Investing in Adtech 2.0
Dive into the complex and rapidly evolving world of AdTech in this podcast episode. Our exploration begins with the sector's investment allure, centred on its immense value and the transformative influence of AI. Next, we grapple with the industry challenges; data privacy considerations, the declining efficacy of third-party cookies and the limitations of AI tools. Finally, it charts the exciting new trends redefining the sector's future, including product-led growth and the ascendancy of immersive experiences.
A special thank you to our expert guests Sanja Partalo, Mike Kelly, Helena Haykin, Rich Ashton, Ashley Abrahams and Filippo Chisari for their invaluable insights.
Harnessing their knowledge, this podcast serves as a guide to the constantly shifting landscape of Ad Tech. Join us on this journey, and don't miss out on these fascinating conversations!
Guests
Sanja Partalo, Managing Partner at S4S Ventures
Mike Kelly, CEO for KellyNewman Advisors
Filippo Chisari, Founder for Agile GTM Web3
Ashley Abrahams, Fund Manager for Guiness Ventures
Helena Haykin, Partner for Digital Horizon
Rich Ashton, Managing Partner for FirstPartyCapital
Tom Gatten 5:20
so so yeah, why don't we Why don't we crack on so maybe Ashley, would you would you start giving just as a sentence on yourself and then we'll go around everyone else?
Speaker 5 5:27
Sure. Hi, guys. Ashley, Abraham's farm manager. Giddens ventures where I sit on the Investment Committee, not part of the brewery. That firm relevance here have done I think seven or eight ad tech deals. The question mark is where the rich has signed the paperwork this afternoon or not? On the eighth one?
Unknown Speaker 5:47
Nearly not quite. But yeah, well, that's interesting.
Speaker 3 5:53
All right. Thanks, Ashley. wacking. Just give a sentence on yourself. Hey, everyone. I'm
Joaquin Dominguez 6:00
Joaquin Dominguez and I'm Head of Marketing at sect.
Tom Gatten 6:04
I do myself I'm the CEO and founder of ads Act, as well as Sansha. Do you go next?
Speaker 4 6:10
Sonya, I'm a co founder and managing partner at as far as ventures which is that I'm focused at the intersection of advertising, media and technology.
Tom Gatten 6:19
Sonia, I'm so sorry. I now realized that I came in halfway through that conversation where you're explaining that the first time apologies. No worries at all. Thank you, Helena.
Speaker 6 6:30
Yeah, hi, everyone. My name is Elena Hakan. I'm a partner digital horizon. PC. We are an investment company and we are running funds number one and launching fund number two. We are also running a platform for trading of secondaries. It's called launch bay and for late stage investments. We are mostly investing in FinTech and b2b stars. These startups have to be revenue generating so it's usually serious a and later. I cannot say that we are like real ad tech investors. So it's not exactly our focus. So mostly we are investing in FinTech, FinTech infrastructure and b2b sales. But we do have several companies in our portfolio and apparently we are very, very interested in the space. We are based in London, Tel Aviv and Dubai. We originated as an Israeli venture builder, but we stopped actually doing that and now we are more active as a fund and as a platform for late stage investments and dredging up secondaries.
Speaker 2 7:40
Thanks, Elena. I'm rich. Hi everyone, rich Ashton, co founder and managing partner at first party capital. We're an angel syndicate and early stage VC fund investing in predominantly precede and seed stage. We do also invest occasionally in series a very, very focused on ad tech martech and related sort of digital media, tech companies. That 200 investors in the fund so far predominantly industry insiders and a number of corporates as well. So yeah, very sort of value add hands on investors really helping companies to accelerate. And yeah, Ashley and I will be soon co investors and she's great.
Unknown Speaker 8:21
Fantastic. Thanks. Thanks. Rich, Mike.
