Ad tech in 2017: It's time to focus on outcomes

Patrick Hopf: the president of SourceKnowledge
Patrick Hopf: the president of SourceKnowledge

While some of ad tech's biggest firms have gone into decline, the bubble isn't about to burst. Instead their places will be filled with new and different players, writes Patrick Hopf, president of SourceKnowledge.

2017 is off to a shaky start for the ad tech industry with firms like Adroll, Rocket Fuel, Rubicon Project and AppNexus experiencing layoffs, looking to sell, writing off previous acquisitions, or reorganizing their offerings and c-suite teams.

Looking at the current state of the industry, it’s understandable that people may be pessimistic and have reservations about its future. In fact, the Economist recently predicted that display advertising will be gone by 2025. However, this assessment would be incorrect as 2017 looks to be a huge year for ad tech in terms of acquisitions and advances in technology.

How did we get here?

Before getting into the most likely trajectory, it’s important to examine the key themes that caused this alleged industry wide "crisis." The major issue was that firms focused on scale at the expense of all other factors.

That is, they were spending their client’s budgets as fast as possible with the largest possible margins. And who could blame them? Scale means revenue, and revenue means growth.

Of course, the problem with this strategy is that it’s not sustainable. The client suffers – their CPAs increase, their conversion rates fall, and ads become less effective – and their perception of the industry falters. The ecosystem suffers as people see ads becoming more aggressive, and they turn to ad blockers, which in turn hurts publishers’ revenue and limits advertising options.

Most importantly, technology in the ad tech stack has become homogeneous and focused on accomplishing the same things – namely delivering impressions at scale.

The lack of differentiation means that the majority of all firms are now selling the same technology and outcomes in different colors. Worse yet, some firms are pitching features, like household extension that increase scale, but have no proven correlation to campaign performance.

With such a singular focus, it’s obvious that cohorts of firms are going to experience issues. Pursuing an untenable approach that yields predictably poor results.

What’s to come in 2017

With major acquisitions still recent – ie Adobe, Time and Salesforce – and still fresh in the industry’s collective memory, everyone is asking themselves if this trend will continue. In short, the answer is yes.

These deals are just the tip of the iceberg for what’s to come in terms of ad tech exit in 2017. Why? Looking at the market consolidation within the last year, there have been key themes such as the role of video within digital advertising, machine learning, big data, ad addressability and the importance of provable return on ad spend.

These factors were important because in a marketplace that has become commoditised, they acted as differentiators.

What do these treads tell us about 2017? It seems clear that the overriding theme points to a convergence of martech and ad tech that will enable person-based advertising. The end goal, of course, is to prospect and remarket based on cross-device user behavior rather than rely on siloed, 3rd party demographic data targeting.

So far, it’s mainly been larger cloud-based companies that were already focused on consumer data who have been able to make use of differentiated technology. They are well positioned to offer ad tech capabilities to their existing client base so that brands can leverage their first party brand data.

Cloud-based CRM users can use these new tools (layered with their existing data) to target high valued opportunities with the vast offering of existing ad inventory. However, that’s only part of the equation. 

The next wave: telecom providers take the lead

If we extrapolate that trend to its logical conclusion it becomes clear that the most logic industry to lead the big wave of M&A in 2017 is telecom providers. They are better positioned than cloud- based CRM vendors as they can apply behavioral and identity data from across their networks to help brands more effectively prospect, acquire and remarket.

In fact, the ad tech industry saw the potential for that within last year’s Verizon-AOL deal, which was principally focused on AOL’s strong video advertising capabilities. This trend is set to continue as cash rich and R&D poor telcos look to play catch-up and complete their tech stacks.

Things could begin to escalate very quickly as more demand side platforms, measurement and analytics providers, and creative optimization tools start to get picked up and the options within the differentiated options with the market become more scarce.

Ultimately, it may look a lot like the M&A wave of 2008-2014, where firms like Google, Facebook, Microsoft, and Yahoo acquired networks and exchanges to monetize and compete in the first major push toward programmatic advertising.

Moving forward ad tech providers have two clear paths for 2017. The first is to build unique technologies that empower advertisers with singular capabilities, which are highly correlated with driving return on ad spend.

Much of the industry has pivoted away from simply creating awareness and is increasingly focused on providing outcomes – and the ad tech industry will continue to move in that direction.

That’s obviously much more difficult than simply delivering impressions at scale. However, it’s also more desirable than the second outcome – layoffs followed by closure.

Patrick Hopf is the president of SourceKnowledge.

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