Markets

Tech markets are reeling as the Fed increased it’s funds rate +0.5% and is projecting to further increase the rate another +0.5% at the next fed meeting. While the yield curve flattens and the higher discount rate puts more pressure on private and public funding, tech companies are responding in the number hiring freezes and layoffs taking place in order to get closer to cashflow breakeven.

In my opinion, this activity (at least in the tech sector) roughly mirrors the environment in the 2000 tech bubble and will force software developers to work on the next wave of technologies that will dominate the industry for the next decade. This won’t happen instantly, but some of the major influential tech company seeds will get sewn in the next 2 years.

Ad tech is one area not excluded, in fact, it’s ripe for new innovation. Apple and Google are inadvertently layering opportunities for new thinking regarding user privacy in ads with the introduction of their App Tracking Transparency and Attribution API frameworks. Unlike the legacy IDFA and GAID attribution mechanisms, these frameworks are not consistent in schema across iOS and Android, leaving ad measurement in a highly fragmented state. Simultaneously Apple and Google further complicate decision making by keeping IDFA or GAID tracking around and not enforcing 3rd party networks to adhere to any of its new privacy standards.

This leaves advertisers in a precarious position of not knowing what to do. Ad budgets are more shifty than ever. Even as we see Facebook, Snapchat, and Google building new privacy first optimization engines (mainly around iOS SKAdNetwork), most of the industry has gone unchecked and still favors legacy frameworks because they produce the best results. Results of privacy frameworks are shitty at best, their earnings and future projections aren’t at all encouraging investors and advertisers. FB stock is down -40% and Snapchat is down -66% year to date mostly impacted by the new ATT framework imposed by Apple. The new algorithms these companies are building simply aren’t at parity with legacy system ROI.

For any entrepreneur or investor following the mobile ad tech space, the most prudent thing to do is wait til some major decisions are made around enforcement. The big guns are getting the most enforcement from Apple right now (Facebook, Snapchat, Twitter, Pinterest, Google), but it’s unknown how far Apple and Google will go in its quest for its version of idyllic user privacy. Most ads measurement in mobile still utilizes a lot of the older frameworks (IDFA, GAID, and IPUA), and just like any large market in motion, markets will resist any transition to something newly proposed for as long as possible. Ad dollars always shift to performance and, right now, networks that rely on legacy tech are the winners. With billions of marketing dollars in marketing processes that are predictable and measurable in its legacy form, why should there be any reason to change budgets to shift to the privacy frameworks that have lower than parity returns?

Over the next 5 years Apple and Google will eventually push their new privacy frameworks on a larger swath of 3rd party incumbents sending the existing $300b ad market into a frenzy. Although newer developers will have the ability to invent around the new privacy standards, incumbents will obviously file multiple anti-trust suits to preserve marketshare. This has already started with some of the “enforced” incumbents: billions of market cap have been erased from Facebook and Snapchat. Any additional spillover will put Apple and Google directly in lawsuit crosshairs.

Applovin, Ironsource, Vungle, and Unity all have huge stakes in how ads get served on these platforms, and any major changes to their businesses would warrant legal action. It’s impossible to imagine those companies going down without a fight individually, much less collectively. These companies have a lot of resources to defend themselves, especially if enforcement comes swiftly through iOS or Android product deprecation. In such a whirlwind scenario, the only possible “out” is where a new ad network and measurement system emerges to deliver parity in marketing performance in a privacy friendly way. Right now, this is the golden goose every new ad tech company is chasing.