"Data-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 Nico Neumann, assistant professor and fellow, Centre for Business Analytics at Melbourne Business School. Nico will present "How The Wrong Audience Targeting And AI-Driven Campaigns Undermine Brand Growth” at AdExchanger's upcoming PROGRAMMATIC I/O San Francisco conference on April 29-30.
Sizmek, however, is of greater significance in the ad tech universe because it is not just another failing demand-side platform (DSP): Sadly, Sizmek is one of the biggest third-party ad-server alternatives to Google. And ad serving is the lifeblood of ad tech.
Now when clients report that Sizmek campaigns aren’t serving, probably because suppliers and partners are afraid to lose more money, this could possibly lead to severe consequences and send a shock through the wider system.
Are programmatic lemon markets under existential threat post-Sizmek?
In 2017, I wrote about the risks and similarities between the global financial crisis and programmatic markets. The latter showed signs of a so-called “lemon market,” namely long and complex supply chains, where many stakeholders repackage ad impressions they buy from each other to disguise their low quality, which buyers often cannot assess properly. This can result in a vicious circle of price pressures and eventual market crashes.
This happened because Lehman Brothers was a systemically important bank with ties to various key institutions; it remains the largest bankruptcy filing in US history. Following Lehman’s fall, many other financial institutions stopped trusting each other, ceasing the financial trading required to fuel liquidity into economies. Numerous businesses suffered huge losses, creating more bankruptcies and a worldwide recession.
Here we can see the dangerous parallels to ad tech and the case of Sizmek, which is also a systematically important pipe in ad tech – and maybe the largest bankruptcy in the industry to date.
Too big to fall? Who will rescue Sizmek?
In the global financial crisis, governments bailed out their national systematic banks to revive financial trading and economies. Who will rescue Sizmek?
Certainly, no government intervention will happen in this case. One critical factor will be whether Sizmek is willing to sell individual businesses. Eventually, for the broader ad tech universe, the ad-server business is the most crucial element to keep alive.
But is third-party ad serving alone a lucrative investment opportunity?
It’s characterized by Google’s market dominance and huge fixed costs for the required underlying technology and maintenance, which is why it appears more attractive when combined with additional downstream services, such as creative optimization, attribution and targeting solutions – the same business model that did not work under Sizmek.
Ad-tech history repeating: More of the same?
This leads us to the question of why Sizmek failed. Many industry experts have pointed to Sizmek’s purchase of Rocket Fuel, which seemed to use insecure pixels and shady methods, as a massive mistake.
While certainly true, Sizmek’s bankruptcy is most likely the consequence of much broader issues in ad tech. This means that Sizmek may not be the last big name we will see struggle or disappear.
There is just not enough differentiation in the market. In 2013, when Rocket Fuel was at its peak evaluation of $1 billion, it proudly used “artificial intelligence and machine-learning technology to optimize online ad campaigns.” History taught us that this positioning was not enough to be successful.
Now you can to go to any DSP website and find similar statements. Of course, some DSPs try to distinguish themselves by claiming unique inventory, particularly for TV and video. However, Videology’s collapse reveals that this path will not necessarily create success either.
It is important to note that most DSPs and SSPs are based on the same underlying technology by Iponweb. Hence, the lack of differentiation in key features shouldn’t be surprising.
Programmatic: an overhyped concept and market past its peak?
Beyond the lack of differentiation, marketers have become increasingly skeptical that programmatic advertising has lived up to its promises. There are still too many persistent issues around ad fraud, gaming the system, endless arbitraging and audience data quality.
We also must wonder how successful data-driven and AI campaigns really are for long-term brand and revenue growth. (Disclaimer: I will address some of these issues at PROGRAMMATIC I/O SF.) Everyone has a case study or dashboard that shows how amazing the most recent campaign performed, but the actual bottom sales line of many businesses somehow does not seem to be affected.
Put differently: Have the companies with the greatest programmatic ad spending shown the greatest sales growth? Some anecdotes suggest otherwise. For example, Procter & Gamble’s efficiency increased after cutting digital ad spend by $200 million.
Programmatic advertising also faces strong headwinds from external forces, largely driven by global privacy concerns. The consequences of this shift in policies and consumer attitudes are more walled gardens, data regulations and third-party tracking restrictions – now considered by Google, too – all factors that are counterproductive for most ad-tech solutions.
Back to the roots: the beginning of ad tech 2.0?
Given the current climate of market decline and other less-controversial companies also looking for investors, it won’t be easy to find a buyer for Sizmek. And if it fails, Sizmek may pull down more ad-tech companies and former partners in the aftermath.
Only time will tell what will happen. A system shock may allow “programmatic” to restart and return to the core principles of advertising: creativity, brand building and service of customer needs, instead of the focus on pure data-greed and chasing low CPMs at the cost of customer experience.