Editor’s note: Seth Ulinski is a senior analyst in TBR’s Digital Practice, leading coverage of advertising technology (ad tech), marketing technology (martech) and agency landscapes. He focuses on business models and strategies of programmatic advertising, data management and enterprise marketing cloud vendors along with buyer behavior in these high-growth segments.

  • What are some of the top ad tech and martech trends?

Seth: There are many interesting developments across these two areas. Three key trends I am seeing:

1. Convergence of advertising and marketing platforms

The convergence of historically disparate platforms is occurring through a combination of forces. Chief marketing officers (CMOs) are joining forces with chief marketing technologists (CMTs) to navigate a sea of vendors, assembling powerful hybrid ad tech and martech stacks to execute on omnichannel programs across paid, earned and owned channels.

Data management platforms (DMPs) play a key role by integrating consumer data (i.e., martech) and audience data (i.e., ad tech). This leads to the M&As we’ve witnessed in the market recently, particularly around DMPs. During the past several quarters, enterprise marketing cloud vendors acquired DMPs such as BlueKai (Oracle), eXelate (Nielsen) and Krux (Salesforce).

2. Ad tech extending value chains for vendors operating in adjacent industries

As marketers invest in people-based advertising strategies, multifaceted media platforms such as Facebook, Twitter and Google have invested billions in ad tech to extend the reach of subscriber bases beyond their respective sites and apps. This allows each of these multifaceted vendors to maximize share in the $185 billion digital ad industry. Similarly, communications services providers (CSPs) such as Verizon, Telenor Group and Sky TV are acquiring or investing in ad tech vendors as part of their next-gen media technology platforms. On Oct. 22 AT&T announced plans to acquire Time Warner for approximately $85 billion. If the deal is approved, AT&T’s ad tech business unit, Adworks, will play a major role in monetizing Time Warner content.

Device manufacturers are also incorporating ad tech into their businesses. For example, Samsung, a leader in the smart TV segment, acquired AdGear to enable targeting for addressable TV ads. Additionally, there are substantial value-added marketing benefits of e-commerce; Amazon quietly established a highly profitable, billion-dollar business by leveraging transaction and engagement data.

3. Ad tech’s impact on digital advertising is not well understood by enterprises

There has been much discussion around the lack of business transparency in the ad industry, particularly between agencies and clients. There are many moving pieces, but if I had to sum it up based on my focus area, there is a lack of education by enterprises, particularly around programmatic advertising. Agencies have turned to programmatic to recapture margins and profits tied to media-buying services, which have been squeezed out by procurement teams and a “do more with less” mentality by CMOs. To counter this mind-set, agencies are leveraging their knowledge of programmatic ad platforms to recapture profits from traditional media-buying services. In 2016 programmatic ad tech will deliver well over 50% of ads in the U.S. market, and agencies are witnessing some of their best profits despite lower fees. As part of our 1H16 Ad Tech Customer Research, we asked enterprises to rank their most concerning business transparency issues with agency partners(see graphic with this post)

We think that as CMOs and their teams shift perception of the marketing function from a cost center to a profit center, areas such as vendor selection (18%) and agency business decisions (24%) will become increasingly important. This means CMOs and CMTs will need to take a more active approach to agency negotiation, viewing agencies as more strategic partners versus a commoditized service. Agencies guiding clients’ programmatic strategies and tool choices may be reticent to share their knowledge from fear of teaching clients too much (i.e., how to use programmatic ad tech), only to lose their clients’ business. In our buyer research, we tend to find only the largest of enterprises have the resources to insource media-buying functions. Agencies that invest in client education may find it leads to additional work in areas such as consulting and analytics.

  • How will the ad tech and martech vendor landscapes change over the next 2 to 3 years?

Seth: The markets will consolidate over the next two to three years, particularly within the programmatic advertising segment. The advent of header bidding, introduced to the market just a year ago, pressures supply-side platform vendors, and we can expect to see a similar trend on the buy-side with DSP vendors. As mentioned previously, DSPs extend audiences of CSPs and allow smart TV manufacturers to play in the addressable TV market. Ad tech provides an integral component to the CX value chain. I anticipate leading vendors will exit via acquisition by enterprise marketing clouds or next-gen media platforms, and a select few may pursue IPOs to maintain their independence.

(C) TBR