Why it's time to pop the ad tech bubble

The advertising technology sector is a little bit too in love with itself and that’s becoming a problem. In the first half of the year, some of the industry’s highest-flying players have plunged in the US stock market despite growing expenditure on digital advertising. Some of the worst performers at the start of June, according to The Wall Street Journal, have been Rocket Fuel (down by 57 per cent from the start of the year), recent AOL-acquisition Millennial Media (down 45 per cent) and Tremor Video (down 27 per cent). 

The truth is, the business world does not value ad tech as much as ad tech values itself. “While at their IPO, they may have been valued at a billion dollars by Silicon Valley and ad tech-land, they are not valued at that amount by businessmen like Warren Buffet,” points out Ken Mandel, CEO and founder-in-residence of startup mentorship Jam Ventures. “They’ve got a rude awakening from the protective bubble they’re in. Brands want detailed information from them, not blind-buying.”

Siva Ganeshanandan, Asia-Pacific director for Adobe Marketing Cloud, agrees that there is growing cause for concern. “The ad tech industry has gotten carried away with its own speeds and feeds,” he says. “The situation is also exacerbated by the sector’s love for over-complication. The problem is even more serious in Asia-Pacific where local players abound and compete with global players, who have started to make their entrance.”

In 2011 there were more than 1,500 companies on the Lumascape, the mind-bogglingly complex chart by business consultancy Luma Partners that attempts to classify all the major players in the advertising technology space. This year, there are more than 2,500 logos in the 11 different highly crowded charts. 

Further complexity is added by the near-constant fragmentation and consolidation. As the larger DSPs (demand-side platforms) gather more market share, they acquire smaller players, adds Ganeshanandan. Fragmentation on the other hand is increasing as advertisers build their own trading desks and private exchanges are set up. “Technology simplification is enabling this particular trend, and continued lack of transparency is driving the incentive for it.” 

Furthermore, no ad tech firm ever stays complacently within its particular box. “There’s such a proliferation of mutation: DMPs wannabe DSPs, DSPs wannabe DMPs, SSP wannabe DSPs, ad-servers wannabe DSPs and so forth,” says Hari Shankar, head of paid digital acquisition at PayPal.

While there will definitely be a shake-up and consolidation phase when the industry reaches a tipping-point, Asia for one is quite far away from that stage, concludes Shankar. 

This environment is cause for considerable confusion for brand marketers, which does no one — least of all the ad tech firms — any good. The situation has attracted unscrupulous opportunists ready to muddy the waters and spoil the market. 

“It’s like the Wild West out there, where things are new and still being discovered, and so there will be media cowboys, data opportunists and click rustlers that make everyone’s journey unnecessarily harder for the sake of short-term gain,” says Ganeshanandan. “CMOs need to be able to spot the good, the bad and the ugly.”

It’s because marketers don’t know enough to spot the bad eggs that the entire industry is now regarded as lacking transparency and honesty. “There are lots of idiots happy to take [brand] money and burn it, ruining the space for everyone,” says Matt Harty, SVP of Asia at The Trade Desk.

Quite a few ad networks, for example, are marketing themselves as DSPs as the DSP story “is sexier right now”, says Harty. “A quick litmus test is to see if the person is selling you a service or a software. DSPs are software.”

For the industry to progress, ad tech firms with legitimate business models have to work harder at educating the industry as a whole and to work more closely with brand partners from the outset. 

Marketers need to do more

While it’s true that ad tech firms need to do more evangelising to brands, CMOs also need to work harder at understanding this space. A study by Adobe earlier this year found that CMOs in Asia-Pacific were still struggling to make a business case for digital and only 7 per cent viewed data as a clear and competitive advantage for their organisations. 

“There is a very real gap,” says Michael Karg, CEO of Razorfish International, of the distance between the CMO and technology. This lack of knowledge, he adds, makes marketers vulnerable to making decisions that are often rooted in recommendations made by people in their own organisation who aren’t necessarily armed with the level of expertise needed.

CMOs, in general, aren’t putting in sufficient effort into addressing this “chasm”, says Shankar. “This hampers the progress of an organisation from digital maturity. I have been personally fortunate to work with many ‘switched-on’ CMOs but I have also seen a much larger proportion of organisations struggling with a bunch of legacy systems.”

The 21 global mega media reviews that have been called in the past six months, most of which are still ongoing, are partly triggered by CMOs trying to address this ignorance. Questions around transparency, rebates, ownership of data and the ad tech partners engaged by the agency are reported to be a major part of the negotiations. 

Display ad tech landscape: The number of intermediaries between advertiser and publisher is ever-increasing as marketers pour investment into this space

Each marketer can forecast that his or her 2016 investment in the areas of digital and programmatic is only increasing, says Greg Paull, principal at R3. “There’s little doubt that the combination of the need to invest more in digital media, coupled with the challenges for transparency over both programmatic buying and media rebates is fuelling a large number of these reviews.”

Within the organisation, this translates to a gap between the CMO, the CIO and the marketing operations team. “Marketing operations does demand generation; they work on sales leads and CEOs love them because they are able to break down what they do into a cost per lead and revenue per lead. This is so much more interesting for business people than CTR, impressions and the like,” says David Ketchum, CEO and founder of marketing technology consultancy Current Asia. “CMOs, however, believe in understanding customers and market trends — higher level stuff.”

Hiring “that magical beast”, the chief marketing technology officer, adds Ketchum, is not something most firms can afford to do. 

“It’s generally a solution restricted to only the largest enterprises,” he says.

