In compiling our annual Unofficial ad:tech Party List, the process started us thinking about the show in general, namely the nature of the companies, interestingly enough at least from our perspective, the barrier to entry for a company wishing to start in the online ad space still hasn't risen significantly. We can think of several companies who opened their door with little to no outside funding and have reached run rates well into the eight figures. That might also explain a recent article by the Wall Street Journal titled, "Shakeout Threatens to Thin Out Web-Ad Brokers." If it doesn't require much to get started that can lead to significant sums, that often means a whole bunch of people will enter who will ultimately fail. It's not a criticism or all that bad. The associated layoffs and loss of capital aren't good, but they aren't all that bad either. The impending shakeout, the one that has just begun to happen, is not that different from naturally occurring forest fires that ultimately leave the forest healthier than it began. That's what will be interesting about this show. The forest is still quite thick. Our particular forest, especially that at ad:tech has some definite patterns though.
Money vs. Exit
Being the largest show in the interactive space, ad:tech sees companies that span the spectrum - big and small, performance and brand, second screen and third screen, and so on. The show wouldn't claim to have a focus, but it does have a sweet spot, at least historically, the ad networks. The show floor in particular features just about every type of ad network imaginable, affiliate network, cpa network, display, behavioral, contextual, and exchange. Those combined most encompass 100 or more different companies. Looking across them, though, it feels like we can distinguish among them on a different access - money versus exit.
It's a distinction that describes the company's charter. Did it begin with roots in cash flow or with an eye towards an exit? Were we to create a Venn diagram of the various types of online ad networks, fitting them into those two categories, we would see two things.
- The first is that certain types of companies will fall almost exclusively into one circle of the diagram and not the other. Take behavioral networks. They are among the most heavily funded, generally requiring a large financial runway to hit scale.
- The newer iterations are leaner, companies such as Lookery use much simpler approaches to behavioral targeting, one that taps into the data available from social networks as opposed to trying to create that data through deep integration and going much wider in the number of sites in which they collect data.
But, even they are based on a macro guess not an obvious gap. In other words, you won't find behavioral companies in the cash flow side of the diagram, but you also won't find many cpa networks in the exit category. They can evolve into companies that sell, but they tend to start more organically, from relationships and a ready opportunity not just a perceived one. And, they can once again feel good about themselves; they might be a little scraggly at times, but with the impending "thinning," they are looking a lot better than a multi-million dollar mansion sitting in harms way.
What Will Next Year Look Like
From an economic standpoint, it's almost unbelievable how much has taken place and changed from last year to this. The magnitude of the events might have come as a surprise but not the changes themselves, e.g. we might not have guessed that the stock market would be off almost 40%, just how many companies collapsed, and the nature of the action taken by the U.S. Government, but we all knew this year wouldn't look as rosy as the last. Where we personally didn't guess correctly concerns the show itself. We would have assumed that it would feel the impacts greatly this year, but days away from ad:tech NYC 2008, that isn't the case. As the article in the Journal points out, and as we've mentioned before, several companies in the online ad space have laid off people and/or folded. But as we're starting to understand, despite several billion dollars in lowered annual revenue expected for the online ad industry, those heading into this show for an understanding of what next year brings, won't find the answer they seek. Thus, if the stock markets are forward looking, large trade shows such as ad:tech don't necessarily look backwards but a lag exists from the events of the economy to when we see it at the show. Next year's show will ultimately tell us much more about this year than this year will. Yet, despite the economic environment and the collapse of several firms, we will still probably see more of certain types of networks not fewer. If you've been in the space for a while, it won't come as a surprise that we'll see more cash flow companies up and that they will be in the form of lean, primarily performance-based ad network, ones that don't rely on strict budgets or institutional financing to succeed. Unlike the last slow down though, we won't see as many popping up as we did before. The general economy has too many constraints hampering growth.
One thing about this show is for certain. It will be a milestone, if for anything not just because it sits on the precipice of the most major economic transformation in our lifetime but also its timing politically. It's a shame that the expo hall doesn't stay open until Wednesday as the mood would be spectacular. On that day, we will presumably know the name of the next President, and it's not often we have a chance to share a historic day surrounded by so many people. Thinking back to what started this article, the parties, I'm surprised we don't see any on Wednesday. It will be a victory party for some and a reason to drink for all.
Editor
DM Confidential
www.dmconfidential.com
e: confi@digitalmoses.com
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