Speaker 1 8:24
Yeah, Hi, I'm Mike Kelly. I'm the founder of Ellie Newman advisors, cleverly named. My partner is Tom Newman. So Kelly Newman. We are an investment advisory firm. We work with companies and with growth equity firms to help scale companies. And most recently, companies that are UK based that want to scale in the United States. We've been at that for about 10 years, we've got a portfolio of seven companies. I'm the chairman of two of them. Both of the chair roles are in the UK. So I have a lot of experience kind of with cross Atlantic invest, investing and development. This comes on top of a long career in the advertising marketing media business, where I went like many people in 1999 from traditional to digital was the president of AOL media networks actually started lol media networks back in 2004, and got deeply involved in ad tech with the purchase of advertising.com and integration into AOL. Back in the day, it was still Yahoo today still uses the ad.com technology to power their ad tech, which is ironic. And it also was the CEO The Weather Channel company, after it was bought by private equity launched the Weather Channel app, etcetera. So I guess I've got a long career in media marketing advertising in tech. And in particular ad tech and quote unquote, digital transformation.
Speaker 3 9:58
Thank you very much, Mike. And finally, Filipo et Cie Furby
Speaker 7 10:02
Hi folks, sorry for the delay. I had trouble finding the link. Sorry, my notes and so on and on. It's an excuse it it has been used, but it actually did. happen. So that's that was we believe you. My name is Filippo Nice. Nice to meet you all. I am the managing partner of agile GTM, which is a web three accelerator we're just launching. And I've been in the go to market profession for a decade almost specifically in the web three space since 2019. I've worked with over 100 startups and I'm currently finishing my term. With Tech Stars with three I'm not sure if you know TechStars is the second biggest accelerator and VC fund in the world. So I covered their basically their commercial programming I built I built all of it. And that's about to end and that's why we're launching our own. We're on fund which by the way it's going to be built in the accelerator is going to be in Portugal in Lisbon. And so looking forward to providing value in the discussion with regards to everything that has to do with web three and gaming and NF T's and everything that that people are afraid to touch I guess which is going to be a really big part of ad tech. Believe it or not.
Thomas Gatten 11:23
So yeah. Thanks for the call. I'm sure I'm sure we'll get to discuss that in a bit. Well, let's let's kick off I think perhaps an interesting way to start the discussion might be I know that a lot of you actually know one another and have been around similar spaces to have you're even doing a deal like today in an ad tech company. But perhaps I might ask you first of all Halina, you mentioned at the beginning that you're a general generalist fund, but also you're extremely interested in in ad tech. I think it'd be interesting for the rest of us who are a kind of in ad tech to know why that interests you actually perhaps you can talk to that as well because I know you've got a serious portfolio of ad tech businesses. But why is that interesting to you at the moment Halina?
Speaker 6 12:11
Yes, absolutely. Well, actually, no, we are always mindful how tech savvy Oh, Paul portfolio companies are. So it's not just you know, supporting the founders or supporting an interesting business idea. But we are always looking at the Tech engine behind the product. And though this is one of the questions we always ask because we are experienced ourselves how to actually build build startups what has to be there to actually disrupt the market and be really competitive. And one of our portfolio companies only this company originated from from the venture builder. So we actually saw the trench. And then the founder, actually fulfilled his mission and produce like a really, really good product. And the idea behind was that actually it's not a guarantee for digital advertisement for digital marketing. The result is never guaranteed. And sometimes the result is not matching the price being paid for for the service and what the guys are doing. They're actually saying that we do guarantee the results. So you pay and if we are not delivering the result, we actually guarantee you're getting your money back and they actually deliver and we thought it's very, it's very interesting and they do have like, a tax solution behind and it's an in house something developed in house.
Tom Gatten 13:49
So it's a specific portfolio company that you're interested in.
Speaker 6 13:52
Exactly. Exactly. And, and they're London based company, and we we were thinking that you you have to either disrupt the market so over something that is really competitive, and it's interesting from the business model standpoint, or it has to be tech savvy. So answering your question, why would we Why would we be interested we are looking for tech savvy solutions. And with regards to hourly within the actually mark both of those boxes, they ticking. They are disruptive. They have a disruptive business model and they are tech savvy.
Tom Gatten 14:29
Okay. Thanks, Elena. Thank you. How about you, Ashley? So So what makes you interested in getting into the world that Sanjay and my conviction Filipo kind of in every day?
