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Andrew Weissman (Partner at USV) liked your comment on Will Wall Street Buy Into Ad Tech?

Christian Busch, Head of Marketing at Indiegogo

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Quibb, Uber

Great article. Adtech is definitely out of favor for VCs, and there's been better hunting in SaaS where the recurring revenue streams are more sustainable. A lot of adtech just looks like you're putting money into a trading desk :) There's no asset, just the people and the often temporary insights that go into the arbitrage. Constrast that to a good SaaS business which has a real asset- the product. On the other hand, it's been interesting to see companies like Optimizely succeed- you could imagine them straddling both worlds if they wanted to.

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Ad Tech has two flavors viz. 1. Ad networks 2. Advertising technologies. Ad networks are the ones who are struggling at the moment (both as private companies and as a publicly traded companies). Ad networks are somewhat commoditized and often use arbitrage models. On the other hand, advertising technologies (targeting/retargeting, data companies, advertising tools, marketing tools etc.) have been quite successful and even VCs/institutional investors back them (correct me if I'm wrong).

I predict ad networks to see decline both in growth as well as funding. I wonder if ad networks will cease to exist (on a standalone basis) if they don't have any distinguishable technology (aka arbitrage model only)

Head of Marketing at Indiegogo

Agree with Andrew re Ad Networks being mostly arbitrage with assets walking out the door in case of liquidity. I think ad networks are ideally run as cash businesses by smart principals (as in Undertone for example). AdTech companies can be attractive if they have per-unit economics that work: Criteo etc work b/c they provide value in addition to arbitrage. The biggest challenge in AdTech i see is that thousands of companies are sub-scale and can't really afford a salesforce and thus compete on a small-scale level.

Founder & CEO at Think Gaming

I don't have a strong knowledge of their product, but doesn't seem to me that this fits Rocket Fuel at all. Throughout a period where agencies have shifted budgets from networks to their internal trading desks, Rocket Fuel has grown like...erm...a rocket. They don't pretend to have proprietary supply, but a better algorithm for sifting through exchange-traded media to find the good stuff for brands. Feels like a much stronger formula for longer term success than a "run of the mill" ad network.

Unstructured Ventures, Foresight

Ad networks are quickest way to real revenue with new consumer platforms. As the platforms get older and the ad tech around the platform builds up, ad networks become comparatively less valuable. Meaning, I think we'll always see ad networks, but they just won't stay around long. And if platform adoption speed increases, then ad network viability time decreases. A theory.

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I agree with you completely. My guess is lack of defensibility that makes then less valuable over time. I find interesting that ad networks are marketplaces, hence carry network effects due to their nature. Thus they should have defensibility and make them valuable over time as more and more participants contribute to network effects. However, ad networks lack necessary lock-ins. Publishers as well as brands can work with multiple ad networks at once. And for publishers, switching costs are minimal i.e. replace piece of Javascript code and you are done.

However, Google's Display Ad Network is always growing and becoming stronger. My hunch being-- they always had companion technology (e.g. DoubleClick, AdMeld etc.) or inventory (Google's own properties) to achieve necessary lock-ins.

There's this myth that adtech is out of favor with VCs. I wrote a program to total investment into adtech companies over the last few years, using Crunchbase data. These don't include marketing tech or agencies. Results:
2007: $863,055,000
2008: $1,359,429,687
2009: $670,697,409
2010: $1,032,863,070
2011: $1,513,882,711
2012: $1,218,858,719
2013 ytd: $798,265,919 (as of 8/22/13.)

2008 and 2011 were banner years. But 2012 wasn't so bad and 2013 looks to be shaping up as an equal to 2012. VCs have not abandoned the adtech market, there just isn't as much hype because it's not so new. VCs are putting large dollars into a wave of v2 companies.

Around Wall Street buying into it, I would have wished to wait another year. A company like Rocket Fuel may have $100m+ in revenue, but anyone who knows adtech would look at their 46% gross margin with a frown. The company should be twice the size with a 50-60% gross margin to be a good long-term bet. Rocket Fuel may well be there in another year. Why IPO now?

The Inc. 500 had several adtech companies on it. For each of them I know another that's doing just as well but didn't submit to Inc's process, and that's just the ones I know about. But there won't be ten adtech companies going public in the next twelve months, there should be five or six, max. This means that companies should be either waiting, or acquiring each other to create companies large enough to afford the substantial overhead of being public and diverse enough to have more stable earnings.

Partner at USV

If adtech is out of favor with VCs, doesn't that suggest that now is the time for VCs to jump back in and invest? ;-)

I go on vacation for a couple of days and several adtech fundings are announced... Martini Media, TagMan, Parse.ly, probably more. I don't think it's that there aren't VCs interested.

Anyway, I personally think this is the last chance for acquirors to get good deals. The good companies are starting to see amazing growth as the market becomes mainstream. Not that I'm talking my book or anything.

Thought about this a bit more and did some more data-diving. Look at the last graph of this blog post--http://bit.ly/14uPEYU--number of adtech companies founded by year. In the past two years there have been almost none.

If the current leaders are going to be acquired or go public in the next few years, then it seems like there might be an opportunity for new companies to become the challengers.

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Unstructured Ventures, Foresight

Now back from vacation, and I checked my own dataset (I've been tracking adtech funding for the last couple years on my own, so I have some non-Techcrunch data.) I count 3 seed financings in SV in 2013 and 8 in 2012, so the Crunchbase data is indeed a bit off (as we know). But I agree with the overall trends, it's still far less than previous years.

I should share my XLS with you...

The state of adtech financings seems to trail consumer platform adoption. I.e., new consumer platforms get widespread adoption, creating new opps for brands and advertising, creating new adtech startups to serve the new platforms (short explanation of a longer thought of mine). I find it hard to believe that we won't see new consumer platforms that attract masses of eyeballs, so I similarly find it hard to believe that we won't see startups funded to help serve ads to those eyeballs.

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Data Scientist at Indiegogo
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Director of Design & Technology Outreach at Indiegogo
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