As the mobile app space matures and consolidates, one of its early entrants is floundering.
Smaato just appointed its fourth CEO in a year after laying off 10% of its staff. Total headcount is down 20% from the beginning of last year, with the mobile exchange going from 240 to 190 employees.
Ajitpal Pannu, who worked at the mobile SSP for almost four years and left in early 2017 due to differences with the company’s founder, was asked to step into the CEO role by Smaato owner Spearhead. He will also focus on a push into the US market and address the challenges being faced by the company. His first day is Feb. 3.
Smaato’s challenges are numerous.
The most pressing economic challenge, and the reason behind the layoffs, is that the company’s previous leadership increased costs – including employee count – based on projected growth numbers it failed to meet.
“We have to cut the fat and optimize our business,” Pannu said. Though he said Smaato operates with a net profit, the company “operated as a $500 million to $1 billion company. The structure was not aligned with the revenue,” he said.
Another challenge has been the frequent changes in leadership over the past year. Co-founder Ragnar Kruse left the company in June 2019, exactly two years after the company was acquired by Chinese marketing firm Spearhead for $148 million. Smaato was part of a cluster of companies acquired by Chinese firms that year.
Smaato President Arndt Groth stepped into the CEO role after Kruse’s departure, but lasted a handful of months. CRO Glenn Fishback then became interim CEO in early December as Chinese owner Spearhead searched for a new leader.
Pannu will focus on making Smaato relevant to the US market again. He will be based out of San Francisco and move more of Smaato’s staff and business operations to the United States.
Though the company’s headquarters has always been in San Francisco, senior leadership and most of the staff worked out of Hamburg, Germany, which isolated the company from its buyer base and the fast-growing US mobile market.
Smaato, a tiny mobile exchange, also lacks differentiation as its clients consolidate the number of vendors they work with. Buyers are less interested in spending time with partners that account for single-digit percentages of their spend, and more interested in optimizing relationships with the largest mobile SSPs. And they want exchanges that offer unique supply or ad formats – not ones with the same stuff they can get elsewhere.
Though Smaato is a global company, 80% of its buyers come from the United States. Just 10% come from Europe and another 10% from the Asia-Pacific region. Its apps are evenly split across three territories: 30% of its supply is in the Asia-Pacific market, another 30% in the US market and about 40% in Europe.
Another reason Smaato may be seeking US growth is because the European ad tech market is facing GDPR challenges. Smaato is currently one of five ad tech companies cited in a GDPR complaint involving Grindr.
The US market share challenge
Smaato faces an uphill battle in winning back the US market, where its reputation has plummeted into irrelevance.
Smaato partners and competitors were not surprised to hear of its stalled growth and business challenges, according to multiple industry sources. They say Smaato’s problem is that it mostly resells mobile app inventory and doesn’t have unique supply to entice buyers.
Reselling inventory is now frowned upon as the mobile app marketplace matures. Smart mobile DSPs have ended reselling relationships and prohibit mobile exchanges from offering resold inventory. These actions save buyers money and create cleaner supply.
Also, as buyers adopt app-ads.txt, it will become more difficult for exchanges to subsist on resold inventory.
Smaato’s new CEO Pannu said he wasn’t sure if it resold inventory. He disapproves of the practice strategically.
He also couldn’t say how many of Smaato’s 200 to 240 partners had implemented app-ads.txt files across the 80,000 to 90,000 apps Smaato works with.
Besides holding a reputation as a reseller, the perception in the US market is that Smaato lacks unique supply because its mobile SDK isn’t widely adopted by apps. Pannu disagrees, saying 70% to 80% of the 90,000 apps use Smaato’s SDK. The rest use an API integration.
Another challenge the company faces is that while a good chunk of mobile app inventory is monetized through ad networks, Smaato only brings in programmatic demand. So app developers buying through Smaato can’t access the full range of ad networks and programmatic demand, and leave money on the table.
Smaato will address that problem with better, US-based account management and helping publishers set up their stacks in a way that they can maximize demand for their inventory, Pannu said. “We have the products. We haven’t done a good job helping customers optimize the demand.”
He insisted that Smaato’s biggest issue is marketing, not product development, because the company built great products no one knows about.
Pannu signed onto the CEO role for the next three years. He will also continue to work on the venture he launched after leaving Smaato. He’s founder and CEO of Rancher, a SaaS app for farming that he uses to manage his family’s almond farms and vineyard in Central Valley, California. Farming informs his approach to ad tech, Pannu said.
“This might be the farmer DNA inside of me, but we want to do farming in a sustainable way. And we [at Smaato] want to operate a clean marketplace.”