On the French Riviera, ad tech braces for a correction

“We are seeing the signs of the current and near-future haves and have-nots, those on offense or defense, meeting by meeting here,” said Matt Prohaska, CEO and principal of Prohaska Consulting.

But first, here’s a quick primer on what the great unbundling of ad tech actually means, courtesy of Ratko Vidakovic, founder of ad tech consultancy AdProfs: when real-time bidding took off over a decade ago, it resulted in an unbundling of the traditional ad network. Ad tech companies focused on either the buy-side or the sell-side, and a bunch of new niches popped up like ad verification, brand safety, and contextual targeting providers. But now that companies are reaching limits on growth, they are branching outside of their traditionally narrow categories by encroaching on the markets of other ad tech players.

Back in Cannes: to hear some of the chatter from execs there, this ad tech re-bundling is about to be exacerbated by a turbulent economy. And they may have a point. Advertisers will probably tighten purse strings to weather the worst of this turbulence. If this happens CPMs tend to nosedive. The dip is a result of fewer media dollars being available to drive up prices — bad news for any take rate business that takes a cut of that price. Least of all ad tech vendors — of which there are still far too many worthless ones. That’s clear to anyone who regularly looks at sellers.jsons and ads.txt data. And ad tech vendors thought their business was hard before.

“When it comes to consolidation in ad tech, there have been a number of people that have seen the writing on the wall but have yet to get up close and personal with it,” said Ben Barokas, founder and CEO at Sourcepoint Technologies, a privacy tech firm that helps companies assess ad tech vendors. “However, we’ll be arriving at the wall very quickly and while there will be some that are able to jump over it, many others are going to be hitting it head-on.”

Whatever happens to the market, don’t call it a compression. If anything, the exact opposite is happening. It’s shrinking, to be sure. To survive, much less prosper, ad tech vendors have been redefining and expanding what they do — while carefully sizing up competitors. But tossing out the smaller fish is easier said than done. What’s the point in gobbling up all those businesses to create even larger, more self-contained ad tech businesses than there are now? It’s just going to create more silos — the thing that every advertiser tells an ad tech vendor they don’t want. In conversation after conversation between ad tech vendors this week, everything keeps coming back to one word: interoperability.

“As we prognosticate over the future of ad tech, the constraining factor for ad tech vendors will be whether these moves create any unbridgeable conflicts of interest with their tried and true customer base that got them to where they are today,” said Todd Rose, general manager of identity and addressability at InMobi. “To avoid some of these issues, the smart vendors will reposition themselves as facilitators of monetization for clients rather than being monetization-first businesses. It’s a nuanced but important decision to make because interoperability is central to making it work.”

Even after one of the most turbulent times in recent ad tech history, the market upheaval might just be getting started. What happens now is an interesting question.

One theory making the rounds up and down ad tech marina in Cannes is that The Trade Desk needs to buy incremental growth. Its plan to build out the sell-side of its marketplace to complement the buy-side will only go so far. These rumors aren’t new by any stretch. In fact, they’ve swirled around the ad tech business for at least the last year or so.

That said, if there was ever a time to do a deal then now is as good a time as any. Cash is king because of a combination of high-interest rates and high inflation — great news for anyone who has bundles of it, which The Trade Desk does. Not so much for anyone who is a potential target. Increased financial uncertainty and longer-term rising interest rates and inflation tend to impact valuations negatively. 

In other words, the rationale for a deal is clear. What remains murky, at best, is whether The Trade Desk’s management team subscribes to it. Doing a deal would essentially be an open admission that the business — at least in its current form — is losing momentum. That could mean bad news for the company’s much-vaunted valuation.

“The Trade Desk needs to improve its footprint across EMEA overall since its unified ID 2.0 has struggled to scale with publishers,” said an ad tech exec who asked to remain anonymous over concerns of breaching commercial agreements. “So yes, an acquisition would make sense. In the short term, a deal could hit its stock like it would do for most companies that do the buying. Eventually, however, it could lead to established credibility and scale.”

Along the Croisette, there’s a consensus that no one really knows when data clean rooms are going to take off. Bottom line: the same reason too few marketers are implementing them yet, is the same reason why no one is pulling the trigger on any deals in that space: there’s no clear timeline on when they’re going to go from a nice-to-have technology to a must-have. 

The other provocative thought experiment circulating around Cannes is whether the promise of CTV is starting to threaten the credibility of banks. In short, CTV is fairly concentrated in all aspects given that anything available outside the walled gardens is limited. That makes it hard for ad tech bosses to pick and choose what the play is. As ever, measurement and attribution are bright spots, especially as the migration of dollars from linear viewing to connected viewing continues to swell.

For the current crop of executives across ad tech, they’ve arguably never experienced a time this challenging. But veterans of the industry know the industry has waded through lean periods before and even found new opportunities amid a quagmire of impediments. Though there will be those businesses that don’t make it through this period unharmed, others will emerge intact or maybe even stronger. It’s all about knowing where the white space is that others may not have noticed.