Speaker 5 14:37
Sure. And so for context, we've got currently 45 companies in our portfolio across a range of sectors for currently an attack on that, from my perspective, and the fund perspective, is actually diversity and challenges we've seen over the last few years, particularly impacting ad tech, given it sort of tends to be a bit more cyclical than say healthcare, business services and so on, has allowed the really strong management teams and really good tech solutions to actually stand out from the crowd. So I think it's easier in those sort of industries to see what good actually looks like relative to his peers. And see that they can actually evidence one there just the sheer resilience of both the business model, whatever technology they're using, and the team, but also just how they react. There is still a lot being spent on advertise, it might have slowed down some bits of suffering, but if a company has been able to get through the last sort of three, four years, and still be growing throughout that, in our tech, they've probably quite bloody good company. Frankly, if they haven't had a flat year,
Tom Gatten 15:52
okay, so it's almost a kind of a counterintuitive thing. Have you look for a sector where has general has suffered and lots of the bad apples have already fallen? Possibly
Speaker 5 16:02
not? I wouldn't say that. I'd say what we're looking for is good people with good business ideas at the end of the day, but actually what's been happening without tech is, I'm advertising in general, is now you can actually see what good looks like. Whereas sort of two, three years ago, you're like, I think this is what good looks like but everything's going well. Or valuations are up everything's growing fast. It's a lot harder to see and differentiate between opportunities. Thank you.
Unknown Speaker 16:34
All right. Well, let me let me try
Speaker 4 16:36
if I could, if I could add carry on. Just to make this a bit more conversation. I think you know, the the the panda in the room is is the size of the market. I mean, if you look at how big the digital advertising market is, today, it's $875 billion. If you and that's just the ad side of the if you add the mark tech piece of it, which everybody you've got on this panel is effectively looking at both those pods you're looking at one and a half trillion dollar market. So it is impossible to ignore from an investing perspective. Because if you can back a successful company, the reality of the market is very big. And these companies can become very big in short periods of time if they've got a product that's quite innovative. So I think it comes down it's much more simpler than it's much more simple than most folks sort of describe it to be. The reality is, it's a catalyst for growth. For many categories. There are very few categories that can sort of afford to have purely product led growth. Most Catterick stories live and die by advertising at some point in their journey. And so that's that's hard to sort of dismiss. And if you if you see an interesting business that's got an innovative model within it. It would be foolish to ignore it.
Speaker 1 17:51
Totally. Yeah, I think Sonia nailed the macro for sure it is a huge and growing market and there's been some hand wringing over its growth rate. And its growth rate has slowed because almost all advertising is digital. Now television was the very last one. shopper marketing which was a below the line expense. Trade marketing by large brands is now above the line. Running through retail digital networks at Walmart and Tesco. These things didn't exist three years ago or four years ago. So I just think that I look at it as the digital augur. It just has rolled through these huge pots of money pulling it into the digital sphere. And so the question is like why is that? Well, you know, I think there's a couple of main reasons and I'm sure everybody on this on this podcast has an opinion but you know, it's the fragmentation of the consumer. The consumer now is on an uncountable number of form factors, completely distributed globally. It's a global marketplace that never was before. They're seeking out experiences they're seeking out. Just think about it. Five years ago, you could have made an argument that it's over Google Facebook, blah, blah, blah now oh my god, look at the landscape. It's exploding. And it's because
Tom Gatten 19:13
lack of airline seats in a car in a oh my
Speaker 1 19:17
god, it's amazing. It was just with the guys that are big telephone or, you know, big mobile company. They just signed a deal with Uber to provide them monetization like Okay, so, again, you know, when, when would that have been on your list? So Sonia is right, it's ever changing. There's multiple opportunities, and it kind of gets back down to another basic Sonia, which is defragmenting. You know, and because it's impossible now, for humans to do it. I mean, 20 years ago, it was all done on spreadsheets. It's impossible now. You need technology. AI is the latest scoop of ice cream on top. That's going to make it even more robust. But I think there's a huge amount of opportunity, you're going to have to deal with slower growth rates. It's not is going to be as easy. So it's a little bit of shear shift, you really have to have a good solution. But and I think there's some big themes, you know, we're kind of thematic investors, and I think there's some big themes of all in that I'd love to kind of get a gut check. I can see from the pre stuff. There might be some commonality on this, but it's a huge market getting bigger, getting more complex, requiring more and more technology, and real solutions. So it's exciting. You know, it's exciting time to be and we don't even make the differentiation of ad tech and Mark tech anymore. It's just all you know, like revenue tech.
