What do some of the biggest, most talked-about companies today—including Uber, Weibo, and Lyft—have in common? They don’t make any money.
Last year, 83% of U.S.-listed IPOs were unprofitable. The last time investors were this welcoming of unprofitable businesses, the dot-com crash happened. The adtech world, of course, is no stranger to financial woes. Sizmek’s recent filing for chapter 11 bankruptcy reminds us how cutthroat our industry can be.
Don’t panic just yet, though. Despite the headlines of bankruptcies and layoffs, there are optimistic signs for adtech. In fact, the sector grew by 54% in Q1 this year. At the same time, Forrester predicts a 75% drop in venture capital funding for adtech in 2019. These numbers aren’t at odds with each other—together, they’re indicative of a maturing sector. In a departure from the rapid-growth-at-all-costs mentality prevalent during the frothy markets of 2008, many companies are increasingly prioritizing profitability and sustainable, long-term business models above all. And in the age of the duopoly—or triopoly—other companies are realizing they’d better have best-in-class products to survive.
It’s a trend that’s been a long time coming. If we are to avoid an adtech bubble, only performance-oriented, clearly profitable companies should rise to the top. Companies falling to the wayside are inevitable in an oversaturated market. Today, most businesses that succeed look to profitability as their north star, and that approach means their focus naturally falls on the quality of their offerings. Criteo and LiveRamp, for example, are two companies with distinct solutions that are credible alternatives to the triopoly. They also happen to be—you guessed it—highly profitable. In a market as cluttered as ours, product differentiation is the key to survival. As the industry continues to mature, a company’s competitive edge will be defined not necessarily by expansion and new widgets, but rather the old-fashioned values of transparency, product quality, and customer service.
On the flip side, product quality is often the first thing to suffer when businesses get caught up in hypergrowth. Would the myriad of crises in Big Tech have happened if it weren’t in these companies’ DNA to value expansion over all else?
On the flip side, product quality is often the first thing to suffer when businesses get caught up in hypergrowth. Would the myriad of crises in Big Tech have happened if it weren’t in these companies’ DNA to value expansion over all else?
In Sizmek’s case, many attribute the company’s problems to its decision to acquire RocketFuel (the latter itself plagued with its own problems), instead of building their own proprietary tech and refining their product.
Thankfully, many adtech companies have caught on to the current market’s reality and are switching gears. For example, some startups are focusing on bootstrapping their businesses rather than chasing venture capital (let’s face it—venture capital, while an invaluable tool in adtech, isn’t the right fit for every business). Others are buying back their companies from investors. Whether you chalk it up to the slowdown in funding, GDPR, or the rise in M&As, the barrier to entry is getting higher. In adtech, this is par for the course—even healthy.
Adtech certainly isn’t going anywhere, but it’s no time to rest on our laurels. The high-profile troubles we’ve been seeing may just be the wake-up call the industry needs to return to the basic principles of advertising: profitability, brand building, and high-quality products.
