Your questions, our answers and general Q1 trends and thoughts
Revisiting some of One’s earlier topics and our now quarterly mail bag
[Programming note: Welcome to 2021 - let’s never have the equivalent of the previous year again! As you’re settling in to your annual kick-offs and starting off on this year’s plans, we once again sifted through the mail/chat/Tweet/call etc bag to surface some of your favorite questions, reflect on some of the topics we’ve covered over the past quarter, and look ahead/ease us all into Q1.]
[Question 1]: How do we forecast or do any type of cogent projection given YoY & QoQ is likely hosed.
[Maja]: One of the redeeming factors here is that we’re all more or less in this same boat and can’t really rely on 2020 numbers to inform 2021/YoY/QoQ projections. In markets that have gotten a handle on the pandemic (predominantly in APAC) the rebounds seem to be quick; what complicates impact assessments in the US & UK is that we don’t yet have a sense of when the pandemic will be under control (this will hopefully improve as vaccine distribution ramps up). Our recommendation has been to take 2019 numbers as baseline - especially if you’re looking for QoQ direction - then model out what the conservative, realistic, and optimistic growth rates would have been had 2020 been a normal year and go from there for this year’s projections. We’d also advise being ready to re-forecast at the half-year mark and being patient if Q1 & Q2 underperform. Tracking changes to how long it takes to close a sale and ramp up a new client will give you good data points for overall revenue. Even the most data-driven companies will likely be calling a few audibles in their projections especially in the first half of the year.
[Ana]: I love how Jason Goldberg from Publicis summed it up:
Some verticals (eg travel, entertainment) are likely to be impacted more severely and will take longer to recover. If that’s you, you want to take a very conservative approach to everything from projecting revenue to hiring. Reorganizing and revisiting what’s on your roadmap and how you’re going to market are also good things to consider.
[Question 2]: AdTech as a sector seems to be heating up again. Who are the likely winners?
[Ana]: It did end up being a bit of a bonanza year - especially its latter half for adtech and martech. We’re square in the consolidation phase for adtech and the maturation of various programmatic and data technologies. Between privacy innovation/impending regulation, third party cookies (and third party data) falling out of vogue, and continued shifting of consumer media consumption patterns there’s an opportunity to reimagine a lot of the underlying pipes and technology. The next phase of consolidation seems to point to a more true marketplace approach and direct connections between sell-side and buy-side; a good signal of this is Comcast Freewheel’s acquisition of DSP Beeswax. This tends to favor scaled category leaders on either side looking to expand into the other; personally I also have a soft spot for solutions that didn’t originate in the US mediatech ecosystem, and those will likely be acquisition targets for strategics in the years to come.
Our friends at LUMA Partners have released their Full Year 2020 market report which, as usual, is full of all sorts of excellent nuggets and reference materials (get it here). I’ll sneak in this chart here on public market reactions to adtech companies:
[Maja]: There’s now an adtech and martech ETF out there so you can be bullish on the whole category easily.
[Question 3]: Looking at scaled companies like Dotdash got me thinking: is there a natural revenue ceiling for a digital publisher today? Is the best that a digital publisher can expect today to be a ~$150-$200M ads business?
[Ana]: That’s a really interesting concept and I think a ceiling starts to emerge lower, around the $100MM annual mark, especially for publishers without television-like assets (for those with video assets $200MM seems apt). Operationally speaking, getting a sizeable vertical to a ~10MM run rate and then both 1/ adding new, more expensive formats and 2/ adding new verticals is a good formula for scaling for digitally native publishers. It's operationally more efficient (from a staffing & day-to-day perspective), creates assets that are potentially sellable as spin-offs to other media properties, and the likelihood of someone successfully attacking across multiple verticals at the same time is lessened (this is where I think Dotdash’s original 6 very different verticals pairing down was a genius move). The scaling here is lateral, instead of vertical.
[Maja]: This of course doesn’t apply to platforms. Facebook went from sub-2BB revenue to 70BB in 10 years. It’s easy to see why publishers are trying to think more like platforms today. Perhaps part 2 of ‘pivot to video’ is really ‘pivot to platform’, for the few that can pull this off.
[Question 4]: There’s a new administration in Washington. What can we expect?