Speaker 5 20:49
I think of it as almost business services, almost rather than just adtech martech. As you say, sort of this ecosystem is massive. And complex, and trying to actually delineate almost feels like a waste of time. If you're providing a critical service in a massive market. With as you say, a lot of fragmentation. You probably got a potentially valuable business. Absolutely.
Speaker 4 21:13
Absolutely. I couldn't agree more. That delineation doesn't actually help because it just creates more complexity for per non salaried person to have to sort of absorb.
Tom Gatten 21:23
I think that the difference between
Thomas Gatten 21:27
paid and non paid media or inbound and outbound it used to be called has really dissolved because you know, a lot of a lot of organic style content allows you to be targeted. And a lot of paid media allows you to put quite long form interesting consideration content out there. And so, if you're, if you're targeting an audience with a long form piece of content that's ungated is that inbound or outbound? I think the differentiation is just kind of lost, its lost its meaning. Well, let's let's definitely get into some of those things. So Rich, maybe I can maybe I can kind of turn to you. So Mike was was talking about these kind of interesting themes that we all discussed on the pre briefing course. So these were things like, what's the role of an agency in a world of generative AI? What's SEO? Is it you know, what will SEO be in a year's time will we be designing content for consumption by the chat GPT crawler, and the bard crawler rather than pillar and post or whatever it is called Content previously and optimized for Google as soon as Google's turns on kind of barred in generic default search engines. How's that going to change what people are writing on their websites? We've talked about the disintermediation, disintermediation of programmatic tech companies between brands and publishers. That perhaps potential dissolution of that bringing brands closer to publishers, removal of third party cookies and game and all sorts of stuff. But what would you see as the you know, Mike's words the the barrels that are still rolling, still generating increasing amounts of profit and excitement?
Speaker 2 23:02
Yeah, I think one of the main things that has not yet been mentioned is you know, the data privacy side of things, you know, GDPR is obviously five years old now and appreciate a lot more prevalent and at the forefront in Europe than it is in the US and other parts of the world. But, you know, still it is it is coming. Google have also finally said that they're going to deprecate the cookie next year. We'll see, I think the face of all twists in the road there. But, you know, ultimately, all the infrastructure that's been built over the last 1520 years in terms of how advertisers, build audiences and target those users and measure the success of the advertising campaigns is obviously becoming a lot more difficult as cookies and ideas go away. So obviously, there's a really interesting time now, where the next sort of five to 10 years worth of big successful companies have already been built now in terms of, you know, first party data solutions, cookieless solutions. So yeah, I think that the impact that data privacy is adding on the market, certainly, as a kind of industry insider, is obviously a huge topic. Perhaps more generalist VCs haven't quite sort of got the head around that nuances and the kind of impact it has. But yeah, it does mean that there's a lot of innovation happening there. In terms of kind of the more privacy compliant side of things. And I think that's a trend that's only going to continue both at a platform level, Google, etc. Apple, but also from a legislative point of view. So that's driving things a lot at the moment. And then yeah, obviously AI is on every pitch deck these days, isn't it? But for us, I suppose it's about sifting through the BS and okay, do you actually need to use AI? What's the actual problem you're solving rather than building a tool and looking for a solution? It was a little bit the same on some of the web three stuff. I'm not an expert there. You know, Philippe I'm sure we'll know a lot more. But at one point last year, everyone was suddenly I went through a company and again, it was quite a sort of a hot trend that to an extent has sort of died down. But yeah, like a few of our portfolio companies are using AI. And it's such an
Tom Gatten 25:07
interesting look at the top of the hype cycle, I think right now Yeah, right.