This lag is costing brands and not only in the form of having the wool pulled over their eyes regarding rebates, and paying for not-as-advertised tech. Too many companies are paying for technology they are not using to the fullest — mostly, around the area of customer data.

A study by eMarketer this year found that only
11 per cent of marketers surveyed had data well integrated into operations across the enterprise and its partners and only 8 per cent had a solution in place that tied customer data across channels.

Many companies are already working with CRM systems such as Salesforce and Oracle, email service providers such as Experian, MailChimp and Silverpop, as well as marketing automation providers including Marketo and Eloqua. “It’s possible to integrate all of these, but many firms don’t know how to or don’t want to put the money into it,” explains Cavan Downes, CIO of Current Asia.

Often the legacy platforms around tracking and measurement are somewhat arcane, says Shankar. “Corporations aren’t willing to make the investment and take the effort and time to strip away the old and deploy the new.”

Indeed, another global 2015 survey by eMarketer, this time in partnership with ResponseTap, found that while 76 per cent of client-side marketers were using online analytics, just 37 per cent and were using call-centre data and fewer than one in five were using mobile app analytics. 

This failure to integrate data adequately is costing the company customers, says Cindy Deng, managing director of Turn Asia-Pacific. As a result, 80 per cent of consumers don’t feel like brands recognise them as individuals, she says quoting a 2015 paper by IBM Marketing Cloud. This results in 98 per cent of consumers abandoning a website on their first visit, she added.

But another part of the data fragmentation problem is down to paranoia around data-sharing with third parties, says Shankar. “This has resulted in broken and disjointed tracking systems that are of no practical use to business decision-making.”

Over-reliance on agencies

Currently, both ad tech and brands are leaning on agencies to connect them. Which isn’t a bad thing, but there may be some over-reliance on both sides.

“I would contend that in many cases, certainly in this region, marketers are at times even trusting media agencies too much,” says Adobe’s Ganeshanandan.

Razorfish’s Karg also urges caution among CMOs. “There are many agencies attempting to bridge the gap, but in a lot of cases ad tech just is not their core competency.”

On the brand side, working closely with agencies makes sense, particularly in Asia-Pacific where truly skilled talent in this space is scarce. “This is a position I’ve long maintained, there’s just not enough people in this space for clients to take this directly in-house,” says Harty. “Just looking at the programmatic space — let’s be generous and say that there are 50 to 60 people who can really run programmatic campaigns right now in Singapore. If just Fortune 500 companies were to take one each, there’d only be enough for 10 per cent of the them, and you need three to four per team.”

Until sufficient talent is groomed in this space, agencies will continue to be the bridge between brands and ad tech, however the partnership works best when there are educated individuals within the walls of corporations, says Shankar. 

Marketers need not feel they need to turn themselves into technology experts, however. The key, says Ketchum, is for marketers not to actually have to know how to do it all, but to understand enough. “You may not bake bread yourself, but you understand the process and so you trust the results.”

Because of the complexity of the process, many brands will be likely to continue to work with agencies, even if they do bring some complexities in-house, says Ann Reilly, VP of international sales at travel data and buying platform Adara.

Until the marketing team itself is capable, it’s very hard to take the next step. Companies need to think about people before they think about technology, echoes Regina Leung, VP of marketing platforms at Current Asia. “They need to understand where they are and where they need to get to, and for that, they need a fair level of understanding and knowledge within the marketing team.”

Forging ahead

Ultimately, marketers need to learn about this space — and quickly. And the investment has to be made by brand and ad tech, together. 

On the brand side, they have to embrace the notion of learning by failing, says Karg. “The space is highly dynamic and there’s lots of uncertainty and dedicated teams and budgets are required — either internal or with partners — to be able to take advantage. Putting your head in the sand is not a good approach here.”

Marketing teams need to understand the process well enough, at least, to translate their goals into quantitative methods of measuring advertising effectiveness prior to embracing new advertising tech, recommend Gartner analysts Andrew Frank, Martin Kihn in their recent paper, Market Guide to Ad Tech. This, they write, will enable marketers to balance creative focus on articulating the right message with the ad tech market’s tendency towards preoccupation with precision targeting. 

Ad tech firms would do well to learn from Facebook, Google and Twitter — all of which have long moved on from eschewing advertising to building entire departments to support brands and agencies. Facebook’s Creative Shop is an in-house agency that works directly with brands; Google has launched an app, Google Primer, and an education initiative, Google Squared, both aimed at teaching digital marketing to marketers. Twitter’s educational efforts include the recently launched Twitter Flight School and a team of brand strategists and advocates. 

Both sides also need to invest in talent, rather than rely on poaching from each other. “Brands need to do their part to find and nurture talent that understands this opportunity,” says Ganeshanandan. 

Clement Teo, senior analyst at Forrester Research, says CMOs now need to use video, mobile, data and analytics to serve customers on the customer journey. “Integrating these capabilities across ad tech and marketing technology will be a challenge. This necessitates finding, training and developing the right people,” he says. 

Marketers who lead the charge, says Ketchum, stand a good chance of building the teams and the technology around them that best serves their needs. “One firm I’ve worked with that had all this sorted. It had a CMO, a content person and a platforms person on the same team and the CMO would lead.”

Ganeshanandan concludes that despite the concerns, there is a light at the end of the tunnel. “As CMOs grow more and more educated in this space, we are seeing more rewards for performance, for driving down costs and for engaging consumers in an effective and efficient way,” he says. “Once grasped, digital inventories and ad tech combined offer incredible ROI for ad spend in the region. It is out there, if you get tooled up to go and harvest it.”