Of Beer, Chocolate and the Commoditization of ad:tech - Brian Wieser

REPORT INCLUDING DISCLOSURES CAN BE FOUND HERE Madison and Wall 4414pdfOn trips to Belgium and France several years ago we noticed that the plain bars of chocolate sold by chocolatiers tasted oddly similar within each country Upon further inquiry we learned that there tend to be dominant manufacturers of couverture the blocks of chocolate from which related confections are made in each country such as Callebaut in Belgium and Valrohna in France And then just recently over the course of several brewery tours we learned that virtually every brewer in the United States amp8211 whether a microbrewer or AnheuserBusch amp8211 relies upon one of two producers of yeast for this core ingredientIt shouldn39t have been surprising given what should be selfevident about economies of scale in mature industries Certain things are hard to do or expensive unless a significant volume of activity is involved Couverture requires the sourcing transporting and roasting of cacao beans followed by an actual manufacturing process for instance But ultimately when a critical product input is provided at a low cost to a more fragmented group of companies it allows them to offload serious capital expenditures and difficulttoreplicate expertise Instead companies can focus their efforts on all of the other activities required to grow a business A chocolatier or microbrewery will instead compete on attributes such as product39s final form blends with other ingredients branding and marketing or distributionAdtech as it turns out isn39t necessarily much different The thing that many will view as difficult amp8211 the underlying technology of adtech amp8211 can in fact be outsourced For much of the industry involved in selling realtime ad trading products including companies which compete with each other Iponweb and AppNexus provide the critical ingredient of technologyThe littleknown Iponweb with most of its engineering talent based in Moscow initially produced the technology behind Right Media one of the first exchanges now owned by Yahoo From there the company expanded significantly the company reportedly powers two of the 10 largest DSPs and two of the 10 largest SSPs in the United States and has also developed agency trading desks exchanges and DMPs for agencies brand advertisers large publishers and data companies It has a similar presence in Europe and Japan developing technology for 20 of the approximately 250 companies selling realtime ad trading products That so many companies have emerged in this sector is less surprising when considering that Iponweb can develop a mature solution for between a few hundred thousand and a few million dollars further it can maintain operations after the product has launched With a different overall business model AppNexus whose CEO and cofounder incidentally was CTO of Right Media is providing many similar capabilities to the ecosystem Among the company39s offerings it has developed white labelled solutions for companies including Microsoft Millennial Media and ResponsysThese approaches and proven track records means that technology is less likely to be a material differentiator between companies involved in adtech Better products won39t necessarily win if literally anyone with a few hundred thousand dollars can quickly enter or pivot and compete in the business Instead when we want to think about who will be the industry39s leaders we have to consider that business models product features trade marketing and industry relationships will matter much much more These are the characteristics around emerging adtech companies will live and die on much as the makers of chocolate and beer differentiate themselves on characteristics other than their core ingredients tooThe lessons those other industries have gone through may not be wholly applicable but they do highlight that sometimes the thing we think we are buying mostly originated with someone else and might be nearly identical elsewhere This also means that in divining the future of adtech as with beer and chocolate we can mostly forget about technology and instead concentrate on the industry39s myriad of flavors insteadBrian Wieser is a Senior Analyst at Pivotal Research Group where he covers securities which are impacted by the advertising economy including Facebook Google Yahoo Interpublic Omnicom WPP Publicis Nielsen CBS Viacom and Discovery Communications Brian can be reached at brianpvtlcom Read all Brian39s MediaBizBloggers commentaries at Brian Wieser39s Pivotal ReportThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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Of Beer, Chocolate and the Commoditization of ad:tech - Brian Wieser

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