Speaker 2 25:11
That French company raising 105 million euros seed round the other day without any product and 14 members of bonkers. And then I think the SEO thing is interesting. We don't have an answer yet. But I mean, you think about all the referral traffic that publishers get from Google and then the advertising opportunities off the back of that well, suddenly, if everyone's getting all the information they need directly within a chat GPT style interface and they don't need to go to the publisher via you know, search. You know, monetization. It's interesting argue you're gonna suddenly just own
Thomas Gatten 25:42
we've got three leads in the last two weeks who said how did you hear about us chatty GPT three or whatever we never they've never done any good work on SEO but for some reason, chatty BT seems to have absorbed some of our content somehow. And
Speaker 1 25:55
yeah, it's we are falling a little victim. I mean, I'm a huge believer in AI but on the board of Quantcast, which is a big data, AI driven company for 10 years and you know, five years ago, we did an ad campaign AI for advertising and people were like, oh, you know, AI is bullshit or whatever. So it's just like, Alright, we just do it. And you know, maybe just kind of a colloquial observation, but in in life, you know, novel things like web three and AI. They come out but then if they're really really good, in a very short period of time, they lose their novelty, because they become the way people do things. For example, the web is like, oh my god, mobile phones people used to point at you on the street when you use your mobile phone 20 years ago. laughing because look at that dork with a phone on the street. Now, of course, you know, it's part of our life. So novelty wears off quickly investing the value of these companies. You know, we're at the very early stages. There's not that much consumer usage of Chet GPT right now, any kind of AI platform. The exciting thing is that it's an open platform, so anybody can get involved. And we have a portfolio companies a publisher, you know, it's been doing it for 20 years, they've hired people to do this, that and the other thing. Now they use their 20 years of data to train the AI platforms and oh my god, it's amazing, you know, these very high quality publishing pieces. So I think every industry is going to be disrupted again by this.
Speaker 5 27:24
Yeah, I think you've just, you've just hit on that the key relevance for sort of ad tech isn't and marketing in general as an industry. Is the data. Ai itself is just the next way of doing sort of statistical inference, and it's only as good as the data you're training it on. And absolutely touching on sort of what Rich was saying, with cookies being turned off first party data is going to just become more and more important, but being able to enrich that to drive more material insights into your customer base, as some of the more established sort of tracking solutions and the like, are being turned off or are becoming less effective, such as Apple's iOS 14 update. I think it's the the quality and amount of data that exists is growing exponentially. And the companies that are able to aggregate that from multiple sources strike meaningful insights for digital advertising, I think are going to be really interesting ones to watch for the next few years, especially.
Thomas Gatten 28:27
I think open AI is large language models a pretty lack of sorry, I'm pretty lucky to have come at this point in history where the regulation around use of like Open Content hasn't caught up like there was a time where we thought that you know, publishers start making Facebook pay for using their their content, like if people were trying to get open AI to pay for the content that they're putting into it. You know, the bloody lucky they didn't have to do that. Anyway,
Speaker 6 28:55
well, I just wanted to add, it's very interesting to see how the infrastructure behind contextual targeting is developing. Because Ashley, as you just pointed out, it's all about data. And it's about the involvement of AI into this, but actually, how would you regulate context and how would you know and the infrastructure solution that now behind and developing behind it's very interesting to see what are they actually building and offering to the market and I see this, that this year and probably the next one will be interesting, very interesting, in terms of collaboration between data, AI and context and regulation of it.
Speaker 5 29:39
And the regulation will always like the technology. I was pretty much everything.
Unknown Speaker 29:43
Oh, exactly.
Speaker 1 29:44
Totally. It was very good, please.
Speaker 4 29:47
Um, what I was gonna say is, the thing that I find super exciting about AI is that this is probably the first time since I've been in the industry that we've had an enabling technology that can address the content side of the equation. If you think about the advertising ecosystem, right, we've spent the last 20 years optimizing media to death. From my perspective, right? There a lot of really fabulous companies really focused on targeting and precision of that targeting programmatic rails ability to transact media, but it's all been focused on that targeting placement side of the equation, the other side, which is the actual creative, so the images, the videos, the product placement is still done very much in a very analog way. So for animation, we still got folks animating, we've got folks in motion capture suits, you know, like all of that stuff hasn't really changed at scale.