[Ana]: Hopefully more cogent policy and fewer knee-jerk side-quests like the whole TikTok episode last year. For marketing, advertising, media, and commerce the key topics of interest are data privacy regulation, antitrust, and algorithmic bias (the fist two are perhaps leading in mindshare now, but the last one has wide-reaching applications beyond these industries). I’d most like to see swift action on data privacy: without federal-level guidance we risk fracturing the US market into much smaller state markets where the cost of compliance may prove to be too much to handle. With California adopting CCPA (and soon CPRA), that may emerge as the de facto standard: since companies will need to adhere to California regulations, it may be operationally easier to adhere to them across the country. For a deeper analysis, I recommend this eMarketer paper that I contributed to.
[Maja]: I’m hoping for immediate action on foundational work like broadband infrastructure, net neutrality, and investment in basic government digital services (the pandemic has exposed just how different the tech capabilities of different states are and some type of leveling up at the federal level would be welcome). We need Infrastructure Week yesterday.
[Question 5]: We’re in rah-rah-rah, Q1, annual planning, and kick-off mode. Any advice?
[Maja]: Questions on how to tackle forecasting to day-to-day operations have understandably been pretty popular among our prospects and clients lately. I’ll echo what we said in above and add that most companies seem to be intent to kick this year off as if it’s just another regular year. Meanwhile we’re coming off of 3 consecutive quarters of uncertainty, juggling kids’ school Zooms with client Zooms, and scrambling to continue performing professionally while hitting the burnout wall. An agenda for a 3-day intensive, in-person annual kick-off that also contains elements of celebration and team-building won’t translate well into Zoom-land. Think of quarterly mini kick-offs instead that emphasize not just the goals you want the team to hit but the support infrastructure that’s available (whether that means adding more dedicated resources for the sales team to respond to client needs or reimbursing your employees for childcare costs to lessen the strains of balancing work and household).
[Ana]: Since most of your employees are now presenting to clients remotely, invest in training them how to present well. This is something we recommend in general: you could have the world’s best sales engineer but if they don’t know how to demo effectively, they won’t be as impactful as they could be. We often see lopsided presentation skills across teams; when we address this in our training and coaching engagements team performance and satisfaction improves drastically.
[Question 6]: There have been a few new interesting entrants into the SVOD space like Discovery and now Paramount+. What impact will these newer entrants have on the streaming landscape?
[Ana]: Can you even call yourself a media company if you don’t have a SVOD offering? Additional entrants solidify the split between SVOD and AVOD -- both require a minimum critical mass of subscribers or viewers to be economically viable, and it’s unclear whether this basic math works for some of the later entrants. The LA Times had a good general audience article recently highlighting the challenges of churn with streaming -- perhaps the most interesting is the tidbit that the pandemic had driven the average of paid subscriptions from 3 to 5. I’d expect that to be a temporary increase because the real gating factor here is time: rather than paying for more essentially similar content, consumers are more likely to diversify into other forms of entertainment subscriptions (e.g. live music, gaming). Thus, the prospects for the 5th or 8th most dominant streaming service don’t seem all that great. This is likely another case of winners take all markets -- as Netflix’s recent results show.
[Maja]: Conversations about churn should really focus on customer experience, marketing, and retention. Most of the SVOD and AVOD services seem to still approach the market as if they’re part of a cable bundle and not sitting on troves of viewership data and user habits (e.g. when do they watch, what length of content do they prefer, are there multiple viewer accounts in the same household, etc). I hope this changes quickly with the transition towards full slate vs. individual title marketing that Netflix, HBO/Warner, Disney, and now Paramount+ are all embracing.
[Question 7]: What impact will Apple’s proposed changes to IDFAs and their privacy framework have on advertising?
[Maja]: We seem to be past the initial denial stage when companies were rushing to argue that this will have minimal impact. From a consumer perspective, stronger privacy controls are a welcome change and the way these are being implemented all but guarantees that IDFA-based advertising will be severely disrupted. Bumble’s S-1 refreshingly acknowledges that they expect 0 to 20% of their users to opt into ID sharing (which is in line with what we’ve seen from others, and where 20% is an episode of wishful thinking). In the near-term, this will likely drive up brand acquisition costs while reducing marketing efficacy and drive a flurry of evaluations around attribution solutions/vendors.
[Ana]: Eric Seufert of MobileDevMemo wrote an excellent analysis of potential ATT impact here.
[Dig deeper: We're having the wrong conversation on privacy ]
Thanks for reading,
Ana & Maja
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