Why Venture Capitalists Are Betting on Marketing Tech Over Ad Tech

Aug. 26, 2016

The distinction between the two sectors is increasingly blurring, but investors say a predictable revenue model is key.
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Advertising technology took off on the promise to automate the buying and targeting of ads across the web. Such companies have typically relied on “media-based” business models, whereby they collect revenue based on the volume of advertising they purchase and place on behalf of clients. They often sell to third parties in the ad ecosystem like marketers’ ad agencies, as opposed to the marketers themselves.
By contrast, many marketing tech companies have instead focused on selling software on a subscription basis, often directly to marketers. The recurring and relatively predictable software-as-a-service revenue model is often more attractive to investors because it’s less exposed to fluctuations in ad spending and other market dynamics.
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“Software is just a better business,” said Jerry Neumann, an early-stage venture capitalist who has invested in advertising and marketing technology companies including Percolate, the Trade Desk and Yieldbot. “In ad tech you’re often an intermediary. Buyers use 20 different suppliers and test them all, which is why nobody could really get a foothold.”
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Terry Kawaja, chief executive of LUMA Partners, which has offered strategic advice to numerous advertising and marketing-related technology companies, said there’s a wider pool of potential buyers for marketing technology companies than for advertising technology ones. That makes them more attractive to venture capitalists.
http://www.wsj.com/articles/why-venture-capitalists-are-betting-on-marketing-tech-over-ad-tech-1472202000