Digital ad spend is healthier than ever. But can it last?

The last twelve months have been one of the most challenging periods for the still-fledgling adtech industry. From legal cases to misjudged ad placement to outright fraud, the industry has been shaken up - violently. Some of the biggest industry players have been hit in the share prices, businesses have been sold, and investment has hit its lowest point in five years.

Despite the challenges, however, ad spend is healthier than ever. Programmatic advertising spend globally is set to grow by 31% in 2017, say Zenith, while eMarketer states that programmatic will make up three-quarters of all UK ad spend in the same year.

Looking at Western Europe as a whole, eMarketer reported that advertisers were set to spend $35bn on digital advertising, making it the third largest global advertising market. This figure, they say, is set to pass $40bn in 2018. It’s little wonder The Drum have called 2017 adtech’s “year of opportunity”.  

The Brexit vote has clearly not had the expected negative impact on ad spend - and investment opportunities in Europe are still very much available. But can expenditure really be used as a marker for success - and can the current state of good health of the industry last?

The good…

Ad fraud is still clearly the elephant in the room for adtech - but things are looking up. A report from the Association of National Advertisers and WhiteOps shows that economic losses resulting from bot fraud are set to fall by 10% in 2017, with mobile ad fraud also lower than expected.

It will, of course, take more than one report to stem the tide of negative press, but the industry has been given a wake up call. For the most part, companies are responding positively to the calls from advertisers demanding more transparency and better controls and protocols.

Facebook says it will allow independent audits of their metrics, Google has followed, and there are companies like our own clients Parsec who are changing the face of ad reporting with a focus on ad results, not impressions.

The bad…

Despite the predicted fall in bot fraud losses and more stringent processes, ad fraud is still occurring on a large scale. In May 2017, Google banned more than 40 apps from its Play store when it discovered they were forcing Android users to click ads. In early June, Chinese malware Fireball was shown to be hijacking the web traffic of those with infected devices, installing plug-ins in order to generate advertising revenue. It is estimated that 250 million computers across the globe have been infected with Fireball, along with 20% of all corporate networks.

Ad fraud is still a major issue for adtech - and it’s not the only thing challenging the industry’s current strong health. Investor activity in adtech is down as a result of unsuccessful public floats, the saturation of the market, and the dominance of Facebook and Google, which makes it ever more difficult for smaller players to compete.

Both the capital invested and the number of deals closed have fallen since the heights of 2015. Without increasing investment, will adtech falter?

A positive outlook

While many suggested six months ago that 2017 could be a tricky year for adtech, subsequent industry sources suggest that digital ad spending will remain strong - at least for the foreseeable future.

The key area to watch is mobile ad spend, which is likely to overtake desktop spend for the first time this year. In the UK, according to Zenith Media, mobile ad spend is set to account for 28% of the total ad spend for 2017.

We’re also seeing the investment and IPO landscape changing. While overall investment figures may be down, adtech firms are spending their money differently in response. For many, it’s no longer about getting as big as possible, as fast as possible.

Look at the likes of AppNexus, who took a more cautious approach to their proposed IPO, as well as The Trade Desk, whose agility and ability to maintain its healthy revenue streams have led to early success. These two examples are a stark contrast to the likes of Rocket Fuel, who have seen stocks plummet since their IPO in 2013, and Rubicon Project, who axed 19% of their staff in late 2016 after admitting they were slow to react to header bidding. A failure to focus on product saw them pay the price.

Ensuring a strong future

With plenty of data available and a vast audience there, adtech still has enormous potential. However, efficacy must be the real focus for publishers and advertisers alike, which means getting to the real root of the issues that the industry currently faces. Put simply, if adtech companies can prove results, the money will keep flowing.

The EU has been vigilant about countering bad behaviour. Adtech firms who comply with EU regulations and expectations will be a step ahead of others when looking to ensure longevity. In ad blocker terms, fighting the reasons why ads are blocked will be more likely to lead to long-term success than fighting the ad blocking tech itself.

The prediction is that UK ad spend will have grown by 3.2% during 2017. With significant improvements to adtech offerings, this figure is not unrealistic - and could even be far higher.

In short,  current levels of digital ad spend seem likely to last. By harnessing the same innovative thinking that drove the growth of adtech in the first place, a creative solution to the industry’s current issues should be more than achievable.

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