Growth in the era of “Walled Gardens”

Monday 03 December 2018


The US advertising sector, which accounts for approximately half the world’s digital display advertising market, has witnessed a massive shift in recent years with digital expected to reach 50% of the total advertising spend by 2020. Changes we’ve all come to accept as the current norm have been nothing short of complete transformation. By our estimates, programmatic dictates 80% of the digital ad-spend (compared to 20%, just five years ago), Amazon is here and Facebook plus Google dominate with over 60% share (compared to 30% just three years ago) and the mobile channel now has over 50% share (compared to 11% just five years ago). Measuring to where the industry was five (let alone, 10) years ago, almost nothing is the same. One would think this was as much as we could expect for a few years but add to this ongoing developments in rich media and audio or, data privacy or, the VR/AR opportunity, it is easy to see the “standards” of today are unlikely to remain as such for too long.

Looking at the overall industry, we continue to see major developments especially in three areas which will require a set of strategic decisions from all players – corporate or pure financial investors.

First, is around concentration of Digital Ad spend and strengthening of “Walled Gardens”. It is one thing to have reached a collective share of approximately 60% of digital ad-spend but another to continue to capture over 90% of the market growth since 2014 – which is exactly what Google plus Facebook have done (plus of course Instagram and YouTube). Their end-to-end offering combined with their massive consumer reach and the resulting insight is unparalleled and, will not offer much flexibility going forward where 3rd party publishers will increasingly rely on Google/Facebook ad networks in order to benefit from this capacity. The only party to challenge this dominance today is Amazon with its exclusive advertising API but this model is also geared towards building an alternative walled garden – one where advertisers/publishers will be (again) limited in their access to consumer insight. There have also been considerable investments here by the likes of Verizon and AT&T who are developing their full-stack but these telco operators still lack comparable consumer reach (and, loyalty) to be able to build similarly strong “walls”. 

Creating viable alternatives to this walled-garden structure is only possible with increased integration within independent/3rd party DMPs and partnerships among publishers especially in sharing valuable data. Publishers may look to consolidate across the value chain to create their own alternatives, remembering that walled gardens provide limited impression-level data (which is the only major weakness in their proposition) and therefore, differentiating by providing transparent measurement and relevant attribution statistics which is a sensible route to remain competitive. We expect continuing M&A activity here by generalist players to further strengthen or re-position their place within the value chain. Also, we expect to see further emergence of strong niche digital publishers with valuable content focused on verticals such as tech, travel, and health. 

The second set of developments, also exasperated by the above-mentioned trends, will be around organizations reviewing their existing AdTech stack and investments – whether Publishers, Advertisers or Agencies. Many organizations should be carefully taking stock of “where they play” today within the ecosystem but more importantly, to decide on how they will continue their presence within the space. There are various models to consider – from hybrid-trading desks to fully in-sourced to agency trading desks – where the right reading of industry trends will not only save “millions” in investments but will also allow correct positioning for partnerships. Of course, there isn’t a one-size-fits-all model and each organization will have to work to figure out its own ideal portfolio strategy (divesting, if necessary) around its approach to AdTech but looking at where major investments are being made by the above mentioned parties should be considered as an important input to such decisions. It all starts with being able to correctly define the strategy, the right metrics and following up with continuous research to adjust in building the model that works; is it speed/efficiency, reach, cost or quality of ad? 

The final set of developments will occur around the emergence of new advertising methods and channels. Native Advertising will continue to increase the need for (easier and faster) communication between publishers and advertisers and there will be an ever-increasing drive for omni-channel advertising need (right audience, at the right time, on the right device). Voice and AR/VR technology are nascent but could have a similar impact to mobile and will likely lead to a wave of specialization and consolidation within the industry.

Regardless of which trend resonates most with a particular player in the industry, there is continued growth on the horizon, especially for those who know where they're running. 

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