Don Marti

Thu 15 Jan 2015 05:35:48 AM PST

Perfect storm for web ads in 2015?

Is it just me, or is all this stuff hitting the web ad business all at once?


The market couldn't sustain a zillion different 8-bit microcomputers or web portals, back when those were a thing. And it has always seemed unlikely that the market can keep supporting a zillion lookalike adtech firms. Jack Marshall of the Wall Street Journal writes, A shakeout is under way in the online advertising industry, where dozens of startups—often with seemingly undifferentiated services and limited scale— face the reality that there isn’t enough room for everyone.

Google and Facebook are eating the ecosystem. Michael Eisenberg writes, Today, most adtech companies are exploiting features that are missing on the core platforms of Google, Facebook, and many of the already public companies. They are optimising and brokering between technology platforms (mobile and web), exchanges and advertisers. However, information is nearing perfection in this market, making it difficult to build a moat around businesses and maintain margins.

Large agencies that plan to make a living helping clients navigate a confusing list of technology partners are probably on the wrong side of the trend here. They're like Unix ISVs who planned to keep building the same basic product on dozens of basically identical but incompatible Unix variants. A difficult feat of management and tech integration, but not really the way that mature technology markets tend to go.

Fraud crisis

You know how, when a lot of people are starting committees to talk about how something is an industry-wide problem and it's everyone's responsibility to fix it, that means the problem is about to go away?

Me either.

Bob Hoffman explains this one best.

Blocking keeps going up, tracking protection emerges

Ad blocking is trending up, but it's not for everyone. Many users have a basic fairness expectation around advertising: if you look at the content, you should also accept the ads that that support it.

Tracking protection, though, is a situation where fairness norms point away from adtech as usual. A 2014 survey found that 87 percent of users choose not to be tracked by default. Tracking protection products such as Disconnect and Privacy Badger are using a different message from crude ad blocking, to reach more users. Disconnect is positioning its tracking protection product as as basic Internet security software—Join over 3 million people who use our open source software to protect their identities and sensitive personal info from hackers and trackers—not a way to get something for nothing.

Browser built-in tracking protection is coming along, too. Apple Safari already blocks third-party cookies, MSIE has tracking protection lists (which lump adtech in with socially-engineeered malware) and Firefox is getting its own tracking protection too.

The holdout is Google Chrome, and that's a whole other story. Google as a whole would certainly do better on an all-tracking-protected web, because if everyone's less able to track users, Google's expertise in parsing content matters more. But it's hard for information packrats to walk away from shiny, tempting information.

Tech-aware publishers

The typical adtech/publisher relationship has more in common with one-sided record contracts than with typical advertising. Publishers haven't understood the technology as well as adtech firms, and so have signed away their valuable audiences, and accepted an ongoing data leakage problem, in pursuit of surveillance marketing woo-woo.

But that's changing. New publishers have web skills from the ground up. Vox Media is a good example. And existing publishers are getting better at defending their interests. Quartz, an Atlantic Media site, runs ads that look and work more like expensive magazine ads than like ratty web display ads. And, most important, Quartz ads are intact for users running Disconnect.

The near-term effect of VC investment in web publishing startups is that many publishers will have the breathing space to turn down the short-term revenue from crappy, targeted "click the monkey" or "one weird trick" ads, and pursue other options. Stronger publishers with better in-house tech skills are likely to put data leakage back on the table, and tracking protection for a site's audience is the kind of "moat" that investors tend to look for.

Put it together

The fun part isn't any one of these trends, or even the fact that they're hitting at the same time, but how they interact.

Fraud helps drive consolidation. Consolidation, with more accurate tracking, encourages more users to try tracking protection. Tracking protection and fraud drive ad spending to quality publishers. Success for quality publishers means more investment in tracking protection. And around it goes.

What a fun year this is going to be.