On June 16, 2016, Samsung acquired advertising technology (ad tech) vendor AdGear, which specializes in media buying and data management in the $185 billion digital advertising market.

As margins compress and revenue growth of smart TVs slows, ad tech represents a high-growth, potentially lucrative endeavor for the device manufacturer and expands its operating system (OS) in Samsung smart TVs. Given Samsung’s annual revenue of over $170 billion, TBR believes the $50 million spent to acquire AdGear represents a small but timely strategic move.

  • With the global ad market undergoing a seismic shift, smart TVs are positioned to be a key access point

Today’s $500-plus billion global advertising industry largely comprises traditional TV ($200 billion) and digital ($185 billion) formats, with the remaining earmarked for traditional formats (e.g., print, radio). As marketers and agencies adopt data-driven platforms to purchase media, an increasingly larger percentage of digital ad spend is captured by ad tech vendors, such as AdGear.

In TBR’s 2H15 enterprise buyer study survey, respondents indicated 31% of ad budgets in 2016 will be allocated to platforms versus 40% for working media. With core capabilities that include media buying, audience targeting and data management, AdGear assets will help Samsung expand its nascent advertising business. TBR anticipates ad tech budget allocation will grow as brands seek to improve customer experience (CX) en route to optimizing media performance. Historically, TV is planned and executed separate from digital, but consumer viewing habits are forcing conglomerates such as Disney, Viacom and Discovery Communications to invest in new business models centered on on-demand and digital platforms to deliver content while enabling advertisers to purchase ads programmatically.

Although in its early days, programmatic TV ad-buying adoption is being led by a combination of video specialists (e.g., TubeMogul) and multichannel vendors (e.g., Rocket Fuel, DataXu). Similarly, supply-side support comes from digital video specialists (e.g., SpotX) and companies focused on enabling inventory to enter the programmatic marketplace (e.g., clypd).

  • Samsung’s ability to balance revenue opportunities with CX is critical

As Samsung embeds new ad tech into the OS of its smart TVs, the ability to deliver a positive CX is paramount. The company may consider different smart TV price points based on ad-supported models, maintaining a close eye on brand engagement and value add, as intrusive or irrelevant ads may impact smart TV sales negatively.

Canada-based AdGear will operate as a business unit within Samsung Canada initially. TBR believes the successful integration of the company will support more aggressive moves for Samsung, including acquisition of larger ad tech vendors in the U.S. market. Samsung may also explore expanding its channel alliance with Netflix; the subscription-based video service provides a revenue stream based on applications that are preloaded on Samsung smart TVs.

As smart TVs increasingly act as on-demand gateways for media consumption, TBR anticipates manufacturers such as Samsung will accelerate ad tech capabilities due to opportunities created by media buying and Data as a Service (DaaS) solutions. While Samsung will likely focus on advertising in the near term, the ability to drive consumer engagement provides the company long-term opportunities in adjacent businesses such as e-commerce and marketing automation.