PLATFORM WARS #4: Ecosystem Bubble?

The Coming Consolidation of the “Digital Display Technology Landscape”

If I had to pick “bravest guy in this business” I would pick Luma Partners banker Terence Kawaja. Back when he was at GCA Savvian, he tried to actually put the business of digital display advertising into one 8 ½ by 11 document, and give it some order. Ever since then, every technology executive, VC, industry analyst, and agency executive has been waving it around like a flag. It’s kind of like those illustrated town maps, where some guy paints Main Street, and every business with $300 gets a spot on the map, along with their logo and maybe even a cartoon depiction of the owner.

Our map, festooned with what I have been calling “logo vomit” contains several hundred microscopic logos, broken out into various categories that our industry has sub-segmented into, bracketed by the ever-powerful “advertisers” and “publishers” on each end. It’s not quite accurate. If importance were the measure by which logos were sized in the “landscape” sandwich, then the bread would be 10 inches thick and the companies in between would be mere condiments, with a cornichon-sized AppNexus in the middle. The influence of Gorilla-sized agency holding companies like WPP and elephant-sized “publishers” like Google are not properly represented.

Little red dotted lines encircle those lucky enough to get gobbled up by the bread. Ad exchanges have been a popular acquisition target (after all, someone has to figure out how to sell commoditized inventory. Ad servers even more so (that’s where the data comes from and, looking at the map, data seems to be the glue that binds the murky middle of the ecosystem together). So, how about all of those wonderful companies in the middle?

Some of those companies are struggling. A few are doing pretty well. Most (at least those that have been VC funded) are looking forward to Gobble Day, when Google writes them a check at a valuation that ignores their upside down cap table, and lets their founders avoid the inevitable cram down from yet another round of venture funding. Many of the companies in the middle will not survive. I’m not sure, but maybe there is a bubble in the Ecosystem. Certainly, it is tough to see it growing any bigger.

Data: A healthy supply of good audience targeting data (Experian, TargusInfo) is the foundation of the Ecosystem. As you will note, most of the players have been around for a long time, and they are going to quickly assimilate any new players with interesting data sets. What will slim down is the Data Aggregators category. Agencies don’t care who provides the data, as long as it works, and most players just spin the same data everyone else has. The company that can build the best hooks into inventory supplies wins, and they win by creating implementation “friendly” APIs. End of story. Companies like Exelate and Bizo seem to be executing well.  Other companies are struggling to get integrated into next generation systems such as AppNexus, and are starting to reconfigure their business models to align with the world of ubiquitous data usage. The winners are going to be the companies that are also configured to survive the coming legislative tsunami, and let companies bring their own data to the party (both publishers and advertisers). The work that Quantcast is doing in this area is very intriguing.

Creative Optimization: This area of the Ecosystem is interesting for a few reasons. In a world of commoditized inventory and data, it is the stories that agencies can tell that become important. In other words, the creative. Since not every agency can build viral ads on demand, a certain amount of technology is going to be necessary to wring performance from the most critical part of the value chain: the ad itself. People want targeted ads, and creative optimization can magically deliver me a coupon to my local Whole Foods since it knows I live in area code 11743, then I become a happier consumer. The problem? Doing creative optimization correctly—and in a way that an agency is willing to dedicate the time to—is very hard. Not many of these smaller companies will survive, because doing it right needs very tight ad server integration. Look for companies like MediaMind to start dominating here. Tumri is another one that is starting to unlock the puzzle.

Media Management: Companies in my little corner of the Ecosystem map (I work for TRAFFIQ) were very proud recently to get a category upgrade (we were once lumped in with “Ad Operations”). This is another highly interesting area of the map. You have the big legacy companies like DDS trying to find relevance with their digital offerings, and smaller start ups like Facilitate and TRAFFIQ providing disruption in the space, and media arbitrage companies like Centro pulling their technology forward with “self serve” platforms. Winners here will be the companies that can quickly centralize the cumbersome process of digital media workflow, create access to the systems that agencies depend on (data, serving, billing), and find a pricing model that continues to enable efficiency. These companies are in the business of using technology to try and lasso the disparate parts of the Ecosystem together, so this is a fun space to watch. Success here will be time- and capital-intensive, but the winners will be a part of every media transaction—on both sides—so the potential spoils are large.

Media Buying Desks: This is another fascinating area. A lot of conversation in the space has been around the Cadreons, Vivakis, and Adnetiks of the world. When you can leverage that much demand and tailor a technology platform just for your agency, that is the type of “start-up” build-out anyone would like to be a part of. I wonder how sustainable it is, however. Whether the technology is proprietary, or has been built on top of other DSPs, I am not sure closed systems can truly succeed in a world of open standards. With AppNexus, suddenly the formerly closed world of exchange trading gets more democratized, and you’ll see other platforms adopt this type of technology—and start to create their own pipes into exchange streams. Big agency buying desks are not going away anytime soon—but more competition is on the way, which may lessen their ability to dominate the space.

Retargeting: This area has been hot, but do we really need 10 different companies that can serve an ad to someone who has been on your website before? The better companies (and those built specifically for seamless integration into existing media systems) will find themselves to be nice tuck-ins for larger technology players. The name “retargeting” alone suggests more of a capability, than a category onto itself.

Networks: The “Custom” and “Targeted” networks in the map are surrounded on all sides. Both loved and hated by our industry for so long, networks continue to give both sides of the aisle what we want, when we want it. For the demand side, networks offer cheap, targeted inventory available in a variety of flavors (contextual, behavioral), and a one-stop shop for hundreds of publishers. For the supply side, networks were the magic money machine. Simply drop some javascript, and wait for your check. Networks basically enabled publishers, in their never-ending quest to append every page on the internet with a banner ad, to devalue their entire inventory (but that’s another article). These days, agencies are coming to the table with their own data, own way to measure performance, and a desire to bid on audience in real time, rather than have it packaged for them. The networks that survive must find a way to (profitably) plug into trading desks and DSPs—and offer a unique type of targeting ability. A tall order. Here, quality counts. Companies that have exchange trading in their DNA (Contextweb) are poised to succeed in this new ecosystem, as well as vertical networks that have curated high quality content sources (Glam).

Some larger trends to look out for:

-          Data: Legislation is going to be a fact of life, and it’s going to shrink available audience pools, and make data segmentation and targeting much harder and more expensive. As a publisher, you need to own the customer relationship and his data. As a technology enabler, you need to make sure you can let your advertiser bring his own data to the table, rather than relying on third parties. That’s what makes Facebook so powerful.

-          Power and Control: It doesn’t seem fair, but the companies that use technology to give the “bread” of the Ecosystem sandwich (Advertisers and Publishers) more power and control will win. You can’t “disintermediate” advertisers like P&G. They know more about their audience than we ever will. But, we can partner with their agencies so let them leverage technology to be more successful. Same with publishers. How can you help the content players understand their audiences, and package them in a way that lets them value them properly? The technology companies that partner with publishers to do that (rather than encourage them to “monetize” more of their cheap content) are also going to win.

The Landscape is ever changing, and we should all thank Terence Kawaja for putting his map on Slideshare and updating it frequently. He’s going to be busy doing that for a while, it seems.

Chris O’Hara works for TRAFFIQ, a web-based workflow solution for digital media, where he is responsible for business development and marketing. He can be reached through his blog at www.chrisohara.com

[This article appeared on 17 February in Adotas]

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