This is an abridged transcript of Kai Henniges’, CEO and Co-founder of vi, talk at Dmexco 2017. Taking a historical view of the adtech industry, Henniges explores how the industry came to be, how it got out-of-hand, and what we can do about it. You can watch the film of the talk, or read an edited transcript below.

How it all began

We started in 2008 as a video publisher, Viewster. We showed millennials TV series, a lot of anime, a lot of it over mobile. We quickly found that we had more demand for advertising than we had ad opportunities available. So we started in 2011 what’s today known as a publisher trading desk, only at the time we didn’t have a term for it. Really what it meant was extending audiences off the publisher onto third parties. We had a big team selling on one side and doing ad operations on the other side.

So, we acquired other pubs and that grew into what is vi today.

In experiencing this, and attracting audiences largely on mobile, we were not alone. It was going on through the whole industry. Today we would call it ‘the big pivot to video’. At the time, all this wasn’t so clear, but people started to watch more content on their mobile phones.

What remains true to date is that print is the most over-funded ad platform and TV is just about funded at an equilibrium with the audience. The only trouble is that audience is ageing and declining overall, whereas the mobile audience is ever increasing. We found this starting in 2011 but other people found it too and they piggybacked onto this growth curve that you see. It also happened on desktop, but the highest growth really kicked in on mobile.

growth in mobile video viewing

Growth in mobile video viewing

 

The growth of adtech

From there, sprang up a ton of opportunities. If a platform is under-funded that means it needs intermediaries to create a business. Boy, oh boy, did many companies get on the bandwagon to jump on that opportunity.

The only trouble was that people were kind of getting greedy about the opportunity. Often enough, the premium advertiser would try to buy an impression that was full-screen, mobile, on a premium publisher, and effectively the inventory kind of ran through this cloud of middlemen. Often, nobody really knew how many middlemen. And in the end the ad would land as a small player ad on some completely different site, sometimes even a slightly unsavory publisher.

the adtech washing machine DSP SSP

centre image source: LUMApartners

 

That whole business was then termed by the industry “The great washing machine”. Advertisers thought they were buying amazing quality, but effectively they got something a lot less valuable than what they thought they were buying. It was almost like you could have locked maybe half the AdTech companies at this show [Dmexco] in the room and they would have happily done business with one another, arbitraging one another, without the final buyer or the final publisher in sight on either side of the equation.

Clearly, this didn’t make sense to the most premium publishers, nor did it make sense to the most premium advertisers.

The backlash

So the first guys to push back heavily were the biggest spenders, the CPG guys. We’ve seen Unilever and P&G push back to say, “No, this is not how we are going to spend our money. People need to follow strict rules – how the inventory is sourced, how it is vetted.” Guess what, media agencies also got in on this and said: “This is fantastic, we’ll start trading desks, we’re going to buy inventory and recycle it and then sell it on to the agencies.” Between the publisher and the advertiser, miraculously 70% of the value of a media budget disappeared in the middle.

video lumascape adtech washing machine

Centre image source: LUMApartners

 

Clearly, that’s an untenable state for the industry. If it’s 20-30% that gets attributed to the middle for vetting inventory, transacting it, holding auctions – that is okay. But 70% is clearly overshooting the mark.

Consumers, on their part, started to say: “I’m seeing too many ads and I’m not liking this” and they started to introduce ad blockers on desktop, and mobile browsers. You can see the curve is staggering and there’s companies like AdBlock Plus, that are helping this phenomenon. While as an ad tech company, I hate it, as a consumer I can only say “I get it.” The industry overdid it.

adblocker useage graph

Industry consolidation

In the early years, you can see there was a relatively small number of mergers and acquisitions. The action really began in 2014 going forward.

Then, it wasn’t called industry consolidation. It was literally around three themes:

  1. Completing tech stacks – completing abilities that not every company had, so they wanted to round off their tech stacks.
  2. Getting scale in countries where companies did not have scale previously
  3. Data-driven transactions. These really made the biggest chunk of M&A deals in ad tech.

What you are seeing now are kind of “marriages out of necessity”, because this cloud in the middle taking 70% has gotten too big. There are too many players, taking too much out of the value chain and not adding enough value by themselves.

Digital advertising is still growing, even with all the noise and clutter of the big CPG companies reducing budgets and enforcing different spending rules. Of course, digital is in full swing, the industry is growing, but it demands a different kind of middleman.

growth in digital advertising

We believe it demands full transparency, it demands a shorter value chain between the publisher and the advertiser, it demands that you cut the end-user into the equation. You can’t just cram ads down their throats and hope for the best.

Thank you.

Kai Henniges, 2017