Sobering lessons from adtech

Sobering lessons from adtech

Adtech has disrupted a huge industry, but the value it has created has largely been to the benefit of Google and Facebook, Victor Basta writes.

Rocket Fuel’s recent rock-bottom $125m sale to Sizmek, and the purchase of US business from Tremor Video by Taptica, confirms an unavoidable trend in adtech. What has transformed advertising has generated almost no value for investors, while Facebook and Google have scooped all the value for themselves.  

It is only a few years since investors were racing to invest in adtech, Rocket Fuel traded at $2bn, and Millenial Media rocketed to $2bn after IPO. Rocket Fuel has now lost 95% of its value, while Millenial was sold for $238m lss to AOL in 2015. The trend is widespread: content analytics firm Visible Measures sold for $10m after raising $70m.

Business Insider’s take on Rocket Fuel’s sale is to the point: "The deal appears to mark the end of an era for the adtech industry, which has been characterised by a massive flood of funding, a proliferation of start-ups, several rocky IPOs, along with lots of lay-offs, pivots and consolidations over the past half dozen years."

Adtech's impact cannot be underestimated

Ten years ago, ad execs couldn’t spell "programmatic". In a few short years, programmatic advertising passed $20bn and, and revenues are on course to hit $40bn by 2020, disrupting a centuries-old industry along the way.

In fact, internet advertising (effectively, all programmatic) will surpass TV in 2017, as the single biggest adspend category.


Adtech investors have had a wild ride that is ending in a car crash

Until 2014, adtech investment was climbing, reaching nearly 500 investments annually. In one year (2011), close to $4bn of capital was pumped into adtech, fuelling the creation of more than 1,000 ad tech companies. 

Since then, investment has plummeted, even as the sector has continued disrupting advertising. Today, most venture capitalists will not touch adtech, no matter how "disruptive".


So what went wrong?

How did such a force destroy so much value for so many savvy investors, and what can we learn for future disruptive waves? 

  • There were just too many adtech companies. Not only were 1,000 companies created, there were 2,500 different adtech tools to overwhelm corporate marketers. Many tools overlapped in functionality, and innovative features were copied quickly. Moreover, many adtech companies built tools that were tech-rich but hard to use by corporate clients. Adtech led with the "tech", not the "ad", and you can’t build enduring client relationships with complexity. 

  • Conversely, in other segments there was often less tech than promised. A good example is video advertising. Many video adtech companies were little more than dressed-up agencies using some tech to create and distribute videos. Most claimed to be adtech during boom fundraising times, without doing the hard work to create a full tech capability.

  • "Walled gardens" of data prevented many tools from working effectively. Rich data trumps good algorithms, and nowhere is this truer than in adtech. A small number of giants, notably Google and Facebook, claimed huge proprietary walled gardens of data that gave them a priceless competitive advantage against third-party tools. Coupled with billions of dollars invested in their adtech efforts, the duo tilted the playing field so much that now more than 75% of mobile adspend goes to these two. 

  • Mobile made "traditional" adtech (cookies, retargeting) much harder. Cookies and retargeting were the lifeblood of the first-wave of adtech companies, until advertising moved abruptly to mobile. Overnight, it became much harder to place targeted ads; just identifying when a customer moved from desktop to mobile was a Herculean task.  More recently, the rise of sophisticated mobile ad-blockers (Apple has led the way, having nothing to lose since it doesn’t sell ads) has compounded the challenge of generating mobile ad revenue. 

  • Adtech created lots of value, it's just that it all went to Google and Facebook. Google and Facebook have one line of meaningful revenue: advertising. And Google’s $100bn annually is growing $20bn a year. Twenty billion dollars of new adtech revenue annually validates all the venture-capital investment made in the sector; the shame is none of it goes to companies that venture capital backed. In short, venture capitalists were right about the sector, but utterly wrong about who would win.

What next?

Today, there are more than 1,000 adtech companies across Europe and the US. Many are working with interesting customers, providing specialist services to help corporates take full advantage of digital. 

However, we believe most have no independent future. We expect there will be a wave of adtech mergers and acquisitions. Vendors need to become larger and broader to continue being relevant to corporate customers. Below is a table valuing the largest public adtech companies now and 12 months ago. Two of the seven have already been acquired. Besides Criteo, the rest are public market "minnows", nearly all of whom should be sold in the next two or three years.

Public AdtechCo

Market Cap 8/16

Market Cap Now





Up 25%




By Adobe

Rubicon Project







Up 15%+

Rocket Fuel



By Sizmek

Marin Software



Down 50%

Tremor Video




More broadly, we expect the universe of adtech companies to reduce by nearly half in the next five years. They cannot combine fast enough, and survival depends on it at this point.

While adtech continues to disrupt advertising, I think it is fair to say that here are no longer any disruptive adtech companies.

Victor Basta is founder and managing partner of Magister Advisors, a specialist bank focused on M&A exits and larger financing rounds.

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