Today's major opportunity for ad tech is in finding a replacement for the cookie and for mobile identifiers. Replacing the cookie is the end goal of billions of investments and millions of marketing dollars. It's the fuel that fills the hype machine and the opinion pages of AdExchanger.
Yet, even the best of those solutions would apply only to a fraction of all digital advertising.
Independent Ad Tech vs. Walled Gardens
For the last 5+ years, the combination of Google, Facebook, and Amazon has captured the majority of every incremental dollar spent on digital advertising.
That's not to say that the open Web is not important, or that it doesn't offer meaningful opportunities to drive ad performance. But the dollars speak for themselves: Walled gardens—Google, Facebook, Amazon—have won digital. Everyone else is fighting for crumbs, and all the best innovations in ad tech are competing for what that oligopoly hasn't already taken.
Walled gardens rose to their dominant position because they serve the needs of businesses in the middle market. The 10 million independent advertisers on Facebook constitute a broad and diverse demand base that comprise the middle market.
Mid-market business accounts for half of the US economy and includes companies with anywhere from 10 million to a billion dollars in revenue. The world's biggest advertisers could all halt spend on Facebook—as they have done recently—without jeopardizing the oligopoly's revenues.
How Did This Happen?
On the one hand, the walled gardens grew to their dominant position because of their premium supply. Their rich experiences provide a seemingly fair value exchange and a reason to collect and authenticate first-party data.
Their advertising products are built on that foundation: indispensable tools for communication, collaboration, and commerce—products and services that few of us can live without for very long. That's what generates the premium inventory and gives the oligopoly a great deal of their leverage.
As for engagement and time spent, only a select few independent publishers outside the walled gardens can rise to that standard—and only when they find creative ways to join forces and pool supply.
On the other hand, we can't overlook that the walled gardens also offer great ad tech. Their platforms are self-serve, easy, and intuitive, and they are geared toward performance. By combining premium supply with rich first-party data, elegant technology, and closed-loop measurements, the walled gardens succeeded in meeting the needs of the middle market—and succeeded, in large part, by excluding independent ad tech players.
Big brands might focus on issues like supply chain transparency, log level data, or viewability and verification; but, in the grand scheme, those concerns are niche and marginal. The common denominator for the millions of advertisers in the middle market consists of performance, reliability, ease of use, and a low barrier to entry.
Ad tech lost the middle market because walled gardens did a better job of meeting those needs.
What's Next for Independent Ad Tech?
As we approach a cookie-less future, ad tech needs to heed the walled gardens' example and learn the (sometimes painful) lessons it provides.
Of course, operating within walled gardens comes with tradeoffs. There will always be brands that operate at a scale at which those trade-offs are unacceptable. Large brands endowed with huge budgets, talented teams, and rich data assets can, should, and will invest in independent technology. And, in turn, there will always be ad tech companies that service the needs of those sophisticated advertisers.
But if, as an industry, we focus on the sophisticated advertiser to the exclusion of the middle market, ad tech will always operate on a shaky foundation. True longevity in ad tech will come from serving millions of smaller advertisers rather than a handful of big ones.
Think of it in terms of the auto industry. To compete against Ford, GM, and Chrysler, advertisers need to answer with Toyota or Honda—something that competes in reliability, economy, and performance.
Right now, too much of the independent ad tech model is designed to make Ferraris and Lamborghinis, custom builds, and fun workarounds for a select few. That market exists; it's real—but it can't scale, and it's a market where buyers will always have leverage.
If independent ad tech is to compete against the walled gardens in a cookie-less future, it must solve for the middle market.
A new era of digital advertising is fast approaching, and the question is whether we've learned our lesson in time.
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