As the universe contracts, more cleanly defined lines and organization will take the place of chaos.
Across pretty much every industry that you look at - consumer products, enterprise software, beverages, you name it - you almost always see the existence of a thriving ecosystem of well-supported, profitable, and revenue-driving indirect channels. The business construct is universally the same. The supplier makes their goods available to the channel partner at a 15 percent to 40 percent discount, thus enabling the channel partner to capture margin, build a business, and provide the right economic incentive to invest in the selling and marketing of your product.
Anyone in our space knows that the digital media ecosystem is a notable outlier. Instead of clean channels, what you see is a big, sloppy, overlapping mess of supplier channel competition - with many relationships described best by the word "frenemy." Making a buck in the short term rules the day. If there is money to be made doing a deal (even in the presence of obvious channel conflict), we get that deal done knowing full well that long-term alignment will be difficult or even impossible. Yet, this type of landscape has existed in our space for a decade or more. Why? Why don't we see channels in digital media? And what does this mean for the long-term growth and profitability of our space?
Immaturity. The "Big Bang" (creation of the Internet) in the late '90s created a once-in-a-lifetime and massive business opportunity. It would unwind multi-billion dollar corporations and birth multiple new enterprises with combined revenues and market caps in the hundreds of billions of dollars. Thus began the seismic shift that is known to many today as the digitization of the consumer. And even a decade or more later, we are still in early days.
Uncertainty. With this immaturity comes uncertainty. Our industry is more dynamic than any other marketplace, perhaps in the history of the world. Companies can grow at unbelievable rates, and die even faster. Venture money flows freely into the space, creating new companies every week. We live in a climate where no one is really certain what tomorrow will bring. And how would a rationale participant act within that type of environment? Get while the getting is good.
With history as our guide, this is not a sustainable way of doing business. As the universe contracts, more cleanly defined lines and organization will take the place of the chaos left behind by the Big Bang.
Let's look at two particularly striking examples in our space. Apple and Yahoo. One had the best quarter in the history of capitalism, and, the other, well, did not.
One company built a huge castle, and then created a thriving ecosystem around it. Peasants flocked to build around the castle, and were invited in to conduct business. They became increasingly loyal to the king. Their thriving presence fortified the castle and protected it from harm. And the kingdom prospered.
In the other case, the countryside was left unattended, and peasants were not invited into the castle. Instead, they were left outside the walls tin cupping and struggling to make a living. Recently, if the walls were not enough, a difficult-to-navigate moat was added (with crocodiles). And what we see is these peasants moving in droves to other kingdoms where commerce and channels are supported.
This viewpoint will inform digital marketing moving forward. Companies that use centralized platforms with multi-channel, real-time decision-making capabilities will win at the new modern games. Integration of data and media providers into a collective marketplace, where they can thrive and transact with brands and agencies alike, will put control firmly back in the hands of the buyer.
Welcome to the new, better world of digital marketing.
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Adrian Tompsett has over a decade of experience working in and with technology companies in business development, sales, and, as an early stage venture investor. At DataXu, he manages third-party technology and data supplier relationships, inventory supply partners, and indirect sales channels. Prior to DataXu, Tompsett was executive director of business development at ChoiceStream, a provider of personalization and advertising solutions for online retailers. In this capacity, he led ChoiceStream's European business expansion and sales management. Tompsett has also held positions at YankeeTek Ventures, Dell, and Grey Advertising. He is a graduate of Dartmouth College and the MIT Sloan School of Management.
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