Hard Or Soft, Brexit Will Be Tough On Ad Tech

stephentaylorData-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Stephen Taylor, senior vice president of enterprise solutions at Sojern.

Two weeks ago, UK Prime Minister Theresa May expressed support for a “hard Brexit,” the process for the country’s planned exit from the European Union. She believes regaining control of immigration is paramount, even at the expense of access to the European single market. As a Brit living in the US, I shuddered.

Many predicted gloom and doom immediately after a slim majority of UK voters cast their ballots in June to leave the European Union. Three months later, we have a clearer picture of the process and can better predict the vote’s impact.

Brexit, be it hard or soft, will be bad for UK-specific digital in the long term, for at least three reasons. First, venture capital for UK ad tech players, already reduced to a trickle in recent years, will come close to vanishing. Brexit will further add to negative sentiment in the venture capital world and could eventually kill access to European capital for British companies.

Alternately, it could potentially open up some really interesting acquisition opportunities for companies that are in a good financial position and can snap up smaller players. Silver lining aside, any UK ad tech company that is neither profitable nor has serious prospects for acquisition or going public should be worried.

Second, a Brexit-related dip in consumer confidence is likely going to stymie what has been a steady increase in ad spend over the years. Cautious consumers will tighten their purse strings, making advertisers nervous. The general uncertainty preceding the actual exit could impact all industries, and the fall of the British pound will definitely impact sectors such as outbound travel and imports. Another bad omen related to the pound’s free fall versus the dollar: Since the US dollar is a benchmark currency for many commodities, media auctions and international media houses, the pound’s relative weakness could affect real or perceived media costs for UK media.

Third, and perhaps most importantly, digital talent from the EU will have a harder time working in the UK due to fears over changing work and residency rights. Prior to Premier May’s recent statements, we had all hoped that the single market and free movement of labor would be a key negotiating area. Now, with free movement of labor uncertain, talent may be reluctant to relocate to London. If workers are already there, they may hesitate to purchase any major assets and may even consider moving to other European capitals. Dublin, for instance, with its highly literate and tech-savvy population, will likely benefit from Britain’s conundrum.

There’s no doubt about it: Brexit will be hard on ad tech, and a hard Brexit doubly so. But in difficult times, companies tend to regroup around their core strengths and rethink their priorities to focus on having a great proposition and a clear plan on diversifying revenue, exploring new markets, staying cash positive and, if possible, maintaining profitability. Smart ad tech companies will always find a way to succeed, and a period of self-examination is not the worst thing that could happen to them.

Media and advertising have always been a traditional strength of the British. Once marketers and ad men find themselves anew in an insular market, going at it alone, the UK ad tech industry will have to demonstrate its real strengths and differentiators to the global markets, and media could be at the forefront of this. Hopefully, the government will recognize and support this accordingly.

We still have a couple of years until Brexit comes into full effect. There’s still plenty of time to prepare for the worst, while hoping for the best.

Follow Sojern (@Sojern) and AdExchanger (@adexchanger) on Twitter.

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