How The Hell Did That Happen? The Rise And Rise Of The Global Ad Tech Business!

Technology in the hands of businessmen

To understand just how complicated the buying and selling of digital advertising inventory can be, consider this comparison of ad tech to Wall Street by Michael Driscoll, CEO of Metamarkets. The ad tech world processes about 400 billion transaction-like events everyday compared to the New York Stock Exchange six billion trades.

But it’s worse than that as Gartner’s Martin Kihn pointed out at the end of last year. “Programmatic ad trades use up to 100 data fields each, while a stock trade only has 10 (you know, bid price, ticker symbol and so on). So there!”

Ad tech is an extraordinarily complex and vibrant world with a highly developed ecosystem and despite the consolidation that usually attends new tech markets, a growing pool of providers. (Gartner tracks 2000.)

Unlike the marketing automation world, which tends to be dominated by a few global software providers, ad tech has a plethora of sub categories with its own vibrant and often distinct set of providers.

The distinction between marketing tech and ad tech is historical, arbitrary and increasingly irrelevant as the players in each field extend their activities. But in simple terms, marketing tech more typically relates to a brand’s owned media where as ad tech tends to relate to paid media. And, as Sizmek’s VP product strategy Alex White points out, ad tech historically and more typically involves intermediaries like agencies whereas marketing tech tends to be employed directly by brands.

Some description

But even these definitions tend to be more honoured in the breach than in the observance.

We can’t do justice to every company in the ad tech sector within the space provided, so no, we are not going to try. And many companies will also reappear in later chapters. But in simple reckoning ad tech evolved from the need for technology to manage ad serving in the early days of Internet publishing –before search became the dominant paradigm.

Original sin

But while ad serving may have triggered the evolution of the sector, something more fundamental gave rise to the diversity and incredible innovation that followed – and that was the publishing and media industry’s original sin – focusing on inventory as a unit of currency, not audience.

Publishers around the world made a truly awful and self-destructive decision very early in the age of digital publishing. Rather than focusing on the value they provided, or the audience they reached, instead they tacitly agreed to compete on inventory – page impressions became the early currency as buyers held fast to the idea of cost per thousand (CPM). These days cost per click may have emerged as a relatively uncontroversial measure (thank you Mountain View) but even today it’s common to meet media buyers that want to bring everything back to a CPM.

Freed from the constraints of physical costs media owners oversaw an explosion of display inventory that was ultimately only constrained by Moore’s Law – which to bastardise towards our own selfish ends can be applied in this case to mean the ability of web servers to spit out twice as many web pages per unit of cost every 18 months.

Go home publishers, you’re drunk … and stupid

Inventory started trending towards infinity, but marketing budgets steadfastly refused to follow suit and that led to a glut of unsold inventory. Enter the ad networks. These companies, which started simply enough as third-party sales teams (hands up if you’re old enough to remember Bertini Murray) sought to initially sell remnant inventory at distress rates.

It was a seductive message for the media owners, but ultimately poisonous too.

By the middle of the last decade as much as 85 per cent of display inventory, in what was still primarily the desktop web, was distress inventory delivering peppercorn yields.

In order to ensure maximum profits could be extracted from minimum prices the process of buying and selling therefore needed as much friction stripped away as possible – say hello to real time bidding platforms.

Practitioners on both sides of the transaction ultimately sought to use technology to gain the upper hand, which in turn gave rise to supply side platforms (SSPs) and demand side platforms (DSPs).

So it was perhaps inevitable that agency trading desks should emerge as a managed service layer on top of DSPs and other audience buying technologies.

Data, data everywhere

The wholesale digitising of the buying and selling of online media provided the raw material necessary to spawn the emergence of programmatic and predictive technologies that these days allows for the sophisticated retargeting of advertising creative as consumers are tracked not only around the web but across channels like mobile and new mediums like video.

Marketers of course have to find a way to control all the many systems that feed into their single view of a truth that was only as accurate as the tags on their sites, which lead to the emergence of disciplines like tag management. And of course everything needs to be measured and verified to ensure brands are getting what they paid for. And for the record, too often they are not.

Innovation continues. As brands face the challenges of mobile data collection, media organisation and campaign execution, we are now seeing the emergence of data management platforms as critical infrastructure to help manage ad spend, targeting and measurement across multiple mobile platforms (including the integration of audience data across mobile, web and social for maximum cross-channel impact.)

Brands also must adapt to an increasing mobile-first world to be able to reach consumers no matter where they are and gain that magical holistic view of the customer.

Cross-device tracking and attribution is a blind spot for many marketers but new technologies allow marketers to more effectively tie desktop clicks and conversions to mobile activity without relying on consumer login data.

Or the short and sweet version

In their description of the rise of the ad tech sector, industry analysts Gartner write:

“The pre-digital advertising market was predominantly managed by media agencies. Digital advertising gave rise to successive waves of ad technology innovation: search advertising, ad networks, real-time bidding (RTB) marketplaces and, most recently, a landscape of programmatic providers and technologies that use data and algorithms to automate and optimise audience targeting strategies across channels and deal structures.”

