In this investigative piece, Andrew Birmingham, editor of Which-50.com and B&T’s resident tech-head argues marketing technology (martech) and advertising technology (adtech) are being drawn together after two decades of parallel evolution. What is driving the trend and what are the implications?
The number was as terrible as it was stunning. Earlier this year, Morgan Stanley analysts predicted that in the first quarter of 2016, 85 per cent of all new digital advertising dollars in the United States would flow into the swollen coffers of just two companies: Google and Facebook.
The rounding errors — by which we mean everyone else in the market — immediately tried to discredit the suggestion. However, an analysis by the CEO of DCN, Jason Klint, based on publicly available data, suggested that if anything the actual figure was closer to 90 per cent.
That’s bad news for other publishers of all varieties, but it is also an existential concern for the adtech world as these two behemoths extend the utility of their platforms. The last thing any tech business wants to be is the tasty bucket of blood inhabiting the kill zone between Mountain View and Menlo Park.
The Morgan Stanley analysis also validates the market assessment of Marketo CEO Phil Fernandez. We caught up with him in May at the company’s annual user conference. Fernandez was negotiating to sell the business to a private equity firm, although that wasn’t clear at the time. Shortly afterwards, the $US1.7 billion deal with Vista Equity Partners was revealed.
Fernandez told Which-50, “I believe that the [adtech] industry is rapidly consolidating into Google and Facebook. And globally also around the Chinese versions of these two and a handful of others.”
This consolidation will completely disrupt the adtech sector due to the asymmetry of these two giants possessing almost infinite data about their customers, he said.
(Marketo CEO Phil Fernandez. Image source: YouTube)
There is a growing consensus about the gathering power and adtech utility of Google and Facebook. But the other theme that emerges is the shift of marketing technology companies into advertising solutions. Marketo competitors like Adobe, Oracle and Salesforce are leading the push.
Fernandez is a little more skeptical on the timing of this than his industry peers. He says there is a deep structural impediment to the rapid merger of martech and adtech. “I was in an investor meeting with my biggest investors about a year and a half ago and said to them that maybe we would dip a toe into some adtech waters.”
The idea freaked them out a little, he joked. “They told me, ‘We would not know how to value you because a dollar of license revenue and a dollar of ad revenue aren’t the same thing’. Basically they wouldn’t know how to add the two together.” (Presumably Vista had no such qualms).
Over the long term, however, he is more sanguine. “We saw Google make some moves recently with Google Analytics up against Adobe. So I think there’s some chance that those giants in future will become martech companies as much as advertising companies.”
Winter is coming
“I think there’s vast consolidation that still has to happen [in adtech]. There’s going to be fewer tools. My crystal ball would say by 2020 Facebook and Google own this market.”
Rather than trying to build or buy Marketo into such a market, Fernandez sees a more collaborative strategy. “We’ve been very explicit that we’re not crossing the bridge into doing adtech, but that we are going to build a bridge that we can leverage into adtech.”
Fernandez’s view about consolidation is commonly held.
JJ Eastwood is the managing director of Rocket Fuel’s Australian and New Zealand operation. He says the failure of many adtech businesses to get their IPOs away in the last year suggests the market is catching on to the likelihood of consolidation.
“I think that party is coming to an end,” he said. Eastwood believes too many of the current adtech businesses are still anchored around manual workflows, despite claims to the contrary. Instead, technology such as AI and machine learning will overwhelm them, he argues.
Software giant Oracle — which in recent years has written large cheques for martech companies like Responsys and Eloqua — is also keeping a watchful eye on developments in the adtech sector. And it has been getting more deeply involved through acquisitions like Blue Kai, a data management platform (DMP). Through the DMP, Oracle wants to enable brands to more easily marry their first-party data to third-party data generated in the advertising world.
“Ads are becoming customer engagement channels. They’re not just ads any more,” says Kevin Akeroyd. He heads up Oracle’s Marketing Cloud business globally and he spoke to us at his company’s Customer Experience event, also in Las Vegas earlier this year.
According to Akeroyd, the buyers understand that while a line clearly separates adtech and martech right now, it’s a line that’s going to blur.
(Kevin Akeroyd Oracle Marketing Cloud)
Instead, he says, customers will own (or rent) data pipes that provide the signals, preferences and behaviours to help brands learn more about their customers.
“We’re not going to be talking about this hard bright line between marketing tech and adtech any more. It’s really blurred. The fact that it’s coming together already at the omnichannel execution end of the data layer means that the rest is just going to follow.”
He said this trend is already impacting on the structure of the tech service industry. “The systems integrators who have traditionally operated in the marketing technology space are now playing against the agencies. You look at the agencies, what are they buying? They’re buying martech companies! They aren’t just media any more, they’re the whole thing.”
To appreciate Akeroyd’s point, take a look at a company like Publicis, the global Paris-based advertising and public relations business. It owns Sapient and Razorfish — the Mayfair and Park Lane of digital agencies. As such, it competes head to head with traditional Big Four systems integrators like KPMG, Accenture and Deloitte.
And to understand who is winning, simply note that the latter group are trying to ape the practices of the former, and not the other way around. Or, as one senior KPMG executive described it wistfully to Which-50 last year, “If you’re a kid looking for a fun career, what would you rather do, catch an elevator or ride the slide?”
Derek Laney, Salesforce’s head of product marketing, Asia Pacific, told Which-50, “When we think of where we spend our time as consumers, 54 per cent of digital is on mobile and 90 per cent of that is in mobile apps. That represents a huge change for the digital ad space (from where is started).
“When you look in Australia, for instance, one in three mobile minutes in is either on Facebook or in Instagram.”
(Derek Laney, Saleforce)
Laney also referenced the Morgan Stanley figures, and said the reality is that there has been a mass simplification in how brands reach their audiences via digital and mobile. “That is as true in Australia as everywhere else.”
For a company like Salesforce, this presents a huge opportunity to consolidate development resources. “This simplification allows us to be more focused in the way we think about our investments. That is why we have focused on these platforms (Google and Facebook) as the primary way that both ad marketers and direct marketers are looking to engage.”
For example, Salesforce has worked on integrating its Social.com solution with platforms like Facebook, Instagram, Twitter, LinkedIn and the Facebook Audience Network. And it recently announced an expansion to include the Google network as well, giving its clients reach into services like Gmail, search and YouTube.
Merging elements of martech and adtech delivers powerful results to brands, according to Laney. “We did a study with Facebook last year and we tested over 925,000 targets. We were testing direct marketing in terms of combining email marketing with the same message in advertising.”
The results were overwhelmingly positive. “We found that the combination of email with the SEO extended the reach of the campaign by 77 per cent.”
According to Laney, “When those two tactics were combined — so that when people who opened the email also viewed content through advertising — they were 22 per cent more likely to purchase.”
And it is not just direct marketers who see easy wins from the merger of martech and adtech. “From the perspective of the ad buyers they want access to first-party data to improve their conversion rates. They also want to reduce their waste.”
He cites cosmetic company L’Oreal as an example of a business which is using Salesforce’s Active Audiences to utilise their CRM data base and combine it with their online advertising. “When they target the CRM database they see a 68 per cent increase in click-through rates.”
Interestingly, the benefits are just as strong when they target lookalikes — “They still see a 62 per cent increase in click-through rates.”
He said this ability to utilise third-party data to inform online advertising is firing the desire for ad buyers and direct marketers to come together.
“Marketing is moving away from the focus on acquisition. It is becoming focused on life cycle marketing and talking to customers throughout their entire customer journey,” he said.
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