Anecdotally, I have recently been cleaning out promo materials and lead lists from digital media conferences several years past. What I noticed was that none of the sponsors have gone out of business. With all of these players fighting for dollars and the natural lifecycle of new technology companies where some make it and some don't, shouldn't some of these guys be dead by now? I expect that is what is about to unfold.
Going forward I think that this signals an unhealthy ad tech market and a coming crash in the speed of innovation. Looks like the big buyers of ad tech may be satisfied with how much they have innovated over the past several years and are ready to pause and digest all of their new capabilities. This gives time for more traditional advertisers to catch up to what they can now do and use it more, making the technology in place much more valuable.
What I see over the next 2 - 3 years is that companies are either going to be:
- A major player within their niche - very few of these.
- Acquired by a larger enterprise - Check out Seth Ulinski's (@digital212) article on ERP companies coming to play ball soon (http://www.adotas.com/2013/09/opinion-when-will-global-erps-acquire-dsps/)
- Profitable, mid market player
- Out of business
With the lack of investment funding, the startup/innovation is going to stall. Acquisitions and consolidation will put talent into the market thereby leading to lower operational costs for new companies.
I predict a new growth cycle to begin starting in 2016 due to a shift toward business friendly and pro growth policies from our government & a change in demographics where millennials are earning more and spending more as they enter the family formation point of their consumption lifecycle. Demographics and their effect on our economy is best saved for another blog post but let me just share that I believe that Harry Dent knows what he is talking about.
But since it takes a couple of years to get from glimmer of idea to PMF, isn't the time to found now? Maybe I'm just a contrarian.
ReplyDeleteWhen you have an excellent team with an excellent product there is never a bad time to found. It is the marginal investments that take a hit.
ReplyDeleteYour analysis shows investment has not completely dried up. I would assume that money flows are going toward higher quality opportunities.
As the market consolidates that should lead to more talent available to start and support new companies in addition to freeing up funding capital. Talent leads to riskier ideas being less risky due to the team's ability to execute. Investors should be able to assume more risk due to the funds they get from this period of exits.
Then again, this is all just my opinion. You are the VC that has a much better handle on this than me.
Eric, nice synopsis on the state of ad tech.
ReplyDeleteSpeed of innovation is truly a double-edged sword for us. Once a company (agency or brand) digests one set of tools...then a competitor pops up with something newer/shinier/etc.
Even when an ad tech vendor can provide a significant lift, there is also the cost of change- which can be huge between integration, training staff, and all the other speed bumps encountered during ramp up.
As cash reserves dwindle, there will likely be a slew of quality ad tech co's and patents that can be gobbled up at fire sale prices. :)