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Validating adtech: Innovation is a stronger proof point than share price

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Adtech is in trouble because many firms have gotten the cold shoulder from venture capital. Supposedly. Another way to say that, of course, is that smart venture capitalists passed on startups that failed to demonstrate how they would add value to the space. So is that bad news or good news for adtech?

Unfortunately, many people confuse free-flowing capital with value. That way of thinking suggests that the volume of speculation is the sole measure of an industry’s vitality. A better metric, however, is revenue, because it validates a company’s fundamentals as well as the larger potential of the market.

Consider adtech’s consolidation binge; companies with value got acquired, they didn’t go bankrupt. That value, often enough, is the innovation contained within the technology those firms developed.

Adtech is healthy, not because investors are taking wild bets, but because we’re seeing an accurate and dispassionate appraisal of the winners and losers from the previous funding round. More importantly, investors and adtech companies enjoy an alignment of expectations, meaning that new money will continue to fund new ventures — so long as those companies demonstrate value in a constantly evolving and innovating space.

Follow the big money

Step back from the daily swings of the stock market and a paradox emerges for adtech companies. Big players like Google and Facebook — both adtech companies at their core, if you look at revenue — are seen as having bright futures. In contrast, the same people who tout Google and Facebook so highly paint the rest of adtech with a skeptical brush. Why the schizophrenic outlook?

The answer depends on whether you take the narrow or wider view.

From a narrow perspective, adtech has an abundance of companies that are impossible to differentiate. Some of these companies add value, but many more profit by leveraging the technology of others. They are middlemen, and adtech is bloated with middlemen it does not need. Publishers and advertisers understand this problem because they have come to understand that the quick hit — the click or the impression — is only a small piece of a very large and complex puzzle.

Put simply, firms that leverage the technology of others for the sole purpose of optimizing campaign performance are in trouble because their only product is worth a lot less than previously thought, while, at the same, the field of competitors has grown more crowded.

From a wider perspective, it’s a different story because we’re talking about a very different goal. The broader challenge in adtech no longer centers around the superficial click; rather, it’s a question of building a data model that captures the lifetime value of the customer.

It doesn’t matter if you call yourself adtech, martech or just tech. What we’re really talking about is performance.

Quite obviously, Google and Facebook have the scale to understand the customer within a larger, lifetime context. But we shouldn’t conflate the opportunity to collect data with the tools that make that information so valuable. Here, many adtech players have a lot to offer because the more of them that endeavor to know about their customers, the greater the need for tools that provide real-time insights, analysis, and action.

That’s a tremendous opportunity to invest and innovate when you consider the fact that nearly half of all marketers in a recent IAB survey cited “insufficient availability and functionality of supporting technology” as a key obstacle to deriving value from data-driven marketing.

Rebrand if you want, but it’s still about performance

The big news is that adtech and martech are merging. There’s a core truth to that assertion in terms of the larger challenge of building infrastructure and tools that are essential for an omni-channel, lifetime view of the customer.

But the adtech/martech merger also comes with a lot of hot air, because adtech’s valueless middlemen see it as an opportunity to rebrand and (they hope) secure the next round of financing. No wonder some say adtech isn’t in trouble, it’s just misunderstood. Of course, technology investors are too sophisticated to fall for a rebrand.

Frankly, it doesn’t matter if you call yourself adtech, martech or just tech. What we’re really talking about is performance. The companies that add value will be the ones that improve performance as it pertains to sales and other concrete business goals. To a point, advertising will remain a part of that mission, but the task is much bigger than targeting and retargeting an ad campaign.

In the same way that adtech innovated the ad campaign through targeting, automation and attribution, the mission now is to broaden and deepen that revolution across the enterprise. That’s why there’s a lot of opportunity in adtech; our value will be measured by the extent to which we become enterprise-wide innovation partners to our clients.

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