Is Cost-of-Sale Too Costly For Ad Tech?

04/05/2016
How many VC-backed companies can sustain growth at such a high cost of sales? That’s the question recently posed in an interesting MediaPost commentary by Kelly Wenzel, the CMO of Centro, a digital advertising software provider and DSP.
 
As Wenzel points out, it’s quite difficult for the advertising technology industry to continue to scale. This illustrates a need in the market for companies that serve as “integrators” – that is, companies that assume the risk of taking on and integrating with ad tech partners on behalf of others. This makes it easy for companies to get up and running with technology, and dramatically reduces the amount of time they need to spend vetting companies and taking sales calls. 
 
There’s benefit for the tech companies themselves as well, including DSPs like Centro. By working with integrators, ad tech firms can scale their services and clients without growing their sales team or adding significant headcount to client services. This is particularly important when working with smaller advertisers with lesser budgets. While there is significant investment in online advertising by SMBs, with 60 percent planning to increase digital spending this year, per Borrell, this investment is very hard to aggregate profitably. 
 
The majority of ad tech companies can’t address this market directly, and face challenges in scaling their sales and services to enable intermediate channels as well. In this situation, the integrator company becomes the party with knowledge of both sides of the equation -- they manage the system for the channels, and they serve as a sales arm for the tech company. The right partner, with a wide range of expertise, can help the ad tech company, the channel and the advertiser all achieve faster ROI.
 
This is closely in line with our philosophy at AffinityX. As the need for digital marketing services grows, integrators enable media companies to offer managed services and additional products that get the most value from their sales teams. This means that newspapers, cable operators and telcos can focus their investment on sales rather than R&D. A focused, well-trained sales team empowered by the capabilities of the integrator partner company can possibly even reduce overall sales costs in the long run, further growing the media entity’s bottom line.