The world of ad tech in some cases will continue to show growth in 2022 and beyond. Nevertheless, many of the companies in the space are showing signs of concern.
There are a number of signals demonstrating why, which publishers should be aware of as it could well affect them down the road when choosing their tech partners. That means it will also affect our advertisers.
It’s wise to know what those concerns are as it will help you know the questions to ask before making partner choices. They are:
1. A coming recession
Many economies around the world are currently shrinking. And while most are not yet officially in a recession, it’s all not a good signal for the advertising market in the short to medium term.
The obvious math is that when customers spend less money, our advertisers spend less, too, to reach their audiences. When advertising spend is lower, ad tech spend is less, and margins are consequently reduced. And ad tech companies now find themselves having pressures around their own profitability.
2. Revenue reductions at main platforms
When the main ad tech platforms have year-on-year revenue reductions, there is widespread concern. Meta is now seeing this (the first time in Facebook’s history). It’s never going to be great news for the rest of the industry. A signal to be cautious?
3. YouTube sees smaller than anticipated revenue growth
Revenue at the largest ad-reliant (video) platform is currently only growing with inflation. However, considering YouTube is in many people’s eyes at the core of the future of Connected TV (CTV) and streaming ad markets, it’s interesting to note that both of these are still booming in many cases in comparison.
4. Programmatic spend is under pressure
Whilst programmatic ad capabilities are good at aiding brands ramp-up ad spend rapidly, the same goes for it easily ramping down their spend, just as quickly.
There is also the fact that some INMA members have suggested to me that, post pandemic, the role of the media sales person has resurrected itself and clients wish to engage face-to-face more, even if programmatic is here to stay.
5. E-commerce slowdown
The e-commerce share of total retail spend is currently falling (post pandemic). Customers are back in the high street, buying again in physical stores. That’s exactly why self-service, direct to customer (D2C) e-commerce giant Shopify recently reduced its staffing levels by around 10%.
Again, the simple math is that a reduction in online shopping means fewer ads (that drive online purchases) and further pressures on ad tech companies providing these services.
That’s not to say e-commerce is not important to many publishers right now and to be avoided. But it’s something we need to look at when choosing partners carefully.
What are they offering? What revenue shares? What fees if any? Shop around. Be sure to balance revenue potential/guarantees with as tech capabilities.
6. Mergers and acquisitions under pressure
The final signal is that ad tech companies are typically funded via venture capital. This leads to the fact that there is a need to do one of three things ultimately:
- Sell to a strategic buyer.
- Go public.
- Sell to private equity (to then be managed/sold again).
Most of any buying that happens over the next couple of years is likely to be more about buying value (cheaply) as opposed to paying a strategic premium.
We’ve all seen this scenario before: the dot-com bubble burst, the ad tech public market collapse in the early ‘00s, even 9/11. The ad tech industry and the well-managed companies within will all be fine. But many are not well managed — and will suffer.
Hence, when choosing ad tech partners, we need to be cautious and beware of the pressures the companies in that space are under.
If you’d like to subscribe to my bi-weekly newsletter, INMA members can do so here.