Is Ad Tech Dying?
I’m ready for you to tell me how dumb I am.
But hear me out.
Lately, there has been an awful lot of chatter about whether the Open Web is dying or dead. For instance:
Made for advertising sites are an embarrassing scourge that brands are looking to run from.
Ad fraud is still bad
The sites that are still out there are overloaded with intrusive ads or aggressive autoplay video players that no one can shut off
Cookies are eventually going away, meaning that the long standing ways of targeting people online are going to be less effective. And the proposed replacements aren’t scaled yet.
Google’s Privacy Sandbox solution is totally in limbo
Brands are clearly moving more dollars to the big walled gardens. Not just Meta, Google and Amazon, but increasingly TikTok, Pinterest and Snap
In meantime, Google seems to barely be interested in its own ad network
Young people seem to hardly even use the internet in favor of social apps
All of this would be enough to give many brands pause about advertising on the open web. Then, throw in the fact that AI may usher in an entirely new era of conversational search, where people will get answers and not need to visit websites anymore.
If one of the fundamental drivers of the programmatic ad era was that software can help advertisers wrangle buying and managing ads across thousands, if not millions of sites - in way that humans never could- if that goes away…
What do we need all this ad tech for?
Ducks.
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“The majority of this era's ad tech focuses on the assumption that impressions are endless and it's just a matter of matching up an individual user with the best - most lucrative - set of ads for that user with every pageview, interaction, etc,” said Ana Milicevic, co-founder of Sparrow Advisors. “But consumers have changed how they consume content. They are now predominantly on mobile, with algorithmic recommendations driving what's seen when and by whom.”
Here’s how I’m thinking about this. We’re seeing the web publishing industry struggle, and many sites are trying to forge more direct relationships with users. Might we even see a rebirth in direct sales?
That may be a leap, but you’re starting to see leaders like The Trade Desk signal pretty directly that the long tail doesn’t matter, and only a few hundred publishers are worth brands’ time.
If that proves to be true, how many companies will this industry need to curate the web, and more importantly facilitate transactions for both sides? Does the kind of ad tech we’re talking about lend itself to a few monopolies, rather than hundreds of intermediaries?
By the way, just to be clear, I am not rooting for this demise of the web. As a sort of writer, I am very pro mommy blogger, recipe sharer, and angry bloggers overall. I really hope people continue to read things, and there is a viable way for indy creators to thrive. I’m also not certain that everyone is going to love bland AI-driven search. I’m just trying to interpret what the experts are saying. After all, most of the big publishers are inking deals with AI tech companies to utilize their content.
Alright, what about retail media, you say? Well, the biggest player in the game, Amazon, generally favors its own tech. Walmart is working with the Trade Desk. Many of the others have opted to build their own tools in house, or partner with a handful of specialists like Kevel. Is that going to be a huge market? Not sure.
Yet It’s true that many RMN are looking to expand their activity beyond their own properties to the open web. So far, this isn’t a ton of evidence that this plan is taking off.
Ok, what about CTV? It’s booming, right? Didn’t Seedtag just buy Beachfront? For sure. However, the thing with television is that that there are like eight companies that really matter - and that number is likely shrinking. When it comes to ad tech, the trend seems headed towards more seller control and fewer intermediaries. Netflix is doing its own thing. Disney has Hulu’s proprietary ad tech. NBCU has invested alot in this realm.
I suppose the counter argument would be the FAST space, which generates a ton of inventory that lends itself to ad tech solutions. Yet Tubi has its own tech, while Pluto follows parent company Paramount’s lead (for now).
I’m not saying everyone is going to walk away from technology and go back to faxes. You’re still going to need serving, you’re going to need companies to make sure ads run when they are supposed to. You’re gonna need pipes of some sort. But are you going to need 300 plus DSPs to buy a single CTV ad?
“What this likely means is that not all ad tech is dead or dying but that the ad tech layer needs to change,” said Milicevic. “Instead of being 'destination' software - places you log into each day to do some advertising-related components - it'll blend more into infrastructure/middleware and 'just work'.”
Of course, many an obituary has been written for ad tech over the years. Shakeouts were predicted following Rocket Fuel’s meltdown, and when VC money (temporarily dried up), when GDPR hit, and at many other junctures - and the industry is still quite large.
But for how long?
CTV is red hot. But is social video that much hotter?
