The 'Death of the Undifferentiated SSP' Isn't Hitting All Ad Tech

Magnite and PubMatic used recent earnings calls to contrast the narrative of industry headwinds

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Amid choppy economic waters for the advertising industry, supply-side platforms have been particularly challenged of late, with Yahoo shuttering its SSP and laying off more than 1,600 employees, SSP EMX filing for bankruptcy and layoffs at several firms.

Magnite and PubMatic, two of the largest independent SSPs and among the few that are publicly traded, used their fourth-quarter earnings calls to recast the turbulence among their competitors as an opportunity, not a threat.

“Some industry pundits have concluded that this might be the beginning of the end for the SSP industry,” said Magnite CEO Michael Barrett on the company’s Feb. 22 Q4 earnings call. “We couldn’t disagree more. What we’re seeing now isn’t the beginning of the end of the SSP, but the death of the undifferentiated SSP.”

“The recently announced closure of several sell-side platforms gives us even greater opportunity for incremental share gains over time,” added PubMatic CFO Steve Pantelick on the company’s Q4 earnings call yesterday.

The executives’ comments are broadly in-line with industry sentiment that there are currently too many SSPs with not enough truly innovative features. Now, as more on the buy and sell side are pursuing supply path optimization to ensure quality, efficiency and sustainability, SSPs doing nothing more than generating demand will be pruned.

Sources have told Adweek that Magnite and PubMatic are poised to weather this latest ad-tech storm, given their size and large stores of inventory. Still, neither are immune to industry headwinds.

While Magnite reported topline revenue growth for both the quarter and the year, it also recorded a net loss for the fourth quarter and the full year, comparing unfavorably with the positive net income Magnite reported for the full year and fourth quarter of 2021. PubMatic reported increased revenue year over year but a decline in revenue for the fourth quarter of 2022, while posting positive, but lower net income for both the fourth quarter and the whole of 2022 when compared with 2021.

Despite both companies’ efforts to reassure the market, PubMatic’s shares were down approximately between 4% and 8% in after-hours trading, while Magnite’s fell 16% the day after its earnings call.

Late payments from ad-tech vendors grow

Magnite and PubMatic may be victors of this period of market dislocation, as they tried to persuade investors on their earnings calls, but their path to domination is slippery.

Many companies were saved by emergency funding that may not have survived the past three years

Nick Carrabbia, evp, Oarex

In the second half of 2022, 43% of payments from ad-tech vendors were late, according to the latest data from ad-tech firm Oarex Capital Markets. The percentage of payments that have come in late grew in 2022 from 2021, following a mostly decreasing trend line in 2021. On average, the expected term to pay publishers was 64 days in the second half of 2022, the longest period since the firm started collecting data in 2018.

The data is reflective of a return to normalcy after pandemic-era liquidity kept some companies afloat, said Oarex’s evp Nick Carrabbia.

“Many companies were saved by emergency funding that may not have survived the past three years under normal circumstances,” he said. “Those companies will continue to feel pressure and may eventually shudder.”

Against this backdrop, Magnite laid off 6% of its staff in January. On its earnings call, PubMatic executives said the firm was reducing the pace of hiring.

SPO, CTV and demand differentiation

In its quest to differentiate itself from the rest of the SSP market, Magnite is touting a number of products the company offers, in line with publishers’ expectations that winning SSPs will have superior tech.

These products include demand manager, which helps publishers get the most out of the header, the SpringServe CTV ad server Magnite acquired in 2021, identity products Carbon and Nth Party, both acquired in 2022, and its demand facilitation team.

PubMatic highlighted its supply path optimization initiatives, noting the company has retained nearly 100% of SPO ad buyers since the offering started four years ago. SPO represented more than 30% of total activity in the fourth quarter, up from approximately 20% at the beginning of 2021.

Both firms said they were positioned to benefit from selling Yahoo inventory, one of the web’s largest publishers, now that Yahoo’s SSP would no longer be in the picture as its dominant broker. They also both anticipated more bid density from the SSP’s closure, though noted that most publishers working with Yahoo would have also been working with Magnite and PubMatic, respectively.

Both companies could take incremental gains in market share and are unlikely to collapse under economic headwinds. Still, Google Ad Manager is the dominant SSP on the market, said Ameet Shah, partner and svp of publisher operations & strategy at ad-tech consultancy Prohaska Consulting, making it hard for any firm to remake the SSP industry in its image.

“When you talk about capturing revenue share, [Ad Manager] is still 40-60% of a publishers’ programmatic revenue,” Shah said.

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