Gartner says Google has been a clear leader throughout this evolution, pioneering ad tech standards and assembling a comprehensive ecosystem of solutions.

“More recently, Facebook has emerged as its most prominent challenger,” says Gartner.

According to the Gartner ad tech market guide, the scope and scale of companies like Google and Facebook has not discouraged the next wave of independent ad tech innovators.

“Media agencies have endeavoured to adapt to these changes. They (or their holding companies) invested in their own centralised agency trading desk solutions, partnered with ad tech providers, addressed inefficiencies and actively trained and recruited ad tech personnel.”

The agencies have benefitted from unsuccessful attempts by ad tech companies to sell overly complex self-service solutions directly to marketers, according to Gartner. Yet despite some success, their share of programmatic ad revenue trails ad networks and ad tech providers by a wide margin.

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In its ad tech guide, researchers at Gartner are fairly blunt about the challenges faced by marketers wanting to utilise the various aspects of ad tech.

For instance they suggest, there is a gap opening in digital advertising between organisations that can effectively exploit things like programmatic media — whether they do it themselves or use an agency — and those that can’t.

Among the other challenges they note:

  • Efficiency and effectiveness in advertising are often at odds, and gains can be difficult to realise as marketplace transactions tend to involve more intermediaries and have less transparency than expected.
  • Fraud and waste are common. The market’s complex and global structure attracts bad actors, and many ads go unseen by human eyes.
  • Privacy issues add further complexity and risk to digital advertising, and mobile migration is exacerbating this.
  • Talent is scarce. The growth and opportunity of programmatic advertising is absorbing expertise faster than education systems can produce it.

“The transition from mass media to digital advertising has not been smooth. For many marketers, the effectiveness of deep-rooted advertising approaches has faded well ahead of the arrival of compensatory benefits from digital. This frustration is often compounded by the vast clamour of ad tech companies promising stunning benefits, backed up by a relatively modest number of marketers showing breakthrough results,” the authors wrote.

And Gartner’s analysts say that digital advertising is full of contradictions. Take banner, or ‘display’, advertising, for instance. The authors suggest this type of advertising has been “maligned practically since its inception” and still, they point out, it captures a huge share of digital marketing budget.

“Precision targeting and auction pricing make it inherently far more efficient than its wasteful mass media predecessors, yet more fees are extracted by intermediaries than any prior media marketplace.

“Its wealth of data should make it far more accountable, yet lack of transparency, visibility problems and outright fraud are rampant. And its highly personal nature should make it more relevant to audiences; yet ad avoidance, low response rates and privacy complaints continue to mount.”

Gartner makes the point though, that for those marketers who do master the discipline “in the context of broader focus on end-to-end customer experience” — the opportunity exists to create a real and sustainable advantage.

They say this is because competitors are likely to be “struggling with their advanced, overhyped and often opaque technology on the cutting edge of computer science and big data”.

Everybody in

The research also notes that the rise of data-driven ad techniques has accelerated the in sourcing of ad operations at brands. According to its study, companies with revenue of more than $US500 million report the percentage of digital advertising work performed internally rose from 54 per cent in 2012 to 76 per cent in 2014. That is a huge leap.

Early adopters of ad tech are starting to realise some appreciable benefits, according to Gartner.

These include:

  • Improvements in the efficiency and effectiveness of ads, as organisations are able to bring more internal sources of data to bear on targeting and buying decisions.
  • More insights and opportunities in the form of customer analytics delivered by ad tech.
  • New and better forms of engagement as advertising combines with content marketing and website personalisation to create more seamless experiences.

“This is not to say that agencies are becoming obsolete. Far from it: The creative work and strategic advice that digital agencies can provide is as important as ever, and in many cases agency-based technology solutions are a marketer’s most compelling option. But ad tech and the practices it enables demand a different, more hands-on and data-rich partnership than was seen in the past.”

Looking ahead

Analysts like Gartner have identified a number of trends they say will continue to impact ad tech in the near future:

  • More channels and formats: The programmatic markets in channels like TV and digital out-of-home, and formats such as real-time-bid mobile and video remain nascent, however they will become increasingly significant in programmatic markets.
  • Private exchanges continue to grow in response to the desire of premium publishers to extract more value from their inventory and of advertisers who want more guarantees and brand safety.
  • Expect to see more invitation-only exchanges and other forms of non-public media will become more prevalent say Gartner.
  • Standards: Buyers and sellers both want industry to do a better job, particularly around quantifying audiences for online media and depending on key attributes such as ‘viewability’.
  • Integrated measurement: Unified measurement and analytics is required to meet the desire for a single view of the customer and campaigns orchestrated across channels and devices.
  • There was a crooked man . . . Expect greater efforts (and more posturing) from ad tech providers scrambling to keep up with bad actors and tackle issues like ad fraud.

Finally Gartner notes: “As a fast-growing market with seemingly unlimited access to capital, ad tech is ripe for merger and acquisition activity, as well as strategic alliances.

“In particular, standalone components on the demand and supply sides will feel pressure from investors and customers to expand their capabilities or risk losing share.”

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