There was a time, not too long ago, when venture capital flowed freely into the ad tech space and vendors didn’t have to work too hard to demonstrate a unique value proposition. At the time, investors looked at both the supply side and the demand side as almost interchangeable opportunities to find growth in ad tech; especially if the players involved could make a credible case that their technology had something to offer in the fast-growing mobile arena. In this piece, Hagai Tal (pictured below), CEO, Taptica, discusses the enormous value of the demand side and how times have changed.

These days, venture capital isn’t abandoning ad tech, at least not in critical areas like mobile. But investors are getting a lot more demanding, in part because they’re becoming more sophisticated, and partly because the mobile marketplace has matured to the point where we can glimpse the future for both the supply and demand sides of the equation. The changes that are currently underway in mobile will define the next three to five years; and they’ll have big consequences for both investors and companies in the mobile space. Perhaps the biggest consequence of all, at least for the moment, is that those working in the space will need to shift their focus entirely to the demand side of the ecosystem.

Consolidation on the supply side will squeeze out the little guy

It should come as no surprise that giants like Google and Facebook are consolidating the supply side in mobile. You don’t have to look much further than your own phone history to see that, in one way or another, Google and Facebook have locked up the lion’s share of mobile users and inventory. Ultimately, smaller firms won’t be able to compete with Google and Facebook, both of which have advantages in size, coverage among advertisers, strong ties to publishers/developers, and the ability to offer higher income to their partners. In short, taking on Google and Facebook on the supply side isn’t just an uphill battle, it’s a battle that’s already been lost.

You have to pick a side

It’s not unusual, these days, to hear some companies claim that they’re capable of representing both sides of a transaction. In fact, this claim is a common one in sectors like finance and real estate, as well as ad tech. Of course, claims like that should raise some skeptical eyebrows.

Hagai Tal, CEO, Taptica

In ad tech, the goal on the demand side is to acquire the highest value users at the lowest possible price. Naturally, the goal of the supply side is to achieve the exact opposite result. In a developing market, individual players may choose to overlook the obvious conflict of interest because there’s not enough volume to transact on a regular basis. Put simply, there’s a need for a single entity to make a market, at least in the early going.

But, of course, mobile is no longer a developing market. In the US alone, smartphone penetration is near 80%. Combined DSP/SSP firms in the mobile space will fail because, soon enough, their clients will come to understand that they can’t possibly see, let alone control, the entire advertising food chain from their limited vantage point. Ultimately, unless you’re Google or Facebook, the only two players with enough scale to operate on both sides of the fence, you’re going to have to pick a side.

The smart money is on demand

There are several reasons why the demand side will remain insulated from the consolidation that has come to characterise the supply side. First, there’s a technical consideration. Unlike publishers on the supply side, advertisers can’t switch DSPs with the press of a button. To some degree, that fact alone will shelter vendors on the demand side because, for the next few years, a great many advertisers will prefer to work with their current vendors, rather than eating the cost of switching.

But there are also critical business considerations that are important to understand on the demand side. Unlike publishers and developers, who are happy to work with any vendor that increases their yield, advertisers need to be more discerning and more guarded. Increasingly, advertisers are turning to first-party data where every single campaign requires them to grant vendors access to their most valuable asset – their data. Trust and verification only go so far in these relationships; and savvy advertisers will always want to work with multiple vendors, because they just can’t afford to put all their eggs in one basket.

Of course, those on the demand side also want to work with multiple vendors at the same time because mobile is, first and foremost, about performance. If an advertiser works with only a single vendor, how do they know they’re running the highest quality campaigns at the best possible prices? Along the same lines, how does an advertiser take advantage of new technology innovations if they don’t maintain relationships with multiple vendors, each of which has a strong competitive incentive to roll out new features and capabilities on an ongoing basis?

In a data-driven business, success depends on constant testing and endless innovation. Advertisers understand that there’s enormous value to competition on the demand side, and as vendors and investors shift their focus to meet that competition, they too will see that the future is on the demand side.