Ad Tech Beats Ad Platform Growth, Helped By Digital Media's Complexity

Ad tech companies have also mostly completed their reporting for the first quarter of 2023, and so I thought I would compare their recent growth rates to digital advertising revenues generated by the largest global platform owners (Alphabet, Meta, Amazon, Microsoft, TikTok, Yahoo, Snap, Twitter, Apple and Pinterest).

Using actual figures for The Trade Desk, Magnite, Pubmatic, DoubleVerify, IAS and Viant, but using consensus estimates for LiveRamp (who reports at the end of this month) and making adjustments for acquisitions (but not making any to account for foreign exchange changes as disclosures on this measure are limited for the group, if also likely modest) I calculate that on a weighted average basis the group grew by 15% during the quarter.   Importantly, because The Trade Desk is the biggest public company included in my ad tech composite it skews growth rates up.  The median company among this group expanded revenue by 7%, although I estimate that currency is probably a drag of a percentage point or two, suggesting closer to 9% growth for the median company.   This compares to 6% growth on an organic basis for the global top 10 digital platforms.

Critically, we need to remember that total spending on ad tech is a fraction of the total that is spent on digital advertising (probably a high single digit percentage) and if trends at Google’s ad tech business (whose revenues are undisclosed but which dwarfs the group of publicly listed companies) deviate from the trends experienced by companies with public disclosures, my interpretations may be off as well.

The general degree to which ad tech outpaces digital advertising is illustrative of the complexity of digital advertising, and the greater need for more tools to manage this spending.  In that sense, ad tech is a lot like the services sector (i.e. agencies) where complexity creates business opportunity for specialists who can help marketers manage new processes.

Slowing growth for digital advertising is nonetheless also a harbinger for a new normal of slowing growth in ad tech.   Global advertising is a mid-single digit growth business, and digital advertising should be able to grow slightly faster than that figure.  Ad tech, in turn, should probably be able to grow slightly faster than that figure for the foreseeable future.  However, that might not allow for a return to double digit growth rates for the typical ad tech company any time soon.  Growth beyond that level will likely be a function of share gains for existing products from existing customers, market expansion by way of product extensions or the establishment of new revenue streams from new sets of customers.

The spending growth which outpaces both digital media and total advertising should be viewed as a positive trend for most marketers as well. I think it’s always unfortunate when marketers refer to any spending that does not go to a publisher as “non-working” spending. Intermediaries and support services including ad tech and marketing tech companies, data asset businesses and agencies provide critical value that helps marketers to accomplish their goals. I would suggest that a marketer who increased spending “non-working” spending almost certainly sees an outsized impact on desired results, presuming they have vetted their partners well and have clear goals. Conversely, marketers who look to cut this spending for the sake of keeping a ratio down are probably at greater risk of experiencing a greater degree of waste in their media campaigns.