Speaker 5 30:46
degree it hasn't changed, but one of our portfolio is using AI for a neural network in effect of how the human eye actually visualizes things. So it's now being used by a lot of the large consumer brands, literally how they design, their adverts that branding their packaging, in how it works, the dragonfly AI, three or four in the world that we know of that are doing this now. So I think loom it's something or the lumen, or there might be another
Speaker 4 31:17
competitor. Yeah, yeah, yeah. So you see sort of that's one application. The other application is there or not markerless motion capture companies, their AI enabled, there are going to be transformative for the animation and gaming development industry. I
Tom Gatten 31:31
installed one the other day called Move AI, which was exactly
Speaker 4 31:35
that's a London based one right? Run by Tino. So it's, it's really exciting because it's targeting the other side of the equation, which is how content gets made and the value chain there is very vulnerable. And I think, great from an investment perspective, just sort of focus on the bits and pieces that compromise how do we actually create the stuff so that the tangible whether that's still images or videos or you know, product placement, area that is super analog, very lucrative? Very large market? There's a few companies that are sort of experimenting with, you know, dynamically inserting product into pre shot content. It's, it opens up monetization opportunities for publishers for libraries of sort of legacy media companies, and it's it's really, really exciting. And it wasn't something that you could do at scale or through technology until really this year, I mean, all of these companies in the space are, you know, some three years old. So I'm certainly delighted to see that the other side of the equation, you know, paid media, I feel like we're doing pretty good on that side. From from, you know, innovation of offering. It's time for the content value chain to be disrupted and I think AI can absolutely provide enhanced capabilities there.
Speaker 1 32:51
Totally. I won't bore everybody with the ins and outs of how this publisher is doing it, but it's pretty fascinating and fit after you know, our call. We want to talk individually about it because it's been amazing to watch their progression and very quickly but I have a question for everybody. The the everything that we've all experienced in our career with digital and how its transformed everything is based on either a acknowledged or implied value exchange rate between the consumer and the company provided. That's why some of these companies get so big like Amazon. Yeah, okay, I'll pay you and give you my information because I'm going to get it fast and I'm going to get the recommendations and Facebook I can connect blah, blah, blah. So what do you think the value exchange for the consumer is with AI? And because that will be where it really explodes as soon as the consumer says, Wow, this makes my life easier. richer? I can make money fast or whatever what do you guys think the value exchange to AI will be? Maybe not to maybe that the businesses because that it takes it on save money or whatever, but to the consumer who's got it at the end of the day, be the one driving this
Speaker 5 34:11
my guess is it's going to be by aggregation of existing platforms, rather than any one specific use case. I would see people so being able to plug in all their existing sort of Amazon, Google Home, Alexis, and under like into it, as well as various subscriptions and having it as one solitary touch point, just a hypothesis, but I think sort of feeding the different
Tom Gatten 34:40
Jarvis from Ironman that can tell you either and turn on the lights and shop for
Speaker 5 34:45
you and whether that's embedded on your phone. So I've got chat GBT on my phone now, as well as on my desktop and sort of, if that was integrated with other things, like write a nice rejection email to this startup that's too early stage or something like that, and being able to link all those together.
Speaker 2 35:01
That would be quite interesting. Yeah, I think the personal assistant angle as well, I'm sure you know, we're all got so much an admin and stuff in our lives to do that. We don't really love doing some executive assistant assistants at work. But I think the kind of democratization of that side of things suddenly, as you sort of touched on, it's connected into all the things in your life, just running in the background, sending you reminders or just automating those tasks. Um, yeah, certainly looking forward to that.
Speaker 6 35:28
Well, to me, to me, it would be like maybe the Intel the analytics because behind targeting will be much more developed just because again, they will have much more data and with the help of AIP, it will be easier to analyze it and to actually the offers will be more tailored to my needs. It's like with the connected TV sets, you know, so it's just the learn what we do and who in the household is doing watch and what's the interest so AI, through its development will be able to offer better, better solutions, better products, tailored to my particular