Tolman Geffs, co-president of media investment banking firm JEGI, is even less forgiving in his assessment of the multitude of SSPs, DSPs, DMPs (supply-side platforms, demand-side platforms, data-management platforms), attribution firms and targeting companies: “These companies don’t make any money, and as a whole the industry doesn’t make money. You have to ask, ‘Why isn’t this industry running on its own fuel?’ I tell my kids, just because you can do something doesn’t mean you should. VCs are funding these companies, and the jury’s out if their products even work.” To test that out, Geffs recently checked his own profile using a product of one of the top Web ad-targeting companies and found himself listed as a 20- to 29-year-old woman. (For the record, he isn’t.)
The bigger problem, Geffs argues, is that most of the companies in the ad tech space are valued like software companies, which can be licensed to multiple businesses and quickly scale. Rather, most ad tech firms operate like marketing services firms, which require bodies and manual labor.
As one VC describes the landscape: “One company is making 20 million and losing 10. Another is making 40 and losing 15, another making 80, losing 20. The list goes on and on. They are not profitable unless they drive an enormous number of transactions. But that only works for the biggest companies with economies of scale—like, say, Google. But these companies get valued on dollars handled, not revenue.”
Ralph Terkowitz, general partner at ABS Capital Partners, says Web publishers should ask themselves: “Can you make me some new money, or are you just a new tax?” In too many cases, publishers feel shaken-down rather than enhanced. “If I’m a publisher, I have to be less than impressed with the value created,” says Troy McConnell, AudienceFuel CEO.
One veteran investor admits, “When we were raising money in ad tech, I knew we were making it worse for publishers.”
And it’s not getting any better. “With all the non-working media costs, $1 earned can easily become $3 in costs,” says Joe Apprendi, CEO of Collective. As Doug Weaver of digital sales consultancy Upstream puts it, “The page view/ad impression economy is in full retreat, if not freefall.”
For an explanation of how, exactly, that happened, consider SSPs. Most major Web publishers have tested SSPs, which promise to improve their secondary ad sales, and many have been dissatisfied. “We kind of invented the SSP,” says AppNexus CEO Brian O’Kelley, who co-founded Right Media in 2003. “It had a lot of unintended consequences.”
According to a recent Forrester study examining the impact on pricing for publishers employing the SSP PubMatic, those publishers’ CPMs climbed from 60 cents to 81 cents. While 35 percent growth would seem impressive, the fact is that for most struggling Web publishers, it’s hardly reason for a parade, particularly considering that most vendors in the space take cuts of 15 percent.
“You see these companies making money off of other people’s value,” says Mike Leo, CEO of Operative. By his estimates, $561 million has been pumped into SSPs and ad networks alone, with just $93 million being invested in creative services. Little wonder, then, that DR rules.
Publishers are reluctant to talk about their ad tech experiences on the record, but many privately describe having dramatically cut their lists of third-party partners. As New York Times Co. CFO James Follo said during an earnings call a few weeks ago, “Standard Web-based digital display advertising has been experiencing challenges, including a glut of available ad inventory and the resulting downward price pressure, as well as a shift toward ad exchanges, real-time bidding and all the programmatic buying channels that allow advertisers to buy audiences at scale, including through platforms owned or operated by Google and Yahoo.”
Churn is rampant among publishers using tech vendors like Rubicon, Quantcast and others (update: Quantcast claims its churn rate is less than 1 percent). “We use them, but not much,” says Jim Spanfeller, CEO of Spanfeller Media Group. “We test them all against one another,” adds Mike Fogarty, svp, global group publisher of BabyCenter. “We’ve tried Rubicon, PubMatic, Admeld—they didn’t make us a dime more,” Fogarty says. “We’ve been hard-pressed to find a third party that can bring me more value than working directly with brands.”
BabyCenter may be unique in that the site isn’t swimming in inventory like, say, a portal would be. In many cases, 50-cent CPMs may be better than nothing. But that certainly wasn’t the idea when all these companies arrived on the scene. When it launched, the SSP The Rubicon Project (with $42 million in funding) published a manifesto heralding a revolution. “If we can return the power to the publishers, content will flourish,” it proclaimed.
Rubicon’s founder and CEO Frank Addante defends his company’s impact, arguing that most sites have been able to hold their pricing levels during a period in which supply was ballooning. “We’ve seen this industry head toward becoming a $50 billion ad market in part because of ad tech,” he contends.
These days, Rubicon likens itself to Sabre, the transactional software employed by the airline industry. Its focus is efficiency, not yield improvement—which hardly feels revolutionary. But at the same time, Rubicon boasts that its “network” is larger than Google—even though Rubicon is not a network.
Many ad tech companies do the business-model shuffle. Data exchanges like BlueKai ($35 million in funding), once believed to be revenue rocket ships, have morphed into data-management platforms, adding to what IAB CEO Randall Rothenberg has coined the industry’s “technical gobbledygook.”
DSPs buy up DSPs, then disavow being DSPs. What does this morphing do? For one thing, it breeds much distrust. When a company like Quantcast (over $50 million in funding) arrives on the scene, touting itself as a better comScore, it suddenly becomes an ad sales player itself, and many publishers feel double-crossed. “Obviously we’re not doing a good enough job communicating what we are,” admits Quantcast’s CEO Konrad Feldman. “We are an ad measurement company and an ad seller.”