Ad Tech Doomsday Gut-Check: Dissecting 4 Dire Outlooks

Originally published in the ANA Knowledge Center

By Ben Billingsley

It’s scarcely spring, and 2023 has already delivered its share of ups and downs to the advertising industry. Due to the prevailing socioeconomic conditions around the world, businesses are being cautious about their investment and growth predictions for 2023. Consequently, the upcoming year is expected to witness intriguing developments in ad spending, audience behavior and first-party data.

Right now, our industry is seeing vastly differing views on how the next year will shake out. Let’s examine the major factors that are driving optimism and concern among industry analysts, journalists and thought leaders.

A Reckoning for Independent Ad Tech?

Industry pessimists right now are asserting that independent ad tech (i.e., everything outside the walled gardens) is headed for decimation, squeezed out as buyers and sellers consolidate and move closer together. They contend that the industry is oversaturated with redundant companies that do little more than siphon value out of the system — and that they will face a reckoning in the coming year.

In our view, ad tech is growing up. The “growth phase” of the last decade saw an explosion of ad tech and media startups, and now we are entering a new phase of maturity, with fewer, larger players. This maturation will affect the “enablement layer” of the industry, which encompasses the lion’s share of the LUMAscape. Merger and acquisition (M&A) will drive some of this trend, but so will organic competition and innovation via the very public efforts underway to remove complexity and create a more transparent and optimized supply chain.

In other words, yes, there is a reckoning underway for independent ad tech — but that’s to be expected in a maturing industry. Meanwhile, the applications for ad technology are expanding to a new group of strategics in the form of retail and commerce media. The remaining players in the enablement layer of the industry will need to focus more on value-adds versus just aggregation.

Demand Destruction?

At AdExchanger’s Industry Preview event, Richard Kramer and Rocco Straus of Arete Research delivered a presentation that rocked the room and stimulated lots of conversation. One of the most notable parts of Arete’s presentation was its assertion that declining growth in ad spend is not cyclical: It’s due to “demand destruction” (i.e., entire segments of advertisers going out of business or deciding not to advertise).

As examples, Arete identified app install and DR ads from apps and casual games, quick commerce and crypto as categories where “demand destruction” is taking place. This assessment stands in contrast to the more optimistic view held by many others in the industry. eMarketer, for example, is still projecting growth (albeit slower) for global digital spend.

It would seem our industry is entering a phase of growth deceleration — not necessarily demand destruction. Growth in ad spend is slowing, and some retreat is expected in 2023. But for all the demand that has been destroyed, there is even more demand for omnichannel inventory that will only become activated once performance measurement is in place.

Is the Potential of First-Party Data Overstated?

One of the major trends fueling pessimistic outlooks in ad tech has to do with signal loss. The sunsetting of the cookie, the loss of MAIDs and new privacy restrictions are all conspiring to suppress conversion and ROAS. Pessimists see little progress toward finding alternatives in the form of identifiers or systems for leveraging first-party data. The identity ecosystem is still in a nascent stage, with key technologies still only in experimental testing.

The real market test for identity is yet to come, and we will learn a great deal about the cookieless future —when it arrives. The simple fact is that the potential of first-party data is very real, but it takes significant (and often prohibitive) time and resources to do it right. The incentive to make the jump just isn’t strong enough if cookies are still here.

Is CTV Overhyped?

Everyone wants in on CTV, generating a lot of hype and false promises. Beneath all of that, though, the opportunity is real — not just to transfer linear budgets, but also those previously committed to social, online digital video and display. Here’s our perspective on the main arguments that CTV growth is overstated:

It’s highly concentrated? Most of the impressions in CTV come from the large, vertically integrated usual suspects. But even though there are a handful of major players, they are all walled gardens, and there is a need for integrated services that can help buyers across all these platforms.

Buying will stay in-house? Maybe for now, but that’s likely to change. Agencies and buying platforms can play a major role in reconciling the fragmentation in the CTV space and in helping with data orchestration and measurement.

Measurement is missing? “Missing” isn’t quite the word — more like “a moving target.” A universal currency is (and likely shall remain) elusive, but there are no shortage of ways to measure CTV. In fact, the main issue is that there are so many.

Social video is competition? Social platforms have the users and the deep pockets to make a run for CTV, but as Apple and Amazon will tell you, premium original content is what wins the day. Content is still king, and until social platforms pony up for big production budgets, the competition will not be apples to apples.

Everyone agrees that the industry is undergoing rapid change — beyond the usual. But it’s a complicated picture. For every point where the growth has slowed and the outlook is dim, there are other areas that show promise and opportunity. We’ll all do well to keep this balance in mind as we move through the rest of 2023.

The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.