Google And Facebook Are Killing AdTech Funding

The “Facebook-Google duopoly” has crashed funding for advertising technology start-ups to five-year lows, according to reports emerging this morning.  All in all, there were 343 adtech venture deals in 2016 — a 17 percent drop compared with the 414 deals made in 2015. The value of the funding is down too – worth $3.2 billion in 2013, and only $2.2 billion in last year.

The slowdown also became more pronounced as the year went on; Q4 saw only 69 adtech deals, the lowest it has been since 2012.

The named culprits at this point are the high-walled gardens that Google and Facebook have around their users — gardens where they own the supply chain, such as it is, and where they control the flow of user data.

With networks so powerful — according to Jason Kint, chief executive of Digital Content Next, a trade association representing publishers including the New York Times and the Financial Times — it is hard for any player to meaningfully compete with Google or Facebook for any sustained amount of time. The perception that there is no long-range scalability possible for adtech because of Facebook/Google’s dominance means VC funds are staying away.

And that dominance is hard to argue against — according to Mary Meeker’s Internet Trends report, 75 per cent of all new online ad spending comes care of one of those two firms.

“Adtech’s struggle as a sector is absolutely to do with the dominance of Facebook and Google,” said Suranga Chandratillake, a partner at venture firm Balderton Capital who sits on the board of mobile adtech company Adludio. “Ultimately advertising is about selling attention, and if most of that attention is focused on Google and Facebook, then naturally they can monetise it.”

According to Mr Chandratillake, part of adtech’s problem is how good it is — and how hard the products are to set apart from each other.

“Gains in adtech are increasingly marginal because companies are constantly copying each other. Lots of adtech start-ups go from zero to $30m of revenue and back down to zero again. As a VC that’s hard to back,” he said. “Even if you manage to build a sustainable advantage for a few years, how do you scale to compete with Google or Facebook? That’s why traditional adtech does feel dead from a venture perspective.”