Software and Data Are Reshaping the Advertising Market

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1 THOUGHT LEADERSHIP Software and Data Are Reshaping the Advertising Market APR 2016 Scott Denne, Analyst Matt Mullen, Senior Analyst, Social Business The growth of digital media and mobile connectivity is set to massively shift the advertising ecosystem. Though often these trends are seen as part of the ad-tech ecosystem, it is our view that the introduction of software for media buying and the amount of data that is now becoming available for granular audience targeting and measurement will have impacts well beyond ad networks and real-time ad exchanges RESEARCH, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to over 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR SCOTT DENNE ANALYST Scott is a Research Analyst with 451 Research, where he helps direct the firm s coverage of technology mergers and acquisitions. He also contributes to 451 s Social Business channel with coverage of the advertising technology industry. MATT MULLEN SENIOR ANALYST, SOCIAL BUSINESS Matt is a Senior Analyst, Social Business, for 451 Research, where his primary areas of focus are digital marketing and customer acquisition technology. II

3 Key Findings The evolving and growing landscape of digital media is removing the proxy between advertisers and their customers. This is a departure from the mass market era, when marketers could only engage customers through content, rather than reaching an audience directly. The existence of software and data to find audiences wherever they are is the defining trait of advertising in the digital era. Today many advertisers focus on the cost of media rather than on precision targeting. As advertisers devote increasing attention to audience optimization, data services and media-buying, software vendors will be evaluated on features and capabilities such as workflow management, audience modeling, reach, accuracy and bidding optimization, rather than on a cost-per-impression or cost-per-click basis. Scale alone will no longer be a differentiator for ad agencies. More important will be the ability to provide, collect and integrate the data needed to define audiences and predict potential customers and to be able to advise marketers on which software and data tools meet their campaign goals. With the proliferation of mobile devices, the available data will give marketers an unprecedented amount of knowledge about their customers, from legacy categories such as demographics to a granular understanding of likes, dislikes and habits. III

4 Executive Summary INTRODUCTION The growth of digital media and mobile connectivity is set to massively shift the advertising ecosystem. Though often these trends are seen as part of the ad-tech ecosystem, we believe the introduction of software for media buying and the amount of data that is now becoming available for granular audience targeting and measurement will have impacts beyond ad networks and real-time ad exchanges. These changes will challenge the incumbents in the advertising market, namely ad agencies and other supporting players, while providing a point of entry (or opportunities for expansion) for other players such as telecom companies, enterprise software vendors and startups. In this report, we put these trends in the context of the evolution of the advertising market to illustrate why we believe that the current changes in the market are more than merely the opening of a few new digital channels. The report also explores in-depth the increasing use of software and the new sets of audience data both the origin and impact of these trends. Lastly, we discuss the challenges and opportunities that this transformation brings to different segments of the advertising landscape, as well as strategies to capitalize on those changes. This report is primarily concerned with changes to the advertising ecosystem; however, it s worth noting that this is part of a broader shift toward personalized, direct and automated communications with customers that s impacting marketing, sales and customer service software under the heading of digital experience. METHODOLOGY Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are covered in 451 Research channels including Business Applications; Cloud Transformation; Data Platforms and Analytics; Datacenter Technologies; Development, DevOps and IT Ops; Enterprise Mobility; European Services; Information Security; Internet of Things; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: IV

5 Table of Contents 1. EVOLUTION OF ADVERTISING IN THE DIGITAL ERA 1 2. IMPACTS OF THE GROWTH OF DIGITAL MEDIA ON THE ADVERTISING MARKET 3 ADVERTISING IS BECOMING A SOFTWARE-DRIVEN MARKET MARKETERS WILL NEED A BLEND OF CREATIVE, STRATEGY, EXECUTION AND IT Figure 1: Notable IT Services Acquisitions of Market, Advertising and Creative Agencies IDENTITY DATA WILL RESHAPE MEDIA MEASUREMENT Figure 2: Global Monthly Mobile Data Traffic in Millions of Terabytes THESE TRENDS WILL BE SLOWER TO DEVELOP AMONG B2B MARKETERS SEVERAL CATEGORIES OF VENDORS WILL FEEL THE IMPACT OF THIS AD MARKET SHIFT 7 Figure 3: Select Vendors in the Advertising Ecosystem, by Strategic Focus ENTERPRISE SOFTWARE MEDIA MEASUREMENT MARKETING DATA SERVICES AD AGENCIES IT SERVICES TELECOM Figure 4: Gap in the Total Addressable Market and the Forecast for Telecom Data as a Service AUDIENCE MANAGEMENT PLATFORMS MEDIA-BUYING PLATFORMS CROSS-CHANNEL ATTRIBUTION DIGITAL DATA PROVIDERS CONCLUSIONS AND RECOMMENDATIONS FURTHER READING INDEX OF COMPANIES 14 V