships provide a more effective solution to a fragmented ecosystem than acquisitions and the time has come for providers to play better together. Through increased collaboration the industry can benefit from freedom of choice and scalable end-to-end management solutions that precisely meet the unique needs of individual companies. In a cold climate interoperability is surely the key to survival.

Read at AdTech Daily

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