Eric Franchi, co-founder of adtech outfit Undertone, and now an angel investor, recently exited the outfit and is now helping fund some of what he sees the most innovative early stage companies in digital. Here he shares insights into what he believes is driving the market forward.
After having co-founded, led and ultimately sold an adtech company, I have turned much of my energy and capital towards investing in startups. Those startups include, but are not limited to, those focused on advertising technology but also digital media and marketing technology.
Yes, I said it. I’m investing in adtech startups. This is somewhat of a contrarian bet. After all, winter is coming for adtech, consolidation is here, and venture capitalists have grown cold on the category. That plus ‘the duopoly’ is taking all the growth, and so on.
While all of the above statements have a ring of truth, but none of them are absolute. If you look beyond the industry chatter, the future might look a lot brighter than you think. I believe that it’s an incredible time to start, and invest, in companies in advertising technology, marketing technology and digital media.
Over the next few month, over a course of several posts, I hope to outline the investor’s perspective on ad and martech with some of the trends I’m excited about, some of the more current M&A moves and more. For this piece, let’s focus on the why.
The secular trend is unstoppable and massive
Put yourself in an investor’s mindset for a moment. The first thing you want to see is a large, growing market.
Digital is the largest media channel and the only one that is growing from a user consumption perspective, with mobile at the vanguard of this increased growth.
From an advertising expenditure lens, digital is the only medium that is growing, taking share from all others including television. In fact in the US, digital spend will be larger than television this year. Spend follows attention, therefore, all advertising that can become digital advertising will become digital advertising.
There are various ways to size the market opportunity. The total advertising and marketing universe is over a trillion dollars. Paid digital media is hundreds of billions. Television in the US alone represents $70bn. Therefore we can see that the opportunity ahead is truly massive.
Industry inflection point
Next, we need to understand the “why’s”. Specifically, why is now a good time from an investment perspective? What are the catalysts?
Here’s where I think many investors and pundits might be getting it wrong.
For better or worse, adtech is synonymous with automated, or programmatic trading. Programmatic was and is a breakthrough, especially when combined with data-driven targeting. Roughly half of digital media spend in the US is transacted programmatically, with more growth ahead.
Yes, some undifferentiated and unscaled programmatic companies have not succeeded, but programmatic has made brands and media companies accustomed to buying and using technology, supply-side platforms (SSP), demand-side platform (DSP), as well as data management platforms (DMP), and the like have been, and continued to be adopted, at scale. More recently, innovations like customer data platforms (CDPs) and sophisticated analytics allow brands to get a full view into customer journeys using real identity – mapping delivery to engagement to offline purchase.
Growing market. Customer adoption. The groundwork has been laid. Now it’s time to do more with it.
The future belongs to startups
Beyond a massive, growing market and a primed industry, perhaps the most interesting thing of all is the amount of change ahead… and the opportunity it creates.
You’ve all seen the annual Mary Meeker presentation and its eye-popping stats. Billions of consumers are coming online for the first time via the smartphone, and there are more screens powered by digital: television; outdoor; the car; and now there are higher speed cellular networks capable of delivering more of everything, including video. This has been combined with more-and-more billion dollar mobile companies like Uber and Airbnb disrupting the old guard. Voice based search and the connected home. It’s hard to overstate the potential of this change and the opportunity it creates for new industry leaders.
The unicorns of tomorrow are small teams working out of co-working spaces or incubators or even private apartments today. They have education and experience in technologies that are in things like machine learning, natural language processing, Artificial Intelligence and computer vision.
These technologies are going to change every industry, media and marketing included. When applied at massive scale, they have the opportunity to perform at a level humans can only dream of.
They’re waking up to the opportunity that exists in digital media and marketing. The future belongs to startups.
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