Left right and center, mergers and acquisitions (M&A) are taking place in the adtech industry. Spurred on by budget reallocations, louder cries for supply path optimization (SPO), and an impending cookiepocolypse, adtech consolidation is happening. And it's happening at scale.
An industry that not too long ago aspired to competitive fragmentation, is coming full circle. Now, instead of profiting off competition, platforms are finding ways to cater to both the buy and sell side of the programmatic ad world.
Adtech consolidation will see big fish get bigger and smaller fish smaller. But when it comes to casting judgment on this shift, the jury’s still out.
For some, consolidation is simply the natural order of things.
“The ad tech market…is inherently suited for a small number of behemoth winners - with independents/startups operating on the fringes until they get bought by the leaders,” comments Ruben Schreurs, Group Chief Product Officer at Ebiquity.
AdProfs founder, Ratko Vidakovic agrees. Adtech consolidation is a way to overcome long standing investor hesitancy by creating “entities that have scale”.
But for others, namely smaller adtech companies, consolidation is threatening their very existence.
The boundaries between the buy and sell side are blurring. As a result of adtech acquisition activity, any differentiating factors between demand-side platforms (DSPs), supply-side platforms (SSPs), and ad exchanges could soon become negligible.
But what does this mean for the industry moving forward?
In this blog post we’ll discuss the rise in adtech acquisition, and debate the question: is adtech consolidation a positive route forward?
Adtech consolidation involves larger companies acquiring and merging with smaller players in the adtech ecosystem. The consolidation process can take many different forms. For example, a DSP might merge with an SSP or an SSP might buy out an ad exchange. Everything is rolled into one, resulting in ‘do-it-all’ adtech companies that serve as one-stop shops for advertisers and publishers.
And right now we’re experiencing an adtech consolidation boom.
Mergers and acquisitions are on the rise.
Let’s take ironSource as an example. Over the past decade, ironSource prioritized adtech acquisition acquiring Upopa, JetFuel, Supersonic Ads, Soomla, TreSensa, Luna Labs, Tapjoy, Bidalgo, and GameRefinery. Through these mergers and acquisitions, the company could offer a full suite of services. As well as acting as an ad network, SSP, DSP, creative agency, and app publishing studio, ironSource also offered on-device preload, mediation, marketing intelligence, and bid automation.
As of 2022, ironSource has itself been acquired through a $4.4 billion merger with real-time game development platform Unity. The plan is to create a consolidated platform incorporating Unity’s game engine, ads, and game analytics with ironSource’s existing assets (including Supersonic, its ad-based game studio).
Not only is the move a way to capitalize on the growth of in-game advertising, but it’s hoped that the acquisition will create a consolidated entity with a competitive advantage.
“We obviously stand in the shadow of the Googles and the Facebooks in terms of data, both type of data and scale of data… but we’re able to effectively compete because we’re focussed on something a lot narrower”, comments John Riccitiello, CEO of Unity.
Adtech acquisition is being expedited by changes within the data privacy landscape. The move away from third-party data and towards first-party data ownership means that adtechs need a means of accessing large-scale aggregated data.
Consolidation offers a way to achieve this. Larger, integrated companies will likely cope better with market fluctuations once cookie depreciation ensues. And that’s because consolidation enables platforms to collect first-party data at scale - much in the way that ‘walled gardens’ like Facebook and Google Ads already do.
The rapid acceleration of mergers and acquisitions is being reinforced only further by investor behavior. The adtech indsutry has been treated “like a second class citizen by investors for a while” according to Vidakovic.
But now that the sector is becoming less fragmented, investor interest has piqued. In 2021 funding to VC-backed startups in advertising tech reached six billion dollars, a notable increase from previous years. And more than one third of overall adtech funding (which currently amounts to $27.7 billion across 2.29K companies) was raised between 2020 and 2022.
Many in the industry have been calling for a return to a more direct approach. A way to improve pathway transparency between buyers and sellers and bring publishers and advertisers closer together. Through a process of supply path optimization (SPO), buyers are pruning back their supply partners in favor of a consolidated few with whom they can create stronger relationships.
In 2022, The Trade Desk announced a new product called OpenPath which connects advertisers from The Trade Desk with publishers directly using a Prebid adapter. “OpenPath levels the playing field for advertisers, ensuring they get transparent and objective access to the very best digital advertising inventory” comments Jeff Green, The Trade Desk’s CEO. The product aims to advance an open market, increase supply path optimization, and transparency.
For some, adtech acquisition and consolidation is key to achieving supply path optimization. Adform’s partnership with EMX in October 2022 connected Adform’s DSP to EMX’s CTV-first SSP platform. The consolidation gives advertisers access to EMX’s premium direct inventory. Now, the partners hope to use their alliance to simplify the supply path and reduce friction.
A period of trial and error is ensuing and adaptation will be the key to success. As boundaries between demand and sell side narrow and direct pathways reopen, we’re likely to see some changes. Namely an industry populated by fewer, but larger, full-service solutions with adtech companies offering more functionalities under one roof and a cleaner tech stack as a result.
Vertical integration among vendors and consolidation will bring transparency and simplicity to digital advertising. Through supply path optimization we’ll wave goodbye to long overloaded supply chains and reduce programmatic confusion in the process. Curation is now the name of the game. By creating better products for buyers, sellers, and data providers, the industry will continue to increase the value of programmatic advertising and build on the advances of consolidation.
But consolidation also limits competition.
The emergence of adtech giants could result in limited product options in future as, one by one, smaller innovators are acquired by bigger fish.
In early 2023, the United States Justice Department filed its second antitrust lawsuit against Google in just two years. The lawsuit, which seeks to make Google divest parts of its businesses, follows a previous suit accusing Google of using monopolization tactics and exclusionary arrangements to cut off the competition. In so doing, the Justice Department argues Google sought to become “the be-all and end-all of all ad serving”, to “acquire, then extinguish, any competitive threat”. Google also faces three additional antitrust lawsuits at this time.
A blurring of boundaries is taking place in the ad industry as larger multi-functional ad giants dominate in place of a historically fragmented market.
At this moment, adtech consolidation sits somewhere between the spheres of good and bad.
It’s safe to say that smaller platforms will be challenged most by the surge in mergers and acquisitions within the industry. And for those already struggling with the ramifications of reduced ad spend, mergers and acquisitions may even seem like the only answer.
But that’s not to say they’re facing a death sentence. With the right dose of adaptability, there remains room for growth and innovation within the sector.
At least for now, the benefits of consolidation seem to outweigh any potential drawbacks or looming threats. Adtech consolidation will bring simplicity, transparency, and efficiency to the programmatic landscape. Reducing platform complexities, price inefficiencies, and the (frankly mind-boggling) loops that impressions currently pass through before delivery.
What do you think? Is adtech consolidation the answer?