Tom is a General Partner at OpenOcean, where he leads the firm’s investments in marketing tech, adtech, and consumer data companies. He is currently on the boards of LoopMe, Passfort, Personalyze, TapDaq, Unacast, Verto Analytics, and is following Supermetrics and TrueCaller. Before joining OO, Tom launched and led Nokia’s Interactive Advertising arm, scaling this first-generation premium mobile ad-network from zero to almost $50 million in revenues in less than three years.
We put him in the hot seat and asked him some tough questions on the media-and ad-tech space…
What are some of the monumental changes to the adtech industry that have occurred up to 2018, from an investment standpoint?
Consumer privacy concerns have been the biggest change in the ad tech industry in the year 2018. Following the general data protection regulation (GDPR) in May, up to 90% of adtech vendors could be denied access to (at least a part of the) consumer data. Also, the Facebook Cambridge Analytica scandal has opened the eyes of the broader public on how consumer data is being used by tech companies. Consumers are now clearly less likely to grant consent for advertisements as the desire for privacy is increasing. This requires increasing creativity from the adtech industry to deliver the right messages to the relevant audiences.
Programmatic advertising, i.e. real-time trading of ads, has been growing super fast in the last couple of years, as exchanges offer advertisers and publishers vast amounts of control over buying and selling digital advertising cost-effectively and rapidly. As long as ad-fraud can be (better) managed, there is no stopping this evolution, and all players in the ecosystem need to make sure they are included also in this critical part of the business.
Google and Facebook continue their domination of the digital advertising ecosystem, just getting stronger and stronger as their data-sets and technologies grow in power. Media agencies are being squeezed, and the (rest of the) tech vendors, sharing the 20–30% of the value that is not yet overtaken by G/F, need to invest and innovate even more to keep up.
Is the negative connotation on consumer data and adtech, as of recent especially, (due to tracking and retargeting, etc) something you view as sustainable, increasingly detrimental, or simply a blip in the overall trend? Will people really get over the fact that they have “zero privacy anyway” as Scott McNealy once said?
First, as long as free consumer services and publications exist, an advertising model of some sort will coexist alongside it, as there must be a value-exchange mechanism in place to support the use of these services for free. If you want to drive fast on a highway, you need to pay a toll!
Second, I believe a greater emphasis on personalization while respecting privacy will lead to relevant and high-quality ads, served to the end consumer. Solutions are already arising taking the side of the consumer, filtering data based on consumer set-preferences, and ensuring only the most relevant advertisers get access. In this race, technologies such as the deep consumer profiling by one of our portfolio companies, Personalyze, based on the interests, digital behavior, and personalities of individuals, will become essential for understanding what consumers truly desire.
Finally, although some users will always block out any advertising, I believe in a bright future where, with the help of Artificial Intelligence and other technologies, profiling and targeting will become so good and ad delivery technologies so immersive and non-intrusive, that ads are perceived as a value-adding service, and even as entertainment, by the greater public.
Some say that the various industry challenges, consolidation, and dwindling bottom lines have caused the best ad-tech talent to jump ship elsewhere? If so, is adtech in trouble or are you unfazed by such concerns?
Such developments have had major impacts on the advertising industry, but are not solely responsible for shifts in talent leaving the space. For instance, the quest for top technology talents such as software developers and data scientists are ever increasing and rapidly evolving, so many talented individuals are being snapped up into growing industries including AI and global technology companies.
Some marketing tech-, adtech-, and consumer profiling start-ups, however, are definitely breeding grounds for the hottest innovation within these fields as well. As long as you can demonstrate that you have an A-team working on an important and future-oriented problem, likely with a large and unique data-set, you have a chance of attracting the best talent (back) to the industry.
Let’s now discuss the future of the industry. Considering the rapid rise and implementation of AI in software- (and adtech-) companies as we move ahead, how beneficial do you foresee AI to be to core factors like Ad Selection, Ad placement, Targeting, and Analytics?
As AI developments continue to accelerate, this emerging technology will have huge implications for instantaneous and automatic optimization of Ad Selection, ad placement, targeting, analytics, and overall advertising performance. For instance, our portfolio-company LoopMe, which is focusing on brand-safe mobile video advertising, has developed it’s set of both AI and Machine Learning algorithms over the last four years (they now have more than 100 algorithms optimizing outcomes), and has seen dramatic improvements in the performance of getting consumers to view video ads (longer) and engage (further) with the brand.
In the case of LoopMe, they have launched the next generation of their solution, which optimizes results, based on the same AI framework, to close the loop for brand advertising. LoopMe now delivers for brands over 2X more efficiently real-world outcomes such as store visits, purchases and more.
What are the key attributes in your opinion to the decreased VC deal count in Adtech companies over the past few years?
While we still see a sizeable amount of “media/adtech” companies in our deal-flow, there’s no doubt that the count of adtech investments that we see through to fruition has gone down across the industry in general. As to why? Partly just because many of these startups are now categorized as something else, such as AI, or martech, or you name it, as software becomes easier to use and technology spreads to new use cases. The bigger reason, however, is that Adtech companies specificly have not performed well as a category in the public markets, making it quite unlikely for investors to find billion-dollar outcomes in this area.
The digital marketing and advertising ecosystem are huge, and the technology landscape is developing extremely quickly, so I feel some of the fear surrounding ad-related tech amongst early stage investors is definitely exaggerated, if not unmerited. In fact, there still many noteworthy exits over the last few months alone. AppNexus was acquired by AT&T for $1.6Bn, Salesforce acquired Datorama for $800m, a majority stake of Integral Ad Science was acquired by Vista PE at an estimated $820m valuation, Oracle acquired Grapeshot for $325m, and MediaMath secured $225m in funding. So yes, there’s still obvious potential in this sector for savvy early stage investors.
What are the areas that OpenOcean is excited about for the next year(s), within Martech, Adtech, and consumer data?
The OO investment thesis in these areas strives to identify companies that develop delicious and data-intensive software solutions that uphold the two-fold “holy grail” of advertising, being:
Attribution: to definitively ascertain which action or ad convinced someone to behave differently in the real world, including buying a product. Unacast with the world’s largest set of verified highly accurate location information is a great example of a company helping solve this.
Allocation: To efficiently allocate our “ad” dollars and other resources against available information, reducing or even eliminating waste completely. In practice, this includes high performing real-time marketing systems, and better profiling, targeting, and communicating with customers or users.
In the long term, one of the biggest new opportunities for the industry and for investors is the rise of Blockchain technology. Thoughts on this?
Definitely. As Adtech typically was built around centralized platforms like social media and search engine websites, where personal data has been collected and user profiles for ad monetization have been generated. Conversely, Blockchain is a decentralized medium of information sharing and data storage with potentially dramatic implications. It will give autonomy and power over data storage and personal information, meaning that adtech will need to find a way to fit the needs of decentralized applications or use cases that could potentially have billions of users. This new architecture is also the single largest threat to the current near monopolies of user data that Google and Facebook today are. Thus, the potential for investment and innovation around (decentralized) trustless systems and new types of networks with completely new incentivization and monetization models is huge.
—
Thanks for your time, Tom Henriksson!
