How Startups are Fueling The Ad Tech Industry
Guest Blog by ELP Student Andrew Ehrenberg – Information Science – School of Information – Class of 2019
For the past two summers I have worked in advertising technology. This summer, I am on the client services team at a demand-side platform (DSP) and last summer I worked in marketing. In layman’s terms, a DSP is a technology platform that enables advertisers to automate their digital ad-buys, while also allowing the advertiser to target all sorts of online consumers based on a diverse array of data elements.
Together, my summer experiences have provided me with two main takeaways: a perspective on our technology and an awareness of the advertising market at large. While I could write a super dense and complicated blog post explaining how each facet of our technology works, I would instead like to focus on the role entrepreneurs play (or don’t play) in data-driven advertising.
In 2017, creating a platform like this from scratch would be close to impossible without a dominant share of proprietary data. Last year, one ad exchange (where advertisers participate in real-time, automated auctions to buy digital ads), Index Exchange, provided a breakdown of how much media spend was coming through their platform, by DSP. Although this breakdown features data from only one exchange, this kind of consolidation is present across all of them. With a few DSP’s controlling over half of the market and the several remaining fighting for every last percentage point, the sheer costs and data required to become competitive make it quite undesirable as a new venture (unless you’re Amazon).
So unless you want to take on a high risk of getting crushed and going bankrupt, I would not suggest starting a new DSP. This is not to say, however, that ad tech as a whole is too crowded for new businesses. As somebody working at a prominent DSP without the proprietary data advantages of tech giants like Google, Facebook, or AOL, we are constantly searching for new innovative data companies to integrate into our platform.
In a crowded space with powerful players, competing directly with those players is probably not the most effective strategy. Instead, a young startup’s goal in ad tech is often to provide value to larger companies. Larger advertising companies can often expand their offerings by working with startups. In 2017, data rules advertising, so the advertisers adapting to this trend are trying to leverage as much quality data as they possibly can.
Data, namely consumer data, can come in many forms from many sources, leaving ample room for innovation and differentiation between providers. To clarify, I am not saying that starting a data company is easy; starting a company is hard to begin with and starting a technology company is incredibly competitive, but there are diverse opportunities available for those prepared to execute.
Take a company like Ibotta, for example. To consumers, Ibotta is an app that offers cash rewards for sending in receipts and barcodes for in-store purchases. Free money? I’m in. But what’s in it for Ibotta? In fact, in-store purchase data is a highly valuable commodity because it is offline, meaning that it’s an in-person transaction and not digitally mediated. Some companies have access to the backend systems of select receipt machines, from which in-store purchase data can be collected, but most do not have the proprietary advantages to do that. Ibotta found an innovative way around this, providing value to consumers by offering rebates and rewards and, in turn, providing value to larger data and advertising companies, who would love to get their hands on offline purchase data.
That said, Ibotta is not the only company offering a solution like this. A number of different startups in this vein have captured subsections of the retail shopping market, each providing their own spin on an attractive, user-friendly rewards system. For larger companies looking to engage with these startups, this diversity of solutions and methodologies provides a more holistic look at the consumer purchase funnel and more informed data-driven decisioning across a broad set of shoppers.
And data aggregation is just one way entrepreneurs are shaping advertising. The industry is so complex and could benefit from innovation and leadership at every turn. Different kinds of advertising companies and the relationships between them are mapped using LUMAscapes, which provide a high-level layout of the structure of the market and are divided into subcategories.
Above, I have included the LUMAscape for digital display advertising. This ‘map’ clearly visualizes the many kinds of businesses (of highly variable size) that interact within the industry. And this gets much larger when you consider the LUMAscapes for other channels. In my mind, this complexity is conducive to new ventures. Advertising technology is rapidly evolving, which provides entrepreneurs with opportunities to build products that can adapt to new environments and add value to key industry players.