Playing LUMAscape Whack-a-Mole

Some years back we remarked at a conference that there were two ways that the fragmented ad tech ecosystem could consolidate: 1) M&A and 2) failure. We have seen some M&A activity though less than most expected (only one DSP of scale, one SSP, one DMP, etc.) and there hasn’t been enough failure thanks in part to persistent venture capital financing. That may be changing.

The last week of January saw a trio of announcements that may well be a harbinger of the future of the ecosystem. On January 24th, MediaMath announced the acquisition of Akamai’s ADS (Acerno) business. On the same day, AppNexus announced a $75 million all-primary financing round from TCV. And on January 28th, AdBrite announced that it was shuttering operations.

These are all good signs.

The acquisition and financing are signs that we are likely to see more deal activity from the scaled private companies as they build formidable war chests and position for a possible IPO. This is a natural process as the sector matures and the scaled leaders move to garner capabilities across the increasingly interconnected worlds of display, premium display, search, mobile, video, analytics and social. So, besides the expanding universe of interested buyers from the large public strategic companies as depicted in the Strategic Buyer LUMAscape, we now have a tier of scaled private companies as potential buyers:

Activity by this private group would be welcome since the landscape continues to fragment. While not scientific, a review of the Display LUMAscape in December 2012 compared to the December 2010 version showed that 53 companies were acquired but 74 new ones appeared. In effect, we have a game of LUMAscape whack-a-mole!

As mentioned, the other way to de-clutter the ecosystem is failure. Which is why it was good news to hear that AdBrite was shuttering. Don’t get me wrong – we’re no grave dancers, and we mean no disrespect to AdBrite or their investors. But we are long overdue for marginal companies in the advertising technology ecosystem to close. We simply didn’t need an 8th ad exchange! We denote acquired companies on the LUMAscape with a red dotted line. We may need to introduce the black dotted line and shading to denote failed companies.

So with active large strategic buyers, increasingly active scaled private buyers and the effects of a more discriminating private capital market, we might just make progress towards industry consolidation.