This chart recently released by Advertiser Perceptions seems to have not gotten as nearly as much attention as it should have:
We talk so much about streaming that it’s easy to forget - as crazy as that sounds -just how big video consumption is on TikTok, Snap, Meta, etc. “Last year, adult users of Facebook spent more than half their time on the platform watching videos, marking the first time ever that video use exceeded other kinds of activity on the platform,” reported Marketing Brew. And that’s just Facebook - TikTok is all about video.
I talked to Jason Mitchell, CEO of the social media-focused Movement Strategy, about this dynamic, and why he things (naturally) that brands should be moving faster.
“These are [these] thousand person [brand] organizations and [you’ll still see] only one social person at this company,” Mitchell said. “Which is crazy to me when you think about the fact that social has become the most important form of mass communication. It's where we learn about new products. It's where we go to understand sort of like trends.”
But brands are still stuck in silos, and traditional ways of thinking, for now.
“One of the things that I'm sort of fascinated by is the change that's happening between the people running marketing organizations,” said Mitchell. “If you are running a marketing organization, chances are you're gonna fall back on the things that you did throughout your career. So if you're 50 years old and you spent your career creating TV spots and now you're the CMO, chances are you're gonna fall back on TV…so as we start to see these people who started their career in social rise the ranks and be able to influence where the money is being spent, what the strategy is, we're starting to see more and more organizations center their marketing around social.”
Take a listen here.
Hi Mike! I'm glad you asked this question, and I'm glad you framed it this way. It's clear that *something* is happening, but I find that conversations about the disruption we're seeing tend to get stuck inside of one silo or another. Asking if ad tech is dying is a good way of pulling together a holistic view like you did here.
A few points.
I don't think ad tech has really processed what the move to first-party data truly means. That makes sense. For more than a decade nobody really wanted to talk about privacy, and now it's here, although I don't think anyone believes that legislation, clean rooms, and a move to first party has really delivered privacy to anyone. But in the most basic sense, the demand to do something (GDPR, CCPA, etc.) is about cracking down on third-party data and tracking, and logically that should be an existential threat to nearly all middlemen.
The AI story feels like the accelerant. I tend to think that ad tech was on its way out because of the shift to 1st party and the trend toward in-housing tech. And think that shift coincides with an audience shift away from the social media sites (facebook, twitter) that really drove traffic to the web. The response was to make the web experience worse by adding in more ads. But by the time AI came on the scene, consumers saw a terrible web experience AND shitty search experience because AI has this knack for scaling the worst of SEO. Without search and social, publishers don't have much left for distribution, and to your point, their ad tech partners have less traffic to monetize at a far lower quality. Yikes!
That brings me to email. The bloggers of yore have decamped to email. The open web is now the email newsletter, more or less. But if you look at Beehiiv they're building their own ad network. Substack has been piloting something, although their founders are so ideologically opposed to ads that I tend to think the only thing that really puts Substack in the ad biz is a serious cut to valuation and maybe a change in leadership. Of course, Substack could also build its own ad network, and my guess is it would work like TikTok where certain pre-qualified accounts could opt-in to monetize. Meantime, Substackers are selling their ads the old-fashioned way, one banner at a time, in direct deals.
Agree with Ana that ad tech is not dying: it is evolving to comport with the changing supply, tech, data and privacy dynamics. In 2004, there was $65B of linear TV in the US. In 2024, linear TV is still estimated at $60B (and decelerating), but then add $30B in CTV, Youtube and TikTok at $50-60B, OLV at ~$20B. So the definition of TV has changed, and the scale of it is 4x.
For the largest advertisers, the same fundamental questions remain (which ad tech helps to solve)
1. where did I spend my money? Simple question, but it's a very complex supply chain. Cue Mediaocean (my only self serving plug)
2. who did i spend my money engaging with and what did i say? data, data, data all through the process to define, find and present the right message to the right audiences. Before it was Nielsen, now way way more with research, planning, DCO and verification
3. what was the reach/frequency of exposure? ad servers, DSPs, SSPs, currency
4. what proof of performance do I have such that as a public company and steward of investments, I can credibly say I am managing investments effectively? Ad servers, DSPs, verification, currency, auditors, MRC, this and that. (Wait, why is a huge seller of media also the ad tech for display, mobile and DSP?!?!)
5. what is the impact of this spend? Huge innovation here with RMN, MTA, connecting brand and performance metrics.
6. Then, throw some good clouds and AI gasoline onto this fire.
We are on a long journey to reconsolidate the supply chain, and dealing with a staggering amount of complexity and innovation. We can and should talk about how buttress the unintended consequences of consolidation, compression and convergence, such as the impact on the open web. As I said about TV last week, Ad Tech is dead. Long live Ad Tech.