The changing fabric of digital advertising, implications across the ecosystem
Digital ad ecosystem will be rebuilt
We believe online advertising is about to be
fundamentally restructured in a way that will
result in massive consolidation of both content
buyers and ad platforms. We expect the
infrastructure underpinning the ecosystem to
move from the fragmented oversupply of largely
recycled or undifferentiated sites supported by a
massive ad tech ecosystem toward consolidation
around platforms and content owners.
Driven by mobile, user experience, and
ad blocking
While the platform shift to mobile and the
application of big data to ad targeting and
measurement are in later stages, the widespread
adoption of ad blocking tools could compound their
impact, intensifying the challenges to the existing
ecosystem. Apple extended content blocking
functionality to iOS with its mid-September
release in response, in our view, to slower site
performance, higher data costs and battery usage
that have arisen from advertising technology.
Apple and Google are agents of change
We expect Apple’s user experience and privacy
initiatives and Google’s response to heavily
influence how this unfolds. Three potential
outcomes include 1) Low incremental ad blocking
adoption, ecosystem gradually shifts toward
higher quality ad formats, 2) Apple facilitates a
closed advertising ecosystem, major redistribution
of winners and losers, or most likely in our view 3)
Google becomes the mechanism of change,
leveraging its scale to re-architect the ecosystem.
Scaled platforms best positioned to win
This report, relevant for Internet and media
investors alike, explores the architecture as it
exists today and the strategic changes companies
need to make for the changing ecosystem.
In an environment where user experience matters,
consumption occurs seamlessly across multiple
devices, with motivated players like Apple driving
change, we think value accrues to scaled
platforms like Facebook, Google, and secondarily
Twitter and LinkedIn, that have logged-in users,
proprietary data, and engineering resources.