2019: The Year of Ad-Tech Darwinism

Many have dubbed this as the end of the golden era of ad tech, or the ad network, and the beginning of a more Darwinist era where only the strongest in the sector will survive.

This week alone saw the announcement of the intended merger of Rubicon Project and Telaria, just days after it was reported that Smart AdServer has bought LiquidM, plus the collapse of performance video advertising outfit Eyeview.

Notable 2019 ad tech M&A deals

• IAS buys AdMantix
• Xandr buys Clypd
• Roku buys DataXu
• Viant management buyout
• Taboola & Outbrain intend to merge

These developments come the same year as Sizmek, an independent player whose full-service ad stack was positioned as an alternative to Google’s, filed for Chapter 11 protection then had its parts later sold off to Amazon, Peer39 and Zeta Global. This was followed by IgnitionOne likewise winding up its operations.

Such occurrences further exacerbate hardship in the sector, as many companies owed money by outfits in financial dire straits are left with unfulfilled invoices, some to the tune of millions of dollars.

And this is just one indication of the tough terrain that is contemporary ad tech, with independent ad-tech companies facing a myriad hardships. Most notable among them is the rising tide of data privacy regulation across the globe—as exemplified by the California Consumer Privacy Act and the EU’s General Data Privacy Regulations—that’s forcing advertisers to consolidate their online ad spend in the industry’s walled gardens.

As a result, many early stage ad-tech investors have grown impatient and are increasingly willing to cut their losses by forcing a sale, which simply means the end of the road for many.

Lack of interest from strategic buyers

One source, who requested anonymity given the nature of their work, told Adweek that the number of mergers among larger media owners, such as the union of CBS and Viacom, has left such players unable to devote the necessary due diligence to buy ad tech.

Simultaneously, many legacy media owners seem to be cooling on ad tech, as many of the assets bought in the 2014-to-2017 era are back on the market.

For example, Comcast was rumored to be have been in negotiations with Dataxu, the demand-side platform that later sold to Roku for $150 million. Many believe this was an unsatisfactory exit, but the two were far apart on valuation.

Additionally, pan-European broadcaster RTL has said it is looking for a buyer for SpotX, with Altice likewise searching for a buyer for Teads, and News Corp. fielding offers for Unruly.

Similarly, the agency holding groups appear to be divesting their programmatic investments acquired during the same era, with many preferring to channel their efforts—and funds—into solving the identity challenge they face with the purchase of first-party data assets.

For instance, this year saw WPP sell off Triad Retail Media, an asset it bought in 2016 and housed within its agency trading desk Xaxis, as it seeks to turn around its GroupM unit.

This leaves the challengers to the industry’s holding groups, such as Accenture Interactive, S4 Capital and JellyFish as potential acquirers of ad tech. Although, these companies are very selective as to which digital assets they will write a check for.

The need to scale 

Terry Kawaja, CEO of Luma Partners, the investment bank that advised Rubicon on its merger with Telaria, told Adweek the intended deal was a union of survivors, both of whom were aware of the need for scale.

“This is indicative of the endgame of consolidation, and a consolidation of winning companies,” he said, pointing to a contraction in the number of companies on LumaScape, a widely respected guide to the intricate sector.

“It’s a trend that has been going on for the past three years, as previously there was a lot of hyper-fragmentation [and duplication], and we’re going to see a lot more of this going forward as marketers and agencies whittle down the number of vendors they work with.”

Michael Nevins, CMO at Smart AdServer, said his outfit’s recent takeover of a buy-side player would provide value as it would be “built fundamentally upon delivering transparency, accountability, operational efficiency and data security.”

He added, “We expect an inevitable rationalization of the market to a future state where 100% transparency is the standard. This includes clarity into ad-tech fees, which are directly linked to the value provided to the buyer and seller.”

Connected TV will be crucial

The merger of Rubicon and Telaria was also a recognition of a need for expertise in CTV among ad-tech players, according to Kawaja.

Institutional investors in the space, again speaking with Adweek on the condition of anonymity, identified a lack of expertise in the CTV space as a potential weakness for Rubicon.

In 2017, the company appointed Michael Barrett as CEO after the previous leadership were punished heavily by Wall Street for conceding they had overlooked the importance header bidding in the programmatic trading space.

Under Barrett’s leadership, the company has gone about addressing its earlier shortcomings in header bidding, but Adweek sources said it was crucial for Rubicon to up its CTV wares in recent weeks.

By way of contrast, Telaria, formerly known as Tremor Video, has placed CTV firmly at the center of its own rebrand narrative, with the company’s fortunes significantly improved under the leadership of CEO Mark Zagorski.

AdProfs CEO Ratko Vidakovic told Adweek that expertise in video, particularly CTV, is crucial as many advertisers now seek to redress a historic overemphasis on performance-based advertising tactics such as retargeting.

“Many big advertisers realize they have neglected the importance of branding, and online video is the best way of doing that among younger audiences, so you have to invest more in that space,” he said. “It’s as if everything that’s old is new again.”

Expect more M&A in 2020

According to Kawaja, the few remaining scaled ad-tech companies are eager to emulate the success of The Trade Desk, easily the most successful pure-play ad-tech company to have gone public. He also foresees the wave of mergers and roll-ups as likely to continue into 2020.

Ciaran O’Kane, CEO of WireCorp, explained to Adweek his theory that while it is an end of an era, it’s certainly not the end of ad tech, especially as the web browser providers such as Apple, Google and Mozilla slowly phase out cookies.

“It’s not the end; it’s an evolution, ad-tech Darwinism if you will,” he said. “The sector is pivoting towards a privacy-first footing, and those who can evolve their product in time will survive.”