Traditional media companies have been struggling to reinvent themselves and adapt their revenue streams since the dawn of the digital age. Now, advertising agencies are finding themselves in a battle to maintain clients. The pressure is coming from ad tech companies that are seeking out direct relationships with ad agency clients and this challenge is forcing agencies to change strategies.
The growth of the ad tech market is directly correlated to the shift to digital advertising and marketer interest in big data. Over the past couple of years, there have been over 100 deals in the ad tech industry, ranging from IPOs to big mergers and acquisitions. The value of these deals approached $5 billion. The interest in this sector has continued with RocketFuel’s successful IPO last month which valued the Google competitor at over $2 billion though it has only about $100 million in annual revenue.
Writing for Ad Age, Alexandra Bruell and Tim Peterson summarized the changes in this industry. Agencies have been partnering with tech firms to carry out digital media buys. In some cases, they’ve also been acquiring these firms. However, the new breed of ad tech firms are using ‘aggressive tactics’ to work directly with marketers to place digital advertising and in some cases are cutting out the agencies. Drew Kurth, CEO of digital-marketing platforms at Publicis Groupe agency Razorfish notes that ad tech companies are "not interested in profits, just in gaining ground." Agencies are paying close attention to this growing competition. The strategy of ad-tech companies is similar to the one used by Amazon to achieve market dominance in online retailing. In order to succeed, agencies will have to offer their clients something that ad tech cannot.
Analysts believe that agencies will need to prove the value of their services, especially the creative part. They can also try to negotiate deals with ad tech operators, emphasizing the strengths they can bring to a relationship with a marketer who wants to increase and automate online ad buying.
If you're an agency, have you encountered increasing competition from ad tech operators? Are you changing strategies to improve your position in the marketplace?
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-owner of several small businesses in the health care services sector.