Adtech is going native on steroids, hyper-personalization and consolidation

After years of VC exuberance, 2015 marked the end of an investment cycle for the adtech industry. Quite a few companies with high valuations stumbled, downsized, restructured and pivoted in order to achieve, or at least progress on a path toward, sustainable profitability.

Yet, despite the contraction in VC investments, the industry is growing dramatically, fueled by agencies and advertisers competing for digital real estate across billions of screens, with billions more forthcoming in the next few years. 2015’s correction sets the stage for adtech to “grow up” in 2016, especially in terms of ad quality and industry structure.

The first trend I expect in 2016 is a spike in contextually relevant ads (CRAs), like native advertising, that blend well with the user experience. Nearly 200 million ad blockers cost publishers $22 billion in 2015, an impact far from trivial. If consumers continue to face harassment from unwanted ads, this figure could double or triple in the upcoming years.

The antidote: CRAs. We’ve witnessed Google command significant premiums from advertisers for more than a decade by serving CRAs along the search dimension, while Facebook’s dominance derives from the wealth of personal data it collects on each user and its ability to seamlessly integrate relevant advertising in the newsfeed experience. In the last few years, Outbrain and Taboola have leveraged content consumption patterns to create an entirely new category of CRAs known as sponsored content/native advertising.

Even today, I find myself still clicking on sponsored content, thinking it’s native. It’s not that I’m being tricked, like with pop-up ads or clickbait; rather, the contextual relevance of the ad suits my interests. It’s nicely integrated in the page and is truly relevant. Contextual intelligence is a meaningful point of differentiation that leads to higher ROI for advertisers and publishers, and thus, the adtech companies that improve the marketer’s ability to provide the right message to the right person at the right time will attract substantial investment.

Either the marketing players are going to buy the adtech players or the adtech players are going to buy the marketing players.

The second trend we will see is hyper-personalization, with a special focus on what I will call the “smart creative.” During the last few years adtech has focused on data collection and analysis in order to better target consumers, optimizing yields for both advertisers and publishers. Yes, we’ve improved on many different fronts, but the ad creative has remained flat and static. Thanks to the death of privacy, we now have an abundance of data that can be used to make each creative hyper-personalized and much more engaging for the consumer.

In 2016 we will see creatives that change on-the-fly based on each user’s unique characteristics rather than fixed images that are mass-distributed, and smart programmatic creative will become the standard.

The third trend to consider is consolidation. The artificial silo between adtech and martech is crumbling. Despite the pace of advertising innovation the past 15 years, the complexity of adtech as a technology stack inhibits brands, agencies and marketers from seamlessly integrating digital advertising into their full marketing stack.

In 2016, we’re going to see companies like Oracle, SAP, Salesforce, AOL, Google and Facebook beefing up their martech war chests. These incumbents will snap up new entrants to enhance and complete their martech stack in a way that they can really become a one-stop shop for marketing and adverting in a digital manner. This trend is buoyed by increasing demand for accountability from premium brands (after the 2015 AppNexus’ cleanup that shined a spotlight on the pervasive fraud affecting marketers’ ROI).

We’re going to see the CRM technology, the marketing automation technology integrated into the DMP and the DSP and the attribution solutions, the tracking vendors, all coming together into one platform that makes it much easier for the marketers to execute multi-channel, orchestrated campaigns that take advantage of data.

On the monetization side, we’ll see more and more consolidation. Adtech and martech is, in particular, an industry where size is a major advantage. We’re seeing it even with Israeli companies like Taboola and Outbrain that are discussing a merger among themselves. I bet we’re going to see it more. We’ve seen AOL buying Millennial MediaVidible and Convertro to make it easy for brands and agencies to advertise across their destination properties like TechCrunch, Huffington Post and MapQuest.

We’re going to see that further into 2016, all across the board, either where the marketing players are going to buy the adtech players or the adtech players are going to buy the marketing players.

As an iAngels advisor and general partner at Cyhawk Ventures, I am evaluating companies in the context of the themes outlined above. In light of adtech’s 2015 correction, startups that “face the mirror” will grow fast in 2016, in a much cleaner and accountable environment. This means they will be well poised to attract investments from multiple funds, and the adtech financing environment will get back on track.