I wrote a recent post in which I outlined our view on convergence in the online media market. At a high level, we believe there are two major forces at play in the media market: (a) increasing standardization of “online” media formats and (b) device convergence blurring the lines between what are today thought of as “online” and “offline” media. Because of these forces working in parallel online display, online video, mobile display, TV, print and even billboards end up not that far down the line as one big (huge) 12-figure market.
In addition to expanding the market for online players, these twin consolidating forces will drive several broad and related trends:
- Trend 1: Niches Vanish. Differentiated solutions for big, general problems will drive the most value (for customers, companies and investors) in this future, merged media marketplace. That means focusing less on the medium and more on the customer’s business objectives, solving problems that exist in and across all media. Solving format-specific problems will mean limited opportunity, as it will increasingly be the case that relatively small improvements within the pool of media that has already converged will be more important than even a major breakthrough in a specific medium that has yet to be “plumbed to the main line”. And while we’re on the topic, that plumbing itself is more trade than investment. It can create speculative value in the short-term, but gets marked to zero quickly as industry-driven, open standards emerge.
- Trend 2: “Good” gives way to “Best”. Building on the notion that niches vanish, the bar will quickly rise for what capabilities qualify as “differentiated”. This dynamic echoes globalization. In a global market, the best athletes (literally and figuratively) can earn dramatically more than the best athletes from previous generations. However, those with less differentiated skills are increasingly marginalized – there’s a reason why millions of manufacturing jobs have moved to China. As best of breed vendors in each medium begin to jump format boundaries and compete aggressively in a converged media pool, only the strongest, most customer-centric solutions will survive.
- Trend 3: Higher Technology Hurdles. Scalable differentiation requires technology, so this rising tide of convergence also raises the bar sharply for technological sophistication. As Warren Buffet famously said, when the tide goes out you see who has been swimming naked. Well, as this tide comes in you’re going to see a lot of folks who can’t swim at all sink to the bottom, surprised by the speed at which the water rises. For example, there was a time when a network could be run as a bucket shop, substituting hustle and excel for real technology. That model won’t float in the media mainline.
So who wins in this world?
- Data and Data Infrastructure. Information and insights are always valuable, and become ever more valuable as size of the spend across which you’re deploying them expands. As more and more media becomes effectively “online” media and thus more dynamically targetable, the value of targeting technology and data itself increases. This will benefit targeting technology providers like Blue Kai and Exelate, but will also benefit data owners like Acxiom, Facebook and Expedia.
- Measurement. While I believe online media have over-emphasized measurement relative to other elements of the online media value proposition, this is a moot point in a converged media world. It is true that measurability is a particular strength of online media so as more media comes “online” it will create opportunities for measurement vendors like Nielsen, comScore and Vizu to innovate, expand and drive increasing value for customers.
- Supply Side Platforms (SSPs). The fact that it will be technically possible for an increasing number of players to join this media mainspring does not mean each of them will have the knowhow and capability to do so competitively. There is a space to help the “supply side” players– content owners and media companies – connect into the media mainspring, and make the most of it. Folks like Rubicon and Yieldex have opportunities here, although the technology bar will be particularly high in this space.
- Demand Side Platforms (DSPs). Finally, we come to the “demand side” – the buyers of media. Last, but by no means least as demand drives the market. Similar to the supply side there is a space for broad platforms to help manage and optimize campaigns over a diverse and complex online media inventory landscape. As I have previously mentioned, there are fundamental differences between technology required to service DR objectives in the spot market and technology required to service Brand objectives in the futures market. Most of the energy here has been focused on the DR/Spot side, but we’re going to see that change rapidly as major consumer brands get into the game for real. For DR/Spot, Turn and Efficient Frontier are well-positioned and aggressively pursuing this opportunity. Appnexus also has an interesting “meta-DSP” play. For Brand/Futures, Brand.net is the clear leader, with market leading technology and strong customer traction.
Winners mean losers and the main theme in the “loser” category is the ad network shakeout – widely and frequently predicted over the last 5 years – finally materializing. Here we go:
- Single-Format Players. Those players whose businesses are built primarily on execution in one format and who don’t have best of breed capabilities that are broadly applicable to all media will wither without the shelter provided by format barriers.
- Naked Swimmers. Demand side players that have substituted people for technology will get increasingly squeezed between agencies and exchanges. Supply side players will find themselves with stiff competition from large exchanges in providing more/easier functionality for publishers.
- Non-Aligned Exchanges. Between Google and Yahoo!, the market already has more than enough basic spot-market transactional capability. Microsoft will likely also make an additional acquisition to accelerate their internal efforts, but once it does the music will have stopped. With these huge, technically sophisticated, players already ramping quickly it’s too late for new entrants. Only one current player will get picked up, and the rest better have a very strong DSP or SSP option or they’ll find their game over.
While this next wave of evolution poses serious challenges to many current players, it unlocks tremendous opportunities for those players with the right capabilities to ride the wave.
As always, I welcome your thoughts and comments.