The Impact of Shrinking Ad Revenues on Adtech

Introduction:

In the ad tech world, generating revenue through ad spend has been a reliable way to monetise an ad platform. Advertisers would allocate budgets for digital ads, and ad tech companies would reap the benefits.

However, the landscape has changed, and shrinking ad revenues pose significant challenges. Today, we delve into the difficulties ad tech companies face in proving return on investment (ROI) and the importance of finding innovative solutions to counter this financial setback.

ROI Challenges and the Need for Solutions:

One of the main hurdles for ad tech companies is proving the causal link between interactions and the impressions generated through ad spend. As times become more challenging, attributing impressions back to the ad budget becomes even more elusive.

With the current macroeconomic climate, CFOs are pulling back on the purse strings, directly affecting marketing budgets. Proving the RoI of campaigns is a cornerstone of any system but it's often easier said than done. Customers generally have multiple interactions with a business, even more so with B2B. This can make it challenging to attribute revenue to the right campaigns. 

As an ad tech company, you have to take into account multi-channel attribution that sometimes lies outside your own systems. 

Diversifying Offerings:

To maintain growth amidst shrinking ad revenues, ad tech companies must embrace diversification. Expanding revenue streams beyond traditional ad spend is crucial. Let's explore some examples of alternative avenues to consider:

Influencer Marketing:

Partnering with influential individuals who align with a brand's values can provide a unique channel for reaching target audiences. By leveraging the reach and engagement of these influencers, they can generate revenue through sponsored content and endorsements.

Native Advertising

Integrating ads seamlessly into the user experience enhances engagement and minimises the disruptive nature of traditional display ads. Adtech companies can explore native advertising solutions. Ads blend seamlessly with the platform's content, providing value to both advertisers and users.

Content Partnerships:

Collaborating with publishers and content creators can open up opportunities for ad tech companies. It can help generate revenue through sponsored articles, videos, or branded content. By aligning with relevant and reputable partners, ad tech companies can tap into existing audiences and diversify their revenue streams.

Ad-tech Must Be Proactive:

Adtech companies cannot afford to be passive in the face of shrinking ad revenues. Being proactive is essential to generate revenue and avoid being left behind in a rapidly evolving industry. Here are some critical steps to take:

1. Customer Success and Experience: Ensuring exceptional customer success and experience is crucial in a challenging financial climate. Smaller ad tech teams may find it harder to maintain a dedicated customer experience department. However, prioritising customer satisfaction and minimising churn will lead to long-term growth and customer retention.
2. Embrace New Technologies: Adtech companies must be at the forefront of technology adoption. Embracing emerging trends such as programmatic advertising, artificial intelligence, and data analytics can provide a competitive advantage. By leveraging these technologies effectively, ad tech companies can optimise ad targeting, drive higher engagement, and deliver better results for advertisers.

Funding An Adtech Company Under Pressure

To sustain an ad-tech company under financial pressure, key metrics and KPIs should be closely monitored:

1. Annual Recurring Revenue (ARR): Keeping a close eye on the ARR helps gauge the company's financial stability and growth potential. Identifying areas of weakness in revenue streams can guide strategic decision-making.
2. Customer Acquisition Cost (CAC): Determining the cost of acquiring new customers is vital to manage expenses effectively. Reducing CAC through efficient marketing strategies and customer retention efforts can alleviate financial strain.
3. Churn Rate: Minimising customer churn is essential for maintaining a stable revenue stream. Ad tech companies can reduce churn and increase customer loyalty by delivering value, exceptional customer experience, and innovative solutions.
4. Burn Rate: Keeping a careful watch on the company's burn rate is crucial. Understanding the rate at which cash is being depleted allows ad-tech companies to make necessary adjustments. This can be managing costs and exploring new revenue streams.
5. Customer Lifetime Value (LTV): Assessing the long-term value of customers is crucial for financial planning. Maximising LTV through upselling, cross-selling, and providing value-added services ensures sustained revenue streams.

Having a good handle on the core SaaS KPIs is only part of the battle. You have to convince a fund to invest if you want to grow. With record-low VC investment this year, many companies are using Private or Venture Debt to plug the funding gap. 

Conclusion

Shrinking ad revenues pose significant challenges for ad tech companies, necessitating a proactive approach and a willingness to adapt.

Diversifying offerings beyond traditional ad spend, embracing new technologies and trends, and closely monitoring financial metrics are essential steps to thrive in this evolving industry.

It is time for ad tech companies to take action, explore new opportunities, and navigate the ever-changing landscape of digital advertising.