Adtech consolidation or bubble popping in Asia?

There was a generous helping of schadenfreude recently when ‘Wi-Fi connected cold press juice manufacturer’, Juicero, went into receivership after raising over $120m in VC funding from investors including Google Ventures.

It turned out the $400 juicer did little more than squeeze a packet of fruit at the same pressure as a hand.

Juicero was a tech solution to a non-existent problem.

While Juicero was creating solutions where there are no problems, the ad tech industry is creating complex technology problems and then proposing even more complex solutions.

In the annual NewBase survey of marketing priorities the importance placed on ad technology by Asian respondents dropped significantly year on year.

Since 2015 around 120 ad tech companies have been sold or merged. The performance of most listed ad tech stocks has tanked, with the rare exceptions of Criteo and The Trade Desk.

So what’s going on? If most agree all media will be traded electronically in one form or another in the not too distant future, why the loss of faith in the sector from investors and brands?

Overcrowded, oversold and under delivered

Today a small campaign may run through ten technologies to get from publisher to consumer. Ten vendors each taking a cut. Ten systems that need to work together. Ten opportunities for data discrepancies. All this is to put an ad on the internet and to see if it worked.

The business model for most ad tech is to charge a small percentage on activity run through their platforms. The proposition is that the optimised results will pay back this cost many times over.

If each of the ten vendors were actually working there would not be today’s public debate about the effectiveness of digital media.

There are approximately 1,900 VC funded ad tech companies operating at the moment. Do some simple maths and you will find there is not enough digitally traded media to fund the volumes of companies in the sector.

As a reality check for the Asian ad tech industry it is estimated that up to 40% of digital campaigns have no third party verification or tracking in place.

Built to exit

Many tech companies are founded with the sole intention of exiting through an acquisition. VC money is secured to demonstrate growth. Profitability, in the short term at least, is not a priority.

Many in the ad tech sector are reaching the stage where the funding is drying up and the traditional exits of IPO or acquisition are not materialising.

Technology is expensive to develop. Ad tech is particularly expensive to maintain in Asia as the landscape is complex and the integrations required change rapidly.

Google or Facebook change their API without warning? Too bad, go back and build it again. Add in the different eco-systems in Asia, for example the likes of WeChat and Naver, as well as the reluctance of many North Asian publishers to accept standard third party tracking, and the costs rise exponentially.

Who is still buying and why?

Aside from consolidation between ad tech specialists, the main buyers have been enterprise level marketing tech companies (Oracle, Adobe etc.), each trying to build out their own stack to compete with Google. The success of integrating disparate ad tech systems into legacy marketing tech remains to be seen.

Telcos have also been active buyers. The concept of matching digital advertising with people based telecommunication data is not new and in theory is incredibly powerful. Singtel’s purchase of Amobee, Adconion and Turn totals over half a billion dollars. Verizon acquisition of AOL and Yahoo gives them the reach, if not the engagement, to rival Google and Facebook. Yet, for every successful venture of Telcos into digital advertising there are many more costly failures.

What does this mean for Asian brands and publishers?

The unregulated nature of digital exchanges has led to widespread fraud and wastage in Asia. This is why for all the industry’s faults good ad tech is essential. Yet, the situation today has brands and publishers confused, both feeling like middlemen are taking their money and leaving them with little control or visibility.

In the long term it is likely that besides the Google/Facebook duopoly we will see three or four other companies build out enough of a technology stack to compete at scale.

We are seeing greater collaboration amongst tech vendors to compete with the in-built advantage Google has with its dominant position on the buy and sell side. Alliances amongst independent competitors such as the recently announced initiative may just be a precursor to further merger and consolidation.

Brands and publishers are craving simplicity and transparency. This will inevitably mean a shift to larger players with a complete technology stack. Unless we start to see a wave of profitability, the days of highly niche independent ad tech vendors may be coming to an end.

Lee Walsh is managing director for NewBase in Southeast Asia and India.

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