ADOTAS — Mobile advertising keeps growing by leaps and bounds, so when I argue that mobile ad tech won’t be truly transformative until it transitions to a Software-as-a-Service (SaaS) model, some in the industry are bound to be skeptical. But the fact is, while mobile advertising is growing, its absolute revenue is still miniscule in comparison to legacy mediums: According to a recent Wall Street Journal report, for instance, mobile ad spending in the U.S. grew to $3 billion in the first half of this year, but in 2013, television advertising is forecasted to grow to $66.35 billion. We’ve seen how SaaS has revolutionized the enterprise, and I believe it will do the same to mobile ad tech.
1. SaaS Transforms Industries by Allowing to Focus on the Core Business. As it currently stands, nearly all mobile advertising companies are just buying and reselling media without bringing much added value. They’re gatekeepers and middlemen, and often fail to make use of advanced technology to streamline their business. Spreadsheets abound! Technology is usually built inhouse — incomplete, overpromised and underdelivered. These systems are often so cumbersome to use, that you actually need “managed services” to operate them.
By contrast, in enterprise software, Salesforce.com provided a SaaS solution to shift the way companies managed their customer relationships in a more efficient and automated manner. While building a complete CRM inhouse was prohibitive for all but the largest companies, now even the smallest startup can sign up and enjoy the most advanced technology support in a matter of hours.
Once SaaS mobile ad management platforms are adopted by the industry, the core media buying business is unbundled from the need to write the software to run advertising campaigns. This allows for way leaner, faster and more targeted advertising businesses that can grow in scale by focussing on the actual demands of their customers. It also eliminates middlemen and gatekeepers who are marking up the product, charging for personnel to operate a clunky platform, and/or seeking a rent for their exclusive access.
2. The SaaS Enterprise Model Can Streamline Ad Tech. In enterprise software, a few companies have created de-facto industry standards which have helped to streamline all businesses converging onto them. In mobile advertising, while there are industry standards like ad units and RTB protocols, there is a lot of proprietary process and technology. Valuable tech resources are wasted to build basic foundations of the business rather allowing for innovation.
Building yet another ad server doesn’t help to fix the problems of the industry. Having specialized vendors to innovate and optimize on top of an open platform is what drives the industry forward.
Salesforce.com, for instance, is at the core an address database. By providing a streamlined, standardized SaaS platform, companies could stop writing yet another address database and start to innovate on top of the platform. A whole ecosystem of companies are now creating the most sophisticated CRM solutions based on SaaS. Last months, more than 140,000 people brought life in San Francisco to a standstill, when they attended the Dreamforce conference, demonstrating the massive scale that has emerged in CRM thanks to SaaS.
3. SaaS is Cost-Effective and Impartial. Mobile ad tech companies charge customers based on media running through their systems. This makes every IO and the margins generated the prime focus of optimization for these companies, often at the expense of the customer’s interest. There is an inherent temptation to skew the customer into running higher margin campaigns or obfuscating the real counterparty deal through blind transactions or even kickbacks.
Compare this to SaaS, where the unit of pricing is a seat or a site license. Salesforce.com is impartial whether you file a deal worth $10 or $10 million — they don’t charge a percentage of that or even become a middleman for that transaction. Being impartial through their revenue model to the nature of each transaction, they focus on usage and customer happiness.
Also, the overall prices charged for a widely adopted SaaS platform are much lower than the cost associated with running proprietary software like in mobile advertising: Fees or markups for ad serving or RTB procurement range from 3-percent to 27-percent. According to their filings, Millenial Media is allocating 15 percent of their expenses to R&D. By contrast I have yet to see a company which is charged even 1 percent of their cost for using a CRM.
With the mobile advertising industry adopting a SaaS model where the technology provider becomes separated from the media business, its inefficiencies can be eliminated and innovation facilitated, the precursors for its rapid expansion to its $25 billion potential and beyond. b