By Tom Jenen, Chief Revenue Officer, Brand Metrics
Does independent ad tech have a $500 billion valuation within its grasp? And if so, how can it get there? While you may be waiting til November for the “predictions season” articles, I know you’re all doing next year’s budgeting now, so I’m getting in early. Here’s the first of three articles on disruption, innovation, and setting out an ambitious goal as an industry call to action.
First: Is $500bn a lot of money? Five years ago, we all would have said so. The monopoly platforms were all hovering around that number: Apple, $690bn; Google, $567bn; Microsoft, $492bn; Amazon, $386bn; Facebook, $379bn (all on January 31, 2017). At that point, no company in history had ever been valued at more than $1tn.
But six months ago, at the end of January 2022, this world looked completely different: Google, $1,760bn; Facebook: $822bn (though it hit $1tn last summer); Amazon, $1,466bn; Microsoft: $2,310B, Apple: $2,773 B. Three with valuations over $1tn and two over $2tn.
These companies all have a few things in common that put them in a separate “platform” tier. They are walled gardens, with little to no data ever leaving their platforms to be seen, measured, verified or monetised by others. They often have de facto monopoly power in one or more product areas. Their decisions move the global markets. In a funny way, they are more independent than independent ad tech – which is entirely dependent on the moves this sector makes.
These entities live in a completely different world, don’t they? Of course. But because we can see them, they continue to set the bar higher and higher, and money follows money. The higher they go, the higher all of us in independent ad tech think we can go, too.
What do we mean by “independent ad tech”?
Independent ad tech is obviously different to the monopoly platforms. Obviously, even together, we’re smaller. But, size aside, what makes us independent is that we are actually interdependent – we usually do one or more things very well, but are not end-to-end; we are not walled gardens, requiring a certain level of integration with other players – sharing data, resources and revenue to deliver our value. As a result of not being monopolies, we are also smaller.
In many cases we have programmatic display advertising in common. But we are also far more diversified, because it’s no longer enough now to do just one thing well if you want to control your own destiny.
And so, we come to the point: if we can see the goal – in this case, a mere $500bn in combined market cap – then we are far more likely to hit it.
Where independent ad tech is today
According to Luma Partners, the current crop of non-monopoly-platform, publicly-traded ad tech companies is today worth $93bn (as of May 2022). Yes, these are mostly American companies. It might be possible to come up with a specific number for independent European ad tech, with companies like Azerion and others. However, because ad tech start-ups tend to want to go public in the US, where the valuations are higher, let’s use that as our measuring stick.
That $93bn is certainly less than last year’s $145bn, but at nearly 6x multiple to earnings, it’s a far cry from the doom and gloom we hear about all the time.
I think we have a lot more growth in us. In January 2020, pre-pandemic, the value of the “independent” public market for ad tech was just $35bn. Just two-and-a-half years later, we’re 3x that, a CAGR of 48%, driven by a combination of interest from investors and an acceleration of companies going public.
But we can’t expect the next five years to look like the last two years, can we? We have so many other factors to consider. In fact, to get to $500bn, we’d just need to see a CAGR of 40%. (Simple!)
My point isn’t to say a 40% growth rate is likely. I’m just saying it’s not out of the question. But a few things will have to happen in order to get us there.
Can we hit a 40% average growth rate?
We will need the current public ad tech companies to get bigger – perhaps by buying some of the private ones. This is highly likely, as newly public companies often want some inorganic growth as it becomes possible to fund with public market money.
We’ll also need some of the private ones to go public. Ideally, we also need the independent ad tech to not get bought by the big platforms (or by non-ad tech companies) as well, both of which would take them out of our calculation.
So what will drive the growth? Where should we invest now to build the valuations of the future? How can we innovate faster than the monopolies?
I’ll talk more about these factors in my next column, but at the risk of spoilers, I think there’s plenty of headroom yet for independent ad tech, even as the wider world enters a rough patch.