By Jason Fairchild, CEO at tvScientific
I’ve been in adtech for 25 years — through startups, market highs and market crashes, fundraising in both boom times and downturns, and plenty of battles with now-convicted monopolists.
Every time I dive into something new, whether it’s starting a venture or joining a project, I get the same question from investors, friends and colleagues: “Why adtech? Are you a glutton for punishment?”
To answer that question, let’s take a step back and ask two basic questions: What is adtech? And what are the core characteristics of a good investment sector?
First, what is adtech, exactly? As consumers moved from analog to digital media, new technology was needed to reach them on those devices. And so adtech was born. It’s the connective tissue between advertisers and consumers engaging with content on technology-enabled platforms.
Now, is it a good investment sector for professional investors, entrepreneurs, and talent?
These are the “good investment” criteria for venture capital:
- High Growth Potential
- Scalability
- Technological Innovation
- Favorable Regulatory Environment
- Strong Exit Opportunities
Let’s consider each.
1. High Growth Potential: How big is this adtech thing (what’s the TAM)?
A quick ChatGPT query provides a concise answer (by the way, this is a shockingly superior search result versus Google’s, which I will come back to in a minute):
- Approximately 98% of U.S. adults own a cellphone
- About 91% own a smartphone
- Roughly 96% of U.S. adults report using the internet
Given this consumer migration to internet-enabled devices and mediums, the TAM for Adtech is massive. Future Market Insights estimates the market at $1.2 trillion in 2025. Several others are in the same ballpark.
So, if you are interested in companies that reach US (and global) consumers via technology-enabled advertising, adtech matters to you. Companies like Amazon, Meta, and Google are pretty good at reaching consumers via digitally connected devices, and they have the trillion-plus-dollar valuations to show for it.
So, adtech is a high-growth opportunity. Check.
2. Scalability: Can technology-enabled media companies and platforms scale fast?
Let’s take a quick look at some recent history.
1. It took 38 years for Radio to reach 1B users.
2. It took 22 years for TV to reach 1B users.
3. It took 14 years for the Internet to reach 1B Users
4. It took Google and Facebook ~8 years to reach 1B users.
5. It took ChatGPT 2 years to reach 1B users (projected).
So, technology-enabled media companies and platforms can scale incredibly fast, and that growth is accelerating. Check.
3. Technological Innovation
Not only are technology-enabled ad mediums growing, they are accelerating on pace with the advent of new technologies, driven by the enabling factors of the previously adopted technologies they are built on. For example, the internet grew fast, then Google and Facebook grew even faster on top of the Internet, and now OpenAI is growing even faster, and so on.
This will almost certainly continue to be the case, whether this happens by OpenAI (with the help of Jony Ive) launching a series of AI devices or some other startup launching something we haven’t even considered yet. One thing is certain: technology evolution is an unstoppable wave, and it’s moving faster than ever before.
As an example, AI is a new technology that will impact just about every business category. For adtech, the impact will be huge, representing massive opportunities for innovation across virtually every category related to advertising. One example that is close to home for me: AI-driven creative and AI outcome optimization will open up TV advertising to millions of businesses. The “big three” are not positioned to block these innovations from happening or kill off competition. So, AI will vastly grow digital advertising — and adtech, which facilitates it.
A second issue in play is that the big three face the innovators’ dilemma. Google has a massive cash cow built around paid search links embedded in search results. These links generate ~60% of Google’s revenue, so they are compelled to propagate this self-evidently poor user experience, even though a far better technology is available in LLMs/ChatGPT. What’s more Google must milk the legacy paid search links cash cow until we are all so sick and tired of it that we go into our browser settings and select ChatGPT as the default search engine (tens of millions of us have already done this). Meanwhile, huge new growth opportunities exist in the LLM search category, with lots of new entrants poised to take their shot at building the next Google, Facebook or Amazon. This is nature taking its course in adtech, and it’s a beautiful thing.
In other words, adtech is rife with technological innovation. Check.
4. Favorable regulatory environment
In adtech, this comes down to privacy and monopolies. Driven by user consent being increasingly required as a part of the “free content with advertising” bargain, I don’t see this as a blocker. The $350-billion-and-growing US digital ad industry is a good proof point here.
So, what about those big bad walled gardens, Google, Facebook and Amazon? Can’t they just dominate any market they want and squash startups like a bug via any means they choose — legal or not? Yes and no. Has the Adtech category suffered from companies amassing monopoly powers and abusing those powers? Yes. Will this persist? I don’t think so.
Why? As we have seen with Google recently being found guilty of violating antitrust laws in search and adtech, the rules are (finally) being enforced, and I think we can all expect that this trend will continue, making the waters safe for new companies to thrive or die based on their merits. This is how capitalism is supposed to work.
So, adtech sits in a favorable regulatory environment. Check.
5. Strong exit opportunities
Of course, all investors expect returns, which comes down to exits or liquidity. As long as companies can drive consistent growth, and ultimately profitability, there will be exit opportunities. In adtech, TTD and AppLovin are a couple of companies that have proven adtech can drive massive returns.
These cycles may come in 20-year increments or be more sporadic, but if you believe in the acceleration of innovation and resultant growth in productivity and efficiency, and if you believe in capitalism, I think we have to assume that the next 50 years will look something like the last 50, or based on the accelerating rate of technology innovation, perhaps even better. During that span, the S&P has averaged 7.98% CAGR (adjusted for inflation). Analysts at Grandview Research estimate that Adtech will grow through 2030 at a compound annual growth rate (CAGR) of 14.4%.
So, yes, adtech offers strong exit opportunities. Check.
Why I love adtech
Adtech is the dynamic bridge connecting advertisers to tech-enabled audiences, constantly evolving with consumer behaviors and technological advancements.
As a CEO and repeat founder, I find Adtech to be an exhilarating, high-growth arena that demands continuous learning, collaboration with brilliant minds, creativity and relentless effort to build companies that not only thrive but also contribute to keeping the internet accessible and free. In this space, we innovate relentlessly, face challenges head-on, disrupt the status quo, and occasionally, take down the proverbial dragons.
What more could one ask for? Adtech is beautiful.
