Post-Ad Tech: Why We Moved On
This week, ad tech LinkStagram - taking a deserved break from selfies, self-promotion and meandering emoji-filled AI-produced posts - blew up with the news that Publicis acquired LiveRamp. It was a big “spin out” moment for indie ad tech.
LiveRamp provides a lot of the onboarding and ID graph plumbing for the industry. So, it’s going to be a big story, right? Absolutely, if you are in the US. LiveRamp has a tiny footprint outside the US, from a revenue and tech perspective. More on that later.
The economics of the deal were decent - 12x EBITDA is not bad given the company’s weak growth. If you were looking for a chunky multiple on the topline, you clearly missed the changing M&A dynamics. Increasingly, deals are being done on EBIDTA multiples.
It’s Not Ad Tech; It’s An AI Thing
It was interesting how Publicis explained this acquisition: specifically, to accelerate data co-creation for smarter agents. They described LiveRamp as an interoperable collaboration platform connecting data across all major cloud environments, with a network of 25,000 publishers and more than 500 data and technology partners.
It isn’t ad tech anymore; it’s the foundational layer to something bigger. It is something we have been ruminating on at FPC for a while now. The standout companies in Fund 1 - the ones that will exit for decent money - are data and infrastructure companies. And the companies in Fund 2 are even more focused on proprietary data and the tooling to maximise value.
As we move to an ecosystem where software is no longer a moat, you need to lean into the true differentiator: 1st-party data. In this edition of The FirstPartyCapital Newsletter, we discuss the new post-ad tech ecosystem and how a $1 trillion industry became a $5 trillion one.
The $5 Trillion Attention Economy - Yes, Please
Ad tech has always had a stupidly narrow view of itself - effectively, a tech layer servicing open (browser-based) web display advertising. Fortunes have been made and careers defined. But the world has moved on since the humble web banner was first served all those years ago. Walled gardens have eaten up a sizeable share, and the LLMs are now savaging the corpse of a once mighty part of the media landscape.
When we launched the fund, we talked about the $1 trillion ad industry - and how ad tech powered that. It felt like a stretch, but it was necessary. The industry has done itself a disservice by downplaying its importance. And now it’s getting hammered for it. The decline in public stocks is indicative of this. Investors hate ad tech. The dominant narrative right now: ad tech is tethered to a dying open web. Wall Street always needs a believable thesis to build a positive valuation story.
All of this is lamentably lazy, reductive thinking. FPC believes we now live in a post-ad tech world, where the opportunity has shifted from outdated mediation to a data-and-infrastructure story. Our best prospects and future investments will power a $5 trillion industry comprising advertising, media and content, marketing technology and agency services, retail and commerce media, and the creator economy - all connected by data infrastructure (identity, measurement, and signal) that makes all of it work.
It’s also important to note the critical importance of developing solutions for walled gardens - especially for ROW. They are even more entrenched outside the US. If you are not building for omnichannel in a post-ad tech context, your opportunity will be severely limited in this $5 trillion economy.
Who Are You?
Is this an identity (excuse the pun) crisis for FPC and the industry at large? Yes. It’s difficult to let go of something that has served you so well. Ad tech is a badge of honour for most, but its rigid definition has become a millstone around the industry’s neck. You only have to take a cursory look around to understand the new lay of the land: shrinking supply chains, walled-garden hegemony, holdcos moving to outcomes-based business models, the decline of managed service, and (rightly) challenged margins. Companies can play in a post-ad tech world, but they need a fundamental step change.
From an FPC perspective, our investment thesis has had to evolve in line with these seismic changes. We are staying away from media business models, as they will remain challenged and constrained by agencies seeking greater control. Does the world need more algorithm-based optimisation ad nets or LLM-powered planning tools? We think not.
To be frank, readers, there is a severe paucity of ideas out there right now - hence why we are incubating more startups. That could be coloured by how we increasingly see our own place in the ecosystem. The US produces great ad tech, but we don’t want to be fast followers, hoping a larger US company will acquire our portcos.
Ultimately, it doesn’t optimise for good financial outcomes. For Fund 2, we are looking at more progressive and innovative ideas - building on our unique strengths in this part of the world (and there are quite a few).
A Divergence In US & Non-US Ad Tech
In this post-ad tech world, there will be divergence between the US and ROW. The US has the biggest ad market in the world. Even if independent ad tech can retain a foothold, the opportunity will be large enough to be interesting.
Non-US companies will flock to the “glitz and glamour” of Possible and CES to try to own a piece of the pie. And they absolutely should if that is their MO. But factors like data sovereignty, national interests (government mandates to use local tech), and compliance will act as a buffer to global scale. US ad tech isn’t built for this. The irony now is that US scale does not equal global scale.
FPC sees a whole new ecosystem emerging outside the US across areas such as compliance infrastructure, sovereign tech, regulated industries, vertical platforms, and adjacent data businesses. This post-ad tech landscape will be tricky for traditional ad tech to navigate. And if you think this is a throwaway statement, look at the revenue breakdown of the big ad tech cos - US versus ROW. This is why LiveRamp didn’t work internationally: it’s a US ad tech company that never really adapted to the global market.
This deserves a white paper, which we will put together before Cannes, as it is a meaty enough subject to warrant a deeper analytical dive. It will become central to our fund thesis going forward.
If you think this is a break-up letter to ad tech, you are mistaken. For FPC, it's about the necessary evolution of a critical sector that we belive has massive upside in the years to come.
And that’s it for this edition. Welcome to the first day of the post-ad tech world. As Joe Strummer once asked on The Clash’s “Clampdown”: “What are we going to do now?” A ton of new stuff should be your instinctive reply.