As 2015 comes to a close, more than 2,000 advertising technology startups are vying for a piece of the burgeoning market, according to Terry Kawaja, founder and CEO of investment bank Luma Partners. However, large companies such as Facebook and Google dominate the space, and they're squeezing out the smaller, more niche players.
Earlier this year, Kawaja predicted that only 150 of these 2,000 ad tech startups would break even without incurring any loss to investors, either through acquisition, merger or general profitability.
Here are seven predictions, from a handful of advertising and marketing experts, for what to expect in 2016.
1) Ad blockers threaten online organizations
Many modern technology companies and publishers watch with bated breath as ad blockers become more popular. Ad blockers represent a determined effort on the part of Web surfers to avoid annoying, irrelevant, overreaching and resource-heavy ads that flood their screens, according to eMarketer. However, those ads often fund the online content Web surfers want to view, and that's bad news for many online organizations.
The situation is expected to worsen for advertisers in 2016 as more users become aware of and choose to implement system-level ad blocking functionality, according to eMarketer. In a recent filing with the U.S. Securities and Exchange Commission, Facebook wrote: "These technologies have had an adverse effect on our financial results, and if such technologies continue to proliferate, in particular with respect to mobile platforms, our future financial results may be harmed."
2) Marketers will increasingly look to social
Facebook and Twitter dominate marketers' interest in social media today. However, the growth in marketing professionals who use these two platforms will slow in 2016, according to eMarketer. Use of Facebook and Twitter by marketers will increase by less than a full percentage point in 2016, while use of Instagram is projected to jump from 32 percent in 2015 to 49 percent in 2016.
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The percentage of overall marketing budgets spent on social will jump from 10.7 percent in 2015 to 14 percent in 2016. And while 18 percent of all U.S. digital ad spending went to social networks in 2015, social will comprise 20 percent of the ad dollars spent in 2016, according to eMarketer. This year-over-year increase will bring total social media ad spend in the United States to about $13.4 billion in 2016, based on the firm's projections.
3) Telecoms to play greater role in ad tech
Following Verizon's acquisition of AOL and its subsequent plan to buy mobile-ad-network Millennial Media in 2015, rival telecom providers are expected to fight back with similar deals, according to Thomas Sommer, content marketing manager at app marketing firm AppLift.
Wireless carriers are particularly concerned with dwindling revenue related to Web-based messaging services such as WhatsApp. These carriers are determined to get more value from customer data, Sommer says, and as they and ISPs become commoditized, the market will see a growing need for predictive ad technology to monetize their traffic, Sommer says.
4) New metrics will replace cookies
As more ad dollars go to mobile and social, industry-approved measurement guidelines will become crucial, according to Ran Ben-Yair, cofounder and CEO of mobile ad company Ubimo. These new formats don't work with cookies or browser-based metrics and cannot be built upon existing legacy Web technologies, Ben-Yair says. Mobile accounted for more than half of all digital ad spendig in 2015, according to eMarketer, and advertisers will demand greater transparency around viewability, measurement and accountability in 2016.
"As mobile share of traffic continues to grow, brands will be even more pressured to solve for cross-device measurement and experiences leveraging device graphing, authentication and progressive profiling to connect a single user to their multi-device exposures," says Feliks Malts, vice president of analytics at the digital marketing firm 3Q Digital.
5) Visual social platforms will attract mobile ad spend
Image- and video-centric social platforms such as Instagram, Pinterest and Snapchat will see an increase in advertising revenue as they continue to incorporate ecommerce initiatives, according to Darryl Villacorta, social media manager at Sprout Social, a social media management software suite. Facebook, Twitter and other social platforms will continue to gain ad revenue in 2016, but the more visual services will quickly become a standard outlet for retailers, fashion brands and other companies that want to sell products from within their apps.
6) Third-party data will be more accessible and affordable
Open third-party data exchanges will help brands access and utilize more data sets without dealing directly with the vendors or data owners, according to Malts of 3Q Digital.
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"Many of these vendors participating in the exchanges are doing so under a new pricing structure, allowing brands to pay a CPM versus a large flat rate," he says. The framework makes it more affordable for brands of all sizes to incorporate data sets into campaign strategies." As these exchanges continue to evolve, brands will look to share their anonymized user data in exchange for access to the same from other relevant brands at no cost."
7) Demand for native and in-app mobile ads will grow
Demand for native advertising increased fivefold during the past year, and this growth trend will continue in 2016, according to Ben-Yair of Ubimo. Native and in-app advertising are also viable solutions to problem of ad blockers, Ben-Yair says. Ad formats that match the look and feel of content on platforms such Facebook will continue to gain market share, as brands gravitate to more contextual and relevant advertising.