I wanted to share an article I penned for The Drum which you may have missed this week. This was born out of some frustration over the opportunities brands are missing by not thinking bigger and defaulting to borrowing (i.e. licensing off-the-shelf) ad technologies.
As always, let me know your thoughts!
The build vs borrow vs buy framework is long-established and is a very common framework used across industries, yet I could probably count on one hand the number of advertisers who have built or bought something unique for advertising purposes (on the demand side).
Why haven’t they? It’s a $650bn global industry with expectations to reach $1trillion by 2030, surely, it’s an industry which is ripe to drive home competitive leverage.
I’m going to stop for a second though and caveat my bias. Ever since I got into technology-based buying in 2010 I’ve hated the fact I must use similar technologies/platforms as everyone else. Let’s assume I’m an above average digital advertising professional (ditching some humility here), it’s so frustrating that I’m competing with others who are not. What gains can I really make on a platform by being above average vs the masses? They’re reasonably nominal (i.e sub 20% more optimal than base line). Yes, platforms are getting a little more open in terms of custom integrations, but in general big tech platforms cater for the most common use cases and the least edge cases.
Maybe it’s because digital advertising has so much terrible practice already within it that large gains can be made from borrowing (i.e licensing technologies) relative to the cost of building or buying. As markets mature, this should change as single digit % gains become have more of a significant impact.
Interestingly, AWS launched a guide for a company to build a bidder and Snowflake launched a framework to build a multiparty data clean room – both in recent times - infrastructure companies are looking to remove barriers to building out owned platforms as you read this.
However, is an advertiser really going to build AdTech?
I was involved in a really interesting thread on Twitter about this. The general takeouts were;
Brands shouldn’t build AdTech
Agencies shouldn’t build AdTech
It’s expensive to build AdTech (and hard to hire for some roles)
Primary reasons for building AdTech are data integrations and monetization (i.e. from a sell-side perspective)
I felt like this was doing advertisers a disservice (I did say above about my bias!).
In my career there have been numerous use cases where existing AdTech simply couldn’t fit the needs of an advertiser;
Budget pacing by best creative message (think hotel chains with 100s of merchants)
Frequency capping by user across multi-brand advertisers based on propensity to convert (think big FMCG advertisers)
Prioritization of media and/or data deals within over-arching campaign budgets (think PMP heavy advertisers)
The pre-existing hierarchies within tech platforms don’t allow for much flexibility, and although custom algo’s go some way to overcoming these, they mainly operate on the media optimization side.
Of course, these use cases (which existing AdTech can’t fulfil) are definitely few and far between and existing AdTech doesn’t have to lose too much sleep over this emerging category. Going outside of ‘borrowing AdTech’ is a bit like when you see people knock down a house and rebuild from scratch – there aren’t many of these people, but for whatever reason, they just can’t find something existing which fits with their needs, but property developers still do exceptionally well.
Will it ever make financial sense?
When you map out a build, borrow or buy decision tree one of the earliest nodes is ‘can it make commercial sense?’. A lot of businesses will not pass go. They either don’t spend enough, can’t find a way to make enough or don’t understand how to calculate ROI. However, there are definitely some where it could make financial sense.
I would love to see more advertisers be more open-minded with customized AdTech. You don’t have to be constrained by best fit because it’s the easiest option, as now, more than ever before, you can conduct feasibility studies and work out whether there’s a better approach, particularly with all the industry changes afoot. In fact, there might even be a company that’s solved for an advertisers use cases already that they can go out and buy!
Anyway, I think it’s genuinely exciting times in AdTech for the open-minded advertiser, they just need to lean in.
Thought-provoking...and an interesting framework for digital ad strategy.
From what I have seen over the last 30 years in this game, for most buying or borrowing as you put it will suffice; there will always be innovators that want to hot-rod/mod their tech to meet specific requirements. It costs to be first...and that includes trial and error. The gains might be worth it.
Ultimately it comes down to a financial calculation called "internal rate of return" as well it should licenses and developers are not free resources. Nor is time so the calculation should take all that into consideration.