How the new wave of MadTech breaks the dependency loop
There is a massive shift going on in our industry. We are transitioning from a quasi one-to-one marketing infrastructure - predominantly built off the back of two oversized third party platforms (guess who?) - to a more custom, fragmented and privacy-first eco-system.
For many legacy martech/ad tech vendors and “conflicted” industry bodies, the former is the preferable state. But we all know the latter is our reality now.
Google’s announcement is probably going to encourage another 24 months of inertia, leading to a predictable car crash in 2023.
If you are in this hope-for-the-best grouping, you need to keep a few things in mind as you procrastanate about a post-cookie, post-id world: this “stay of execution” only applies to Chrome; using Google to model audiences in non-cookie ecosystems is not only stupid it’s also not going to work; Apple is weaponising privacy and coming for market share, making your life even harder; and ultimately you can’t trust Google - ever.
Regardless, 3rd party cookies and ids are going away. And this will have consequences, particularly for martech and adtech.
What's the real value of a MadTech partner anyway?
The great swathe of the “lumascape” middle-men companies will consolidate and ‘take rates’ will collapse to low single digits.
The take rate is particularly important here. I just don’t see how a 40% margin is going to fly when the execution moves beyond open auction to PG (programmatic guaranteed) or a server-to-server integration.
Value is ultimately going to the fringes. Publishers, marketers and agencies are looking for tech enablement as opposed to a black box arbitrage solution.
How do you define one of these companies? These new MadTech vendors have four distinct features:
enabling technology that can be used by the service layer, offering proper utility in the privacy-first era (measurement, targeting, infrastructure etc.);
usefulness is not dependent on the ‘goodwill’ of any platform (Apple or Google specifically);
less managed service and more SaaS-based;
recurring revenue rather than occurring revenue.
Utility. Utility. Utility.
Our thesis at FirstPartyCapital is that the new “madtech middleware” will thrive in the new privacy-first era, as long as it looks to build tech that addresses specific problems and adds real utility in areas like creative, infrastructure, privacy, measurement and targeting.
This expansive approach will increase MadTech’s addressable market, as increased fragmentation and the rise of new channels will require more innovative solutions. Add in the intense anti-competitive scrutiny Amazon, Google, Facebook and Apple are all under, and you get a proper sense of the exciting times that lie before us.
The expanded service layer is also going to need brilliant new companies that help navigate a multi-trillion dollar/pound/euro market. No third party cookies and ids allow us to untether from Google and Apple. It will enable smart agencies, consultancies, publishers and marketers to realise the full potential of this emerging “madtech middleware”.
One of our recent investments, Watching That, is a company that fits this utility mould. Its technology allows media companies to improve video performance as well as grow revenue via its video analytics platform.
It is very much a SaaS-based business that is built on utility - not on media arbitrage. The company can work with all the emerging walled gardens and meta walled gardens that populate the CTV and OTT space.
Watching That is already partnering with a number of top global broadcasters and video publishers globally that recognise the value of its tech on their business.
Addressing the bigger opportunity
Last week’s announcement by Google was bizarrely cheered on by a lot of ad tech, thanking the benevolent G for its merciful extension. They called it a “sigh of relief”; I called it capitulation. These vendors are very much stuck in a dependency loop.
The “madtech middleware” looks beyond Google, Apple and the GAFA in general. It can work with all of them and innovate around them if needed - but it can also address the greater ecosystem that includes DOOH, CTV, audio, commerce media and emerging channels.
This new wave of technology companies will ultimately create value and longevity, opening up new opportunities for its customers. This is an exciting time to be building tech; and, for FirstPartyCapital, an exciting time to be investing in the smartest startups.