In March 2020, three scholars at Harvard Business School—Professor Ayelet Israeli, case researcher Sarah Gulick (Case Research & Writing Group), and independent researcher Danilo Tauro (industry expert)— prepared “Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire.“
The result is a profoundly insightful look into the ad tech industry in general and the Sizmek story in particular. We wanted to tease a few of the main discussion points in the case—while noting, of course, that we’re omitting a number of important, vital ideas and conclusions. Think of this post as a conversation starter, rather than a conversation summary.
The scope of “Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire” is vast, covering years of ad tech history, but we’re taking a particular look at what it says about the events of three generalized time frames…and what the Sizmek bankruptcy means for the ad tech industry at large.
The Past: Rise of the Walled Gardens & GDPR
In considering the rise and fall of Sizmek it’s important to go back and look at two issues that the ad tech industry knows well as massive, seismic shifts: the rise of the walled gardens (this case study is looking primarily at Google and Facebook) and GDPR.This study examines how the two issues go hand in hand, paving the way for the bankruptcy of Sizmek and questions about the future of ad tech.
The term “walled garden” could easily be “fortress,” because of how strong the barriers are. Most media platforms allowed the ad tech ecosystem as a whole to access data concerning advertising, but the walled gardens didn’t. This had the effect of “making it difficult for third-party advertisers to collect their own data or leverage any types of data outside the walled garden.” (“Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire.”)
Not only that, but the walled gardens withheld user identification cookies, which adds an additional layer of brick between what was being used inside the walled gardens and what was being used everywhere else.
This already fraught environment was then intensified thanks to the General Data Protection Regulation. As Markus Plattner, Sizmek’s Chief Technology Officer, explains:
GDPR was meant in part to stop big companies from having access to everyone’s data, but it turns out that big companies are usually the only ones who can afford to comply with the regulation […] What happened instead was that data stopped being shared, so the walled garden companies had user data and could sell advertisements based on it, cutting out everyone else.
Sizmek aimed, according to Sizmek CEO Mark Grether, to compete with the walled gardens by focusing on exemplary customer service and international knowledge. Sizmek’s range of services appealed to clients looking for piecemeal and bespoke projects, adding up to what Paul Wright, Sizmek’s general manager for Europe, the Middle East, and Africa, called “a more personalized version of ad tech.”
The Present: Spring 2019 to Summer 2020
But by 2019, Sizmek still wasn’t profitable. And due to the fact that a personalized approach to ad tech had become significantly harder to achieve, faith that profitability could be achieved in a timely manner was shaken.A main reason for this, according to “Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire,” is because, while “several years earlier, a DSP could earn a margin of 50% to 60% […] by spring 2019, DSP margins were often between 8% and 15%.”
When reflecting on Sizmek’s bankruptcy and what could have been done differently, a variety of opinions come forth. One probable issue is timing: many believe Sizmek could have become profitable if given a further six months. Another potential hiccup could have been the slow pace of consolidation; if things had come together more quickly it’s possible that Sizmek could have picked up more smaller clients.
Peter Hunter, general manager of Sizmek in Asia, also suggested the issue was sticker shock, saying that there “was no way we were able to compete with [walled gardens] on that initial price—and there’s a constant pressure on price.”
Other possible reasons include user and viewing data, the DSP question, the focus of the business, and “Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire” investigates all these and more in great detail.
The Future: “The Evolution Of Our Industry Will Continue”
Sizmek filing for bankruptcy sent shock waves through the industry. As the case study puts it, “other small ad tech companies were disappointed in Sizmek’s bankruptcy, with the CTO of a rival company pointing out that the fall of Sizmek would further increase the industry share of walled garden companies.”The general consensus pointed to a large-scale consolidation inside the industry, which creates after-shocks of pessimism. Some industry insiders suggested that independent ad tech would disappear entirely and the “big players” would be confronted, time and again, with privacy issues.
But others have significant optimism. According to Grether and Hunter, it’s still a vastly exciting time to be in ad tech, with the model set to be changed entirely by emerging technologies like the Internet of Things and driverless cars.
Grenther in particular believes we’re just getting started, saying, “In the future, consumers will have more marketable touchpoints. That’s not going to simplify advertising, it’s going to make it more complex […] as a result of that, some ad tech companies and agencies will survive, new ones will be created, and the evolution of our industry will continue.”
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We wanted to recap some of the points from this important and fascinating case study, but there’s still a lot more to discover in “Sizmek Chapter 11: Surviving Walled Gardens in Their Ad Tech Empire.”
To get a copy, contact customerservice@harvardbusiness.org
Topics:
- Thought leadership
