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A shakeout is under way in the online advertising industry, where dozens of startups—often with seemingly undifferentiated services and limited scale— face the reality that there isn’t enough room for everyone.

The number of M&A transactions related to “advertising technology and services” increased 32% in 2014 to reach a total of 100, according to data from investment banking services firm Coady Diemar Partners. Those transactions represented $7.5 billion in value, more than triple the $2.3 billion of deals occurring in the sector in 2013.

Established technology and media companies are aggressively snapping up smaller firms to bolster efforts to build out their own online ad offerings.

Last year Facebook Inc.FB +2.52% purchased video ad firm LiveRail for an estimated $400 million, for example. Yahoo Inc.YHOO +3.17% agreed to buy video ad network BrightRoll for a reported $640 million. Oracle Corp. agreed to buy advertising data firm Datalogix Holdings Inc., a major partner of Google GOOGL +0.29% and Facebook. The list goes on.

Meanwhile, a host of online ad firms are chasing finite ad dollars. Witness the number of companies that provide “demand-side platforms,” for example, which are essentially software tools that automate the process of buying online adverting. There are dozens of companies on the list, including Media­Math Inc., Turn Inc., DataXu Inc., The Trade Desk Inc., AudienceScience Inc. and Merchenta, to name just a few.

That is in addition to major online ad players such as Google Inc. and AOL Inc., which offer similar capabilities.

“There’s a group of parties that will rise to the top and get large and take a lot of market share, and that leaves other folks out there that may have missed the ability to scale,” said Sanjay Chadda, managing director at Petsky Prunier, an investment-banking firm.

The investment-banking firm said it tracked a 28% increase in M&A activity related to digital advertising in 2014, with the overall value of deals more than tripling from 2013, and it expects more to come.

There isn’t room for even 20 major online ad companies in the long-term, let alone the hundreds that exist today, said Terence Kawaja, chief executive of Luma Partners, a boutique investment firm focused on digital-media. “I don’t know what the right number is, but it’s probably less than 10,” he said, citing the growing market share of Google and Facebook.

For marketers, the prospect of stitching together technologies from dozens of ad technology providers isn’t appealing or efficient. Recognizing this, companies including Google, Facebook, AOL, Adobe Systems Inc. and others are building what they claim are large, simple, efficient end-to-end systems designed to suit all of marketers’ digital ad buying needs.

“Advertisers and ad agencies are demanding more efficient ad buys, requiring more scale,” said Colin R. Knudsen, managing director at Coady Diemar Partners. Smaller outfits promising one particular service or another “are more expensive and only the best will be sustainable as stand-alone entities over time,” he said.

Online ad companies often claim they have superior products, technologies, and algorithms than their competitors, but it is essentially impossible for potential customers to differentiate between them without testing them all. Smaller companies also claim they are able to innovate more quickly and effectively than larger, more cumbersome firms.

The consolidation is expected to accelerate through 2015, particularly as investors seek exits. Online advertising companies have mostly received a lukewarm reaction on the public markets in recent years; many private companies may view a sale as a more viable option than an initial public offering.

Shares of ad-buying software company Rocket Fuel Inc., video-ad firm Tremor Video Inc. and mobile-ad network Millennial Media Inc. are currently trading significantly below their IPO prices.

“Dialogue around M&A deals is picking up rapidly,” Mr. Kawaja said.