How Paid Social is Dominating the Ad Tech Ecosystem, One Layer at a Time

Social Advertising platforms are fundamentally changing and consolidating the entire landscape of advertising technology. Microsoft’s acquisition of LinkedIn is a massive signal of this consolidation. So that we ensure this post doesn’t become a knee-jerk reaction to recent news, here are some other examples of consolidation in ad tech:

  • Verizon acquires AOL
  • AOL acquires Millenial Media
  • Facebook acquires Instagram
  • Millenial Media acquires Nexage
  • Facebook acquires WhatsApp

Why is this happening? Our argument is that paid social platforms are driving ad tech consolidation because of the incredible efficiency that social platforms created in the ad market. Typically there can be myriad players between Advertiser and Publisher, as indicated by the image below:

ad tech ecosystem flow

In the above ecosystem, to drive marketing ROI decision-makers can find themselves paying 10 different vendors and experiencing issues with data architecture, attribution, reporting/feedback latency, and lack of visibility. If you can’t relate to these issues, here is a post from Agency Spotter that explains some of the issues in a bit more depth.

But social platforms have revolutionized the ad tech stack, by consolidating the entire supply chain into 1 company that serves advertiser, publisher, and everything in-between.

To look at how the industry is changing, it can be useful to look at Facebook as an example. Here are the parts of the ad tech stack that Facebook serves in current day:

ad tech ecosystem

Here is a way to think about it in “ad tech” terms:

  • Facebook became a DSP (Demand Side Platform) the day they launched their ad platform. Advertisers could access the audiences on the FB platform.
  • They launched FBX which served as an exchange in 2012.
  • The functionality of sell-side platforms and  ad networks were launched with the Facebook Audience Network, and before that when FB acquired Instagram and WhatsApp (i.e. additional “publishers”)
  • Facebook acquired Atlas (an ad server) from Microsoft.
  • Facebook has become a DMP (Data Management Platform) over time as it aggregates first party, second party, and third-party data across its billions of user profiles.

So, what does this mean for digital advertising as a whole? We think it changes the type of expertise necessary to drive performance.

If we know that the ad tech stack is consolidating, and we know that the biggest advertising giants are connecting advertisers to publishers, we think there are huge changes to what it means to be a data-driven, tech-savvy marketer over the next 10 years. The largest change in our opinion is the change from vertical expertise to channel-specific expertise. Simply put, if Facebook (or LinkedIn, or Pinterest, etc.) can perform all of the key tech functions in the ad stack, then the role of service providers changes from being a narrow expert in their one technology to understanding how all the pieces will work together within a certain set of platforms. We’ve seen this in our own business – our business used to focus on driving acquisition through as many platforms as possible. Now it is focused on maximizing the value out of a few key platforms, and having a higher level of expertise on those platforms than anyone else. If each ad channel can be as complex as the entire ad tech stack (yet different than the other channels), there is an inherent tension between breadth and depth. We think no agency should move on to add additional platforms until they can credibly claim to be top-10 in the platforms they currently manage.

Paid search is a useful proxy for what we think the entire ad tech ecosystem will look like in 5-10 years. Although advertisers can plug in many different technologies into their paid search campaigns, the options and performance within the channel are typically defined by an internal or external expert who understands what is possible and how to proceed.

To contrast that with what happens today, let’s examine a hypothetical display campaign. An advertiser will build creative, which will then be uploaded to a DSP, who will buy according to rules. The advertiser’s DMP will assist with segmentation and measurement. There could be a small or large amount of supply side partners. The experts who are engaged at the advertiser will talk to the experts at the DSP who will talk to the experts at the sell-side platform experts who will talk to ad networks and trading desks, who will talk to publishers. Now think about this – at Facebook, all of those experts are represented by 1 person: whoever is running your paid social campaigns. So our guess is that your team or suite of vendors will mirror the need for deep expertise within specific platforms, as opposed to vertical roles regarding a piece of the tech stack (e.g. creative, or data, or attribution, etc.).

Consolidation means more efficiency

The end result for you, the advertiser, will be extremely positive. You will eliminate inefficiency (i.e. costs), you will increase speed, and you will have much more accurate data regarding your marketing campaigns. However, this does require some work on your part. You will need to have deeper technical knowledge of each channel or platform, and integrating the data across platforms will be more important than ever.

What do you think?

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