Ad Tech Is Dead, Long Live Marketing Tech

Editor’s note: Bill Bourdon is a co-owner and partner at Bateman Group, a PR and content marketing agency serving technology brands.

VCs and public market investors cringe when they hear the words “ad tech.” It’s no wonder why. The segment has been soured by an over-saturation of ad networks and poor-performing IPOs. Rocket Fuel’s stock is down more than 80 percent since its IPO in September 2013, while Millennial Media is down 94 percent since it went public a year earlier.

In spite of these high-profile ad tech flameouts, Gartner predicts CMOs will spend more on technology than CIOs by 2017. All signs point to this becoming true. While ad tech clearly has an image problem among investors, the larger marketing tech sector in which it plays is raging.

Venture capital and private equity deal flow is surging.

Last year, marketing tech saw several monster rounds, including AppNexus ($110 million) and Qualtrics ($150 million round). M&A activity was up, too. According to Luma Partners, there were 82 significant marketing tech acquisitions in 2014, up from only 52 in 2013. Of note, Yahoo paid $640 million for video advertising startup Brightroll on the heels of Facebook acquiring video ad tech startup LiveRail for an estimated $400 million.

New marketing tech entrants to the public markets have also outperformed expectations.

Most recently, Rubicon Project’s and Hubspot’s IPOs held their own alongside Criteo and Marketo. Outbrain and AppNexus are just a couple rumored to go next. Some might point to Marketo’s stock trading 20 percent lower year to date as a sign of bad things to come. I believe it’s more an indication of how the industry will evolve. Large so-called marketing automation platforms will begin to relinquish market share to simpler, sleeker solutions that do a couple of things really well.

There’s no doubt that marketing tech is at a positive inflection point. Yet, Fortune’s Unicorn List of 63 privately held startups valued at $1 billion or more only features two marketing tech companies: AppNexus ($1.2 billion) and InMobi ($2 billion). With Sprinklr’s recent round of funding on a $1.2 billion valuation, that makes three.

Whether or not the numbers trend up and how fast will depend on how these narratives play out.

Native Advertising Is Helping Mobile Eat the World

Andreessen Horowitz partner Benedict Evans says mobile is eating the world. This is an understatement. eMarketer predicts U.S. mobile ad spending will grow 50 percent this year to reach $28.48 billion, hitting $40.16 billion by 2016. This underscores major ad budget churn from the old advertising mousetraps to the new ones.

New screen size constraints of smartphones have spawned in-feed advertising forms, also known as native ads, while banner ads decline. Facebook’s $220 billion market cap is evidence that there’s mega revenue to be made from this model.

Beyond these social giants, companies like Mopub (acquired by Twitter in 2013) and a fast-growing market of startups are leading the in-feed advertising movement for everyone else – trying to help media publishers and app developers on the so-called open web monetize much the same way. According to BIA/Kelsey, this market is expected to reach $5.7 billion in 2018, up more than 5X from 2013.

Content Is (Still) King

The gravitational pull toward mobile is creating a new content economy in which publishers and brands are becoming uniquely aligned in efforts to better serve readers. Publishers that play their sponsored content and native advertising strategies right will see big revenue gains. Those that pimp out their inventory for poor-quality paid content will inevitably lose.

Content is also now bite-sized and modular. Highlighting this change, new business and revenue-sharing models will emerge as cards take hold on the web. This nascent design paradigm could give publishers new forms of revenue from a marketplace of brands seeking to reach big media audiences. As early adopters of cards like Twitter and Google have proven, the potential upside for publishers as well as their advertisers is huge.

Programmatic Goes Beyond Display

According to new research from Perceptions Group, programmatic ad buying is expected to increase by 21 percent this year, largely driven by demand among marketing pros and agencies.

The real opportunity in programmatic is so much bigger than the current narrative about automated ad buying. While it will continue to represent an area of innovation and growth in digital display advertising, expect to see new success stories emerge across other marketing functions as well as new channels like inbound customer calls, radio and television.

Marketing Analytics Build Momentum

The rise of mobile has also given birth to an important category of analytics players. Mobile analytics startup Mixpanel made waves last December when it raised $65 million from Andreessen Horowitz on an $865 million valuation. Meanwhile, App Annie recently acquired Mobidia. Mixpanel and App Annie, along with companies like Flurry (acquired by Yahoo), have carved out healthy businesses helping companies better understand how people are using their apps to serve better products, experiences and ultimately higher-performing ads.

Data is the lifeblood of these analytics services, which is why the most valuable advertising and marketing technology companies are also data companies. Facebook is the seminal example of this reality. As the next generation of marketing tech unicorns is born, expect to see a direct correlation between their valuations and data war chests.

A 10X Marketer Reality

There’s a human element, too. Like the so-called “10x developer,” 10x marketers are highly technical math men who can do the work of 10 mad men. These are the power users of Hubspot, Marketo and others who use these systems to run sophisticated marketing programs that span every digital channel — from email to mobile and all points in between.

Ironically, these mega marketing automation platforms may be holding the industry back — requiring too much time and training for most marketers to execute simple campaigns. Within this pack, newer players such as Marketo are already slowing because the market demands greater simplicity in a crush of interest for insanely simple tools that get stuff done. Such simplicity has been the hallmark of companies like Weebly and Squarespace.

Wild Card: Facebook

The wild card in the advertising and marketing technology arms race is Facebook, which this week began hosting content from mainstream news sites like The New York Times. This means publishers will give up traffic (and data) in exchange for a revenue split on ads that theoretically would perform better on Facebook due to the social network’s targeting capabilities.

This move could force several already-struggling publishers deeper in the hole while Facebook gets richer. The move also has huge implications for the ad networks dependent on major news sites for revenue as they’ll get squeezed.

Just how the major publishers and native ad tech startups play their cards here could mean the difference between whether a new unicorn is born or one dies.