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How Will the Economy Impact the Future of Ad Tech?

Dave Morgan
Dave Morgan  |  Chief Executive Officer
Updated: Jan. 11, 2023
Published: Aug. 03, 2022
TrendsSimulmedia SpeaksMedia Buying

As I think everybody who knows me knows, I am an optimist. I couldn’t have survived as an ad-tech entrepreneur these past 27 years if I weren’t.

However, I am also a realist. I couldn’t have survived these past 27 years as an ad-tech entrepreneur if I weren’t.

Ad tech as a business category will continue to grow, but just the same, a lot of ad-tech players should be worried about their future. Here are my reasons why:

Recession in the offing. The U.S. economy just shrunk for the second consecutive quarter. While we’re not officially in a recession, that shrinkage is not a good sign for the advertising market.

When consumers spend less, advertisers spend less to reach them. When ad spend is down, ad-tech spend is compressed, and margins are suppressed. Companies that were almost profitable now find will themselves sliding in the other direction.

Revenue reversals at digital ad behemoths. When top ad-driven platforms have year-over-year revenue compression -- the first in Meta (Facebook)’s history -- it's not good news for the rest of the market.

Programmatic spending seems particularly hard-hit. As Snap chief financial officer Derek Andersen noted in the company's recent earnings call, programmatic ad capabilities are great when it comes to helping clients ramp up ad spend quickly, but they also make it very easy for advertisers to ramp down their spending just as fast.

Google YouTube’s revenue only grew 5% year-over-year. Wow. Revenue at the biggest ad-supported video platform in the U.S. is only growing with inflation? And yet, it sits at the center of CTV and streaming -- ad markets that are both booming. How is that possible?

Mergers and acquisitions in down markets are nothing like what they are in up markets. Virtually all ad-tech companies are venture-funded, which means that they need to do one of three things eventually: go public; sell to a strategic buyer; or sell to private equity to then be managed and sold again.

Public stock comparables in ad tech today are a fraction of what they were a year ago. The public markets aren’t likely to be “reopened” to ad tech for several years. And most of the buying that will happen over the next year or two is likely to be more about buying value (cheap) rather than paying strategic premiums.

Ecommerce slowing down. The ecommerce share of total retail spending is declining post-COVID. That’s why self-serve D2C ecommerce darling Shopify just laid off 10% of its employees. Less online shopping means fewer ads driving online transactions.

We’ve seen this movie before: the dot-com bubble bursting, 9/11, the Great Recession, the ad-tech public market collapses of the early ‘00s. The industry and great companies well managed will be fine. But many aren’t -- and won’t be. Who do you think should be worried?

Find out how Simulmedia’s unique TV+® platform for truly cross-channel TV advertising provides unified access to premium linear and CTV inventory across all networks and publishers. Request a demo or email us at advertise@simulmedia.com.

An earlier version of this blog was originally published by MediaPost.