As detailed by The Wall Street Journal’s Mike Shields, many venture capitalists are becoming skeptical of the prospects for ad tech firms, believing that a good number of companies in the space are stagnating.
Ashu Garg, general partner of venture firm Foundation Capital, told The Journal:
A lot of companies in this sector are hand-selling media, and every single insertion order requires a glass of wine… Ad tech is full of the living dead.
Of course, the failure of some or even many ad tech firms is unlikely to affect online advertising as a whole. Much of the digital ad spend is being directed at major players, like Google and Facebook, so there’s plenty of room for the pie to grow even if there are fewer pieces.
But according to Garg, many of the players in the space that are at risk have revenues of $30m to $50m, meaning that they have real clients (read: advertisers) using their services.
While most of those clients might not be heavily invested in their success, that doesn’t mean there isn’t any investment.
This is particularly true in cases where the ad tech firms are effectively taking on a labor-intensive media buying role for their clients. If they go away or are gobbled up by larger players, some advertisers could find themselves cut off from certain channels and inventory.
So what are advertisers to do?
If anything, the reported ad tech slowdown is a reminder that advertisers should understand the nature of the companies they do business with. Do they have any technology and intellectual property that differentiates them from other firms, or are they services firms hand-selling media?
If they have raised money, are they doing well enough to keep raising additional funding, or have a successful exit?
Advertisers that ask these questions are much less likely to be affected by the changes that will inevitably occur as ad tech matures and enters the next phase of the market development cycle.