#89: Google Anti-Trust Case Day #2
Rectangles, an illustrated inconsistency
Yesterday was day #2 of the DOJ’s anti-trust trial against Google’s adtech business and alleged monopoly. If you’re vested in adtech and not already a subscriber to Ari Paparo’s amazing play-by-play coverage on Marketecture then you should be because the coverage is excellent.
In his day #2 coverage, one particular phrase gave Quo Vadis pause for thought and reflection.
Google continues to put most of its efforts into market definition. If they can convince the judge that “rectangles on webpages” include “rectangles on facebook.com” then they’ve won.
Google makes an interesting point. Why is a rectangle containing an ad somehow different if it’s on a website vs. a social feed? In economic terms, both goods seem to be near-perfect substitutes.
For example, consider a marketer who is constrained with just $100 in ad budget. The marketer can buy rectangular ads on websites at a $2 CPM or buy rectangular ads on social feeds for a $4 CPM.
The marketer can buy 50K web impressions and zero social ads at all, or
25K social impressions and zero open web impressions, or
Some combination of both to maximize the marketer’s return on ad spend (ROAS)
Interestingly, if you study the S1 (or F1/F4) filings of adtech company IPO offerings (and those that never made it), they all seem to think they are competing in the broad digital ad marketer and/or the broader display ad marketer, both of which include spending ad dollars toward rectangular boxes on the open AND social feeds.
At the time, it probably made perfect sense to pitch investors a narrative about a giant market opportunity size. For instance, which of these market opportunities sounds better from an investor’s perspective:
~$900 billion global ad market (traditional + digital)
~$600B global digital ad market (search, social, and open web)
~$300 billion display ad market (banner and video ads inside rectangular ad units on social feeds and websites)
~$50 billion “open web” programmatic market (with pressure everywhere)
Put another way, if a marketer has only one last dollar to spend on ads, where will he or she spend it?
IPO filings give us the answer
Trade Desk S1 2016 — competes in the overall digital rectangular ad market
In 2015, approximately $639.6 billion was spent on global advertising (including approximately $237.2 billion on TV advertising and approximately $51.1 billion on display advertising), according to International Data Corporation, or IDC, and approximately $14.2 billion was transacted in the programmatic advertising spot market via real-time marketplaces, according to Magna Global. We aim to power every agent of every advertiser in both the spot and forward markets, including upfront purchases, for programmatic advertising.
Outbrain S-1 2021 — competes in the overall digital rectangular ad market
We are targeting a large, fragmented and growing market. Over four billion consumers access the Internet and, by 2022, the average person in the United States will spend more than eight hours a day consuming digital media, according to eMarketer. eMarketer also states that approximately $378 billion was spent on global digital advertising in 2020.
Viant S-1 2021 — competes in the overall digital rectangular ad market
Advertising dollars shifting towards “programmatic” advertising: We believe the advertising industry is still in the early stages of a shift to programmatic advertising. The ability to transact through real-time-bidding platforms has evolved beyond banner advertising to be used across a wide range of advertising channels and formats, including desktop, mobile, connected TV, linear TV, streaming audio and digital billboards. U.S. programmatic advertising is experiencing a rapid increase in adoption and, according to eMarketer, is expected to grow at a 21% CAGR from 2018 to 2022, reaching $140 billion by 2022.
Importantly, eMarketer defines “programmatic” as:
Includes advertising that appears on desktop and laptop computers as well as mobile phones, tablets, and other internet-connected devices for all formats mentioned; includes banners, rich media, sponsorships, video, and ads such as Facebook's News Feed Ads and X's Promoted Posts; *digital display ads transacted or fulfilled via automation, including everything from publisher-erected APIs to more standardized RTB technology
Pubmatic S-1 2020 — competes in the overall digital rectangular ad market
Global advertising (digital and analog) spending was $647 billion in 2019 and is expected to grow to $841 billion in 2024, according to eMarketer. As advertisers follow audiences online, digital advertising is expected to outpace growth of the overall advertising market. According to eMarketer, global digital ad spend was approximately $325 billion in 2019 and is expected to grow to $526 billion by 2024. We believe that changes in the digital advertising landscape will continue to enhance our market opportunity.
Magnite S-1 2014 — competes in the overall digital rectangular ad market
According to the PwC Entertainment and Media Global Outlook: 2013-2017, published in June 2013, display, mobile and video digital advertising are forecasted to grow from approximately $43 billion in 2012 to $90 billion in 2017, a 16% compounded annual growth rate, while television advertising is forecasted to grow from approximately $164 billion in 2012 to $211 billion in 2017, a 5% compounded annual growth rate. The continued growth in overall advertisement spending, and the shift in that spending to digital media to keep up with the migration of consumers, yield significant additional opportunities to monetize Internet and mobile traffic. According to our calculations based on data from eMarketer, the current opportunity for monetizing online media consumption is over $32 billion annually in the United States alone.
AdTheorent S-1 2022 (now owned by Cadent) — competes in the overall digital rectangular ad market
Market Opportunity: We believe that over the long term, our total addressable market is equal to the total global advertising market which, according to eMarketer, is forecasted to grow from $614 billion in 2020 to $846 billion in 2024, an 8% CAGR.
Teads F-1 2021 (canceled IPO) — competes in the overall digital rectangular ad market
Per the International Data Corporation (“IDC”), the global advertising market was estimated to be $682 billion in 2020 and is expected to grow at a compounded annual growth rate (“CAGR”) of 3.3% from 2020 through 2024. Digital advertising growth is expected to outpace the overall advertising market as digital continues to take market share from traditional media like print and radio. Of the global advertising market, $319 billion, or 47% was attributed to global digital advertising spend. Digital advertising has increased from 36% of total advertising in 2017 and is expected to grow to 55% of total advertising by 2024. Per IDC, in the U.S., digital advertising was estimated to be $128 billion in 2020 and is expected to grow at a 7.4% CAGR from 2020 through 2024.
We rest our case.
Outliers
Criteo F-1, 2013 is playing for keeps in a much bigger market
The ability to market to and acquire customers is a critical driver of success for businesses, often representing a very significant portion of their cost base. Business-to-consumer e-commerce [market] was approximately a $1.0 trillion industry globally in 2012, growing at 16.7% per year from 2012 to 2017, according to International Data Corporation, or IDC.
Taboola F-4 2021 is also an outlier focusing only on the “Open Web”
Highly Fragmented Open Web. According to a 2020 report by Jounce Media, advertisers spent approximately $64 billion advertising on the Open Web in 2020. Because the Open Web is, by definition, highly fragmented, it is harder for advertisers to access than the walled gardens.
It’s good to be different and accurate about the market one participates in. And when you decide to create and/or compete in a category, you should complete like hell and work to maximize the margin between the price you charge customers and your marginal cost of production at the least fixed cost. That’s econ 101.
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Disclaimer: This post, and any other post from Quo Vadis, should not be considered investment advice. This content is for informational purposes only. You should not construe this information, or any other material from Quo Vadis, as investment, financial, or any other form of advice.