Between 2006 and 2017, hundreds of ad networks, dozens of DSPs, SSPs, exchanges, anti-fraud solutions, attribution solutions, and so on were able to accumulate billions of dollars in funding. The 2015 LUMAscape had almost a thousand logos.
In the past years, Adtech investors were best described in this joke: “Happy Adtech Investors are like Unicorns – they only exist in fairytales”. Over the past decade, investments in Adtech plummeted in count and size (graph: Crunchbase).
It became rare seeing a “decent” exit during those years. Most Adtech companies that did go public performed poorly in the stock markets (Matomy, Rocketfuel, Millennial Media, Rhythm, Sizmek).
Looking at the 2015 Appsflyer Performance Index Global Power Ranking will make many marketers in 2021 cringe. Many of these logos have been wiped out.
Most of these ad networks either disappeared or sold off for a fraction of the investments they raised during the hyped years of mobile ad networks (source: Appsflyer)
As insiders to this industry, we can claim that those companies produced little value in comparison with Google, Facebook, and other successful platforms that generate most of their revenue from ads. Many of these ad networks brought little technological value or uniqueness to the market. Many of these networks were sheltering fraudulent publishers – and some were even engaged in fraud themselves.
What happened in the past 6 months?
So why is it that public Adtech companies are suddenly trading at record multiples?
How is it that we suddenly see a plethora of acquisitions, funding activities, and companies successfully going public?
If we use the Appsflyer index as a barometer again, looking at the 2020 index shows a completely different picture, where most marketers will agree that almost all of these ad networks are “safe” from fraud, and almost all of these ad networks do bring value.
But ranking, power ranking, and value are about to change dramatically.
The advertising world has been completely disrupted by two words: “Allow Tracking.”
The recent privacy changes as invoked by Apple impact almost every company dealing with advertising – whether they admit it or not.
Many of the ad networks, DSPs, and exchanges were only successful because they were able to create user graphs. Most industry experts would agree that with an opt-in rate of below 50%, plus the “limit ad tracking” baseline of around 35% – user graphs become impossible to achieve at a significant scale.
All ad networks, DSPs, exchanges, and other adtech companies are impacted by IDFA deprecation. I made a list of companies that either received funding, went public, or got acquired in the last 6 months at a +$1bn valuation and the impact IDFA deprecation has on their business. In the below table, based on a 0-4 scale — with 4 being extreme negative impact, and 1 being minimal impact — no company sees no impact.
The Perfect Storm
- Change Presents Opportunity + Consolidation of a Mature Market
The Adtech industry is celebrating around 21 years of life. In most western cultures – it would be considered an adult.
A maturing market consolidates. There is simply not enough space in the market for thousands of ad networks and dozens of platforms that basically do the same thing. Through consolidation, the market gains efficiencies. The disruption in the market, triggered by Apple’s deprecation of IDFA, caused a panic. The market is fueled by rumors, concerns, and fear.
Fear is one of those irrational feelings that can align people together to make fast decisions. Great time to sellers.
M&A helps companies build a more defendable business. Buying similar companies provides opportunities for cost consolidation while keeping most revenues for a stronger-healthier company profile.
And in a panic shopping spree, companies rush into acquiring technologies and capabilities they do not have, thinking that combining these technologies with theirs will help build a stronger and more defendable company. (i.e. Digital Turbine > Appreciate, Vungle > Algolift, IronSource > Soomla, Applovin > Adjust)
- A Global Lockdown Expediting the Importance of the Internet
The past year+ was unprecedented. Governments all around the world reacted similarly, sending their residents to lockdowns. eCommerce experienced a 10 year growth in this 1 year, and all estimates are showing that this growth will not decrease once the lockdowns are over.
The importance and validity of anything “online” became substantial, giving internet companies (AdTech being one such vertical) a boost in relevance and revenues.
Many app developers saw a huge increase in usage – Gaming, Delivery, Entertainment, and Lifestyle are some of the verticals that were able to leverage the Pandemic Opportunity, resulting in higher ad spend. These verticals drive the majority of revenues for most ad networks that grew and used the opportunity to sell the companies at decent valuations, raise money, or go public.
- Riding the Wave
The stock markets are at an all-time high.
It’s not “Adtech” – it’s EVERYTHING that’s doing well right now.
Adtech is just enjoying riding the wave with everyone else.
- SPACs – a new old financial instrument
The traditional method to take a company public is known as an Initial Public Offering (IPO). It takes time (12-18 months), requires substantial investment in the process, and offers no guarantee of success.
SPACs are “blank check” companies, formed with no operations, with the sole purpose of setting the grounds for companies to go public without having to go through the process of direct listing.
SPACs have been around for decades.
But in recent months, we’ve seen a surge in companies rushing to go public through these blank check companies.
The main downside of a SPAC structure is shareholder dilution, as SPAC sponsors (the people with the money behind those “blank checks”) keep certain warrants for getting their money back upon raising money, taking the highest level of shares from the company they sponsor.
When there’s a “gold rush” – companies prefer the SPAC approach, as it’s faster.
Though currently, the number of companies going public via SPAC grew so rapidly that financial authorities around the world are placing more restrictions on this instrument. Many deals are currently pending as a result.
Maor Sadra is the CEO & Co-Founder @ INCRMNTAL, with over 20 years experience in the adtech industry, previously MD International @ inneractive (Fyber > Digital Turbine), CEO @ Applift (acquired by MGI). INCRMNTAL was founded in Aug 2020 as an incrementality measurement platform, providing a new approach to measurement in a post-IDFA world.