Why ad tech consolidation is good for CIOs

There is simply not enough room for the flurry of ad tech companies emerging today. Consolidation is inevitable, and these mergers and acquisitions will represent both a challenge and an opportunity for CIOs.

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In just a few short years, advertising technology has become one of the fastest growing areas in the tech world. There are now hundreds, maybe even thousands, of ad tech companies vying for a piece of the digital marketing pie, but few are self-sustaining businesses.

The crowded space of startups building tools and solutions for ad management, analytics, targeting and optimization is ripe for consolidation. As companies run out of capital or drag on without appropriately evolving in this opportunistic but complex field, acquisitions are likely.

"There are a lot more ad tech [mergers and acquisitions] coming," says David Berkowitz, CMO at creative and technology agency MRY. "There are so many companies out there trying to solve marketers' challenges, and challenges keep getting more complex with more money going into digital."

An Opportunity for CIOs — and a Challenge

Complexity and uncertainty about ad tech are leading companies to make decisions — sometimes based on nothing more than gut instinct — that directly impact the CIO. Framing this challenge as an opportunity for the CIO is critical.

"The CIO will have no shortage of technologies to vet in the years ahead," Berkowitz says. "Marketers may keep commanding larger tech budgets, but that doesn't mean marketers understand the ins and outs of tech."

[Related News Analysis: How Facebook Plans to Control Digital Advertising]

Berkowitz says marketers will need support from their CIOs in coming years, as they face steep technology learning curves. "CIOs can also prove to be indispensable by helping marketers understand what to watch out for, and whether threats or opportunities involving technologies are being utilized."

Healthy relationships between CIOs, CMOs and their legal teams will be essential in the future, according to Berkowitz. 

Ad tech consolidation won't resolve all the complexity over night, but comprehensive technology suites are emerging as large companies cobble various pieces together from within or via acquisition. 

"We will see content marketing technology stacks begin to emerge," says Rebecca Lieb, a digital advertising and media analyst with Altimeter Group. "These are end-to-end software solutions that will integrate all aspects of content marketing: planning, production, analytics, targeting, optimization, governance, legal, compliance, etc.," 

The Irony of Ad Tech 

Adding to the complexity is a bevy of new buzzwords, according to Berkowitz. It's all about "programmatic," "native advertising," big data or some other catchy term.

"The more people use these terms, the less they mean," Berkowitz says. "Programmatic and native are almost entirely at odds with each other, and yet you see some ad tech companies talking about 'programmatic native' without appreciating that it's an oxymoron."

A select few ad tech companies recently went public, but many others were acquired and even more will likely flame out over time. The opportunity for independent success is on the decline, while the group of potential suitors grows. Ad tech startups used to hope for companies such as Google, Microsoft or AOL to come knocking, but today's buyers also include social networks, publishers, ad agency holding companies and major brands.

[Related Feature: How Social Networks Are Changing Mobile Advertising]

Facebook has made "big advances" in ad tech, according to the company's CEO Mark Zuckerberg, who spoke on a recent earnings call during which Facebook expanded its Audience Network, closed its acquisition of LiveRail and re-launched Atlas, the ad platform it acquired from Microsoft.

Facebook COO Sheryl Sandberg described these "large and strategic investments" in ad tech as long term and hinted at a heightened period of investment to come. "We're investing in ad-tech for a simple reason. Consumers are shifting quickly to mobile and the advertising industry is not keeping up," she said during the earnings call.

Marketers and advertisers balk because they lack confidence in the measurement of mobile ad performance, Sandberg said, adding that the most commonly used systems are largely cookie-based, and they overemphasize the value of the last click.

Berkowitz of MRY agrees and says most publishers and marketers struggle to make money in mobile, especially those that don't sell app installs. "There are a lot of buyers who are clamoring to improve the breadth and depth of their mobile-driven media offerings," he says.

Ad Tech is Never Fully Deployed

Marketers and publishers clearly need better tools for mobile, according to Sandberg.

"This is an industry problem that we believe we are well-placed to solve," Sandberg says. "I think we're in the middle of what is a very fundamental shift from marketing that is cookie based on a PC, one desktop, to people based marketing on multiple devices, to marketing that is primarily for online sales, to marketing that affects those online and offline sales on mobile." 

Merged content and advertising will eventually comprise what many refer to today as the marketing cloud, according to Altimeter Group's Lieb. "These software stacks will absorb social media software solutions as well as talk to the stacks that manage digital advertising."

However, there's still a lot of work for Facebook and others to do before this happens, and there will always be something new and different to tackle.

[Related News Analysis: Privacy, Consumer Groups Ask Court to Reject Facebook Ads Settlement]

"I think we're pretty far from being fully deployed on even this big shift," Sandberg says. "But I think in our industry nothing is ever fully deployed, that as soon as we catch up here, there is going to be another movement and something else that happens that we have to react to and build the technology for."

Although the shift may be difficult and seemingly never-ending, it is also inevitable, according to Berkowitz. "Getting what have traditionally been TV dollars to migrate to mobile is trickier, and yet as mobile cements its position as the ‘first screen,' that will have to change."

This story, "Why ad tech consolidation is good for CIOs" was originally published by CIO.

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