Ad tech funding falls to five-year low as Google and Facebook hegemony hits

Ad tech startups face growing difficulty in raising funding due to the dominance of Google and Facebook in the digital ad space.

facebook and google duopoly

Venture funding for ad tech startups has fallen to the lowest level in five years as new companies struggle to raise money amid the growing dominance of Facebook and Google in the digital ad space.

Research conducted by CBInsights for the Financial Times found that globally the number of ad tech deals was down 17% year on year in 2016. Last year, there were 343 deals, down from 414 in 2015.

The value of funding was also down, by 33% year on year to $2.2bn (£1.8bn) in 2016, from $3.3bn (£2.7bn) in 2015.

The fall comes as Google and Facebook increase their dominance of the digital ad space. According to forecasts by OC&C Strategy Consultants, the two firms will account for 71% of the UK’s overall online display ad spend by 2020, up from 53% now. That figure is even higher in the US, where Facebook and Google already account for two-thirds of the market.

Fergus Jarvis, partner at OC&C Strategy Consultants, says: “Google and Facebook provide unique tools which allow marketers to reach and target customers in new and innovative ways. As these tools become more precise, and their audience continues to grow, CMOs are increasingly seeing the benefit of highly measurable and targeted campaigns. As a result, Facebook and Google’s command of the online advertising market is not a matter of if, but when.”

While the digital ad market continues to see the largest growth of any sector, all of that growth is comes from the two firms. If they were taken out, the digital ad sector actually shrunk last year, by 3% according to Digital Content Next, a trade association for the publishing industry.

Yet there are concerns about what their dominance of the digital ad industry means for the marketing sector. Marketing Week columnist Mark Ritson has also said it is his number one issue for 2017, adding: “The implications of the digital duopoly and their walled gardens are as ominous as they are enormous.”

READ MORE: Watch Mark Ritson’s take on 2016’s biggest marketing moments

The dominance of Google and Facebook makes it difficult for other digital ad providers to get a look in. Many have a first-mover advantage but struggle to scale to compete with Facebook and Google. That is why there were a number of big acquisitions last year, for example Adobe buying up TubeMogul. Any ad tech firm with global ambitions needs the money and clout to compete with Google and Facebook’s technology. And CBInsight’s figures show venture funding for such growth is drying up.

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