Industry Update

In the last several months, we've seen a number of important structural changes at prominent ad tech companies. This includes significant layoffs at Turn, Pubmatic and more, acquisitions, major agency changes, etc. Here are my thoughts on some of the more significant events.

1) Yahoo spinoff - Yahoo's stock is valued around $35B, with it's stake in Alibaba currently worth around $31B. They have a significant gain in their Alibaba stock, so if they were to sell it outright, they would incur the tax of their gain (many billions). They tried to do a tax-free spinoff of the Alibaba assets and some relatively similar, minor assets, but the IRS chose not to give them pre-clearance. This meant there was a significant risk to Yahoo of having to incur the massive tax penalty for the gain if it did the spinoff. The value of Yahoo as an operating entity (portal, tumblr, mail, ads, etc) is less valuable than not recognizing the gain on the Yahoo stock. So that's why they're exploring a sale of the operating assets. Of course, Yahoo has failed to turn the company's fortune's around - but this is all about tax. If they had turned the company around, the conversation might be different. TBD whether someone will actually buy this.

2) Pubmatic layoffs - Pubmatic claims that this was to focus on their premier customers. They said a relatively small percent of their customers drove 90% of their business, so they didn't need all the engineering and support staff for the peripheral customer base. But they also failed to gain traction in key markets, which they shut down entirely, and there have also been a fair number of publisher defections. It appears that, in many instances, Rubicon, Google, etc. are winning head-to-head, but it's hard to know for sure from the outside.

3) Turn layoffs - Success in the DSP business seems to be determined by the strategic bets made by the customers. The Trade Desk bet on agency trade desks, and agencies themselves, retaining the programmatic media buying business. At least at the moment, this was the right bet. Turn, on the other hand, made a play for client direct - which generally annoyed agencies and turned out to be wrong. They also tried to charge on a subscription basis, rather than percent media. Customers didn't want to pay like that. So they went elsewhere. DBM, The Trade Desk, MediaMath, AppNexus and others appear to have been the beneficiaries.

4) Collective layoffs - Collective made a bet going direct to agencies based on a data-focused programmatic buying platform. This competes with the agency trade desks. Agency holding companies generally have internal mandates of some sort to use the internal trade desk instead of an outside company like Collective, so they got squeezed out of this business and left with the more niche secondary markets.

5) Agency reviews - there have been a ton of agency reviews by brands this year, covering many billions of dollars of media spend. It's hard to know exactly why, but there's some guess that brands are using reviews to try to get greater transparency on the agencies fees and pricing, as well as to drive them down. Carat has been a big beneficiary, perhaps because they have some of the lowest fees in the business. There's also a rumor that the reviews are motivated, at least in part, but brands wanting to understand the double fee structure of the agency trading desks.

6) Business Insider / Axel Springer - I've talked to a lot of people in the industry who are struggling here. The consensus is that BI is a fantastic "new media" player, and that Axel Springer is less savvy in new media. They paid a hefty premium, perhaps because BI can help make Axel Springer's portfolio more relevant in the digital world, where it's largely been less successful.