A call to Israeli Engineers! Ad-tech might still be right for you

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In a really well thought about post a few days ago, Aleph’s Michael Eisenberg explained very analytically why ad-tech has reached a plateau, and why Israel’s talent pool should shy away from the space. Importantly, because Michael is one of the most thoughtful people on the global tech stage, and the investor with the best VC track record in Israel – when Michael talks, people listen.

However, saying that ad-tech has reached an innovation peak reminds me of the notable Yale Economics Professor, Irving Fisher’s, famous 1929 statement, “stocks have reached what looks like a permanently high plateau.” (note: $1,000 invested in the Dow Jones in 1929 would be worth $2,000,000 today).

Now, don’t get me wrong. There is a ton of validity to almost all of Michael’s points, and it would be darn near impossible to refute any of them one by one. However, I am not sure that one has to, in order to give perspective on the argument as a whole.

There are three major trends around content, reach, and consumption that make the peak of innovation for ad-tech nearly impossible.

  1. Global content production and consumption is on a rocket ship trajectory. It has never been easier to become a content creator / publisher (blog, twitter etc), and it has never been easier to access that content (mobile, global data proliferation).
  2. The platforms via which we consume the most content are constantly changing. Just last week, GWI showed that Tumblr and Instagram were the fastest growing social platforms, displacing Facebook and Twitter. One could argue that Snapchat, which is growing faster than both Tumblr and Instagram combined, is quickly becoming a new type of publishing platform in its own right.
  3. And most importantly – there is currently no other scalable way out there for monetizing your audience other than advertising.

So with more content, more audience, more (and rapidly changing) platforms, and no other ways of monetization – can ad-tech really plateau?

In my humble opinion, how we define as ad-tech will dramatically change over the next few years, but the innovation in the space will remain.

  1. It is true – new ad formats or ad units will no longer be venture backed businesses. But engines that can automate performance marketing campaigns, and deploy thousands of these ad formats, just might.
  2. Yes – new ad networks are bringing only incremental improvements, and will therefore continue to see declining margins and share prices. And, rightfully so – VC demands will significantly increase before they deploy dollars into this space. But, what about advertising businesses that decide to flip the traditional model upside down and actually own the audience themselves? Just this week Outbrain released their own version of this thought process, and there is no reason why much more innovative variations on this will come in the very near future.
  1. It is true, looking at the existing paradigms in ad-tech, information is “nearing perfection” as Michael Eisenberg describes it. But how are we exactly defining information? Do we think that we have perfected audience understanding, context and personalization? Will the data sources we consider relevant today, continue to be relevant when wearables and connected homes turn commonplace?  Projects such as GoogleNow, and companies like Gravity and Dynamic Yield are just on the beginning of this innovation curve. Whether we have been calling these companies “ad-tech” is inconsequential – they are helping parse and serve audiences the right content, at the right time, which fits my personal definition of ad-tech.

So – can or should the best engineers in Israel be solving more important problems to the human race, than improving the world of content and advertising? Probably. I have always thought that the great minds leaving the Technion, MIT and Stanford are spending way too much time on ad-tech, marketing / sales funnel optimization, gaming etc. But the real question a brilliant entrepreneur or engineer should ask themselves is “where are there complex problems that create significant opportunities to dramatically improve large and sustainable markets?” And to that question, whether the next innovative solutions are easy to imagine, or hidden to the “naked eye”, the digital advertising market will continue to be a space where the answer is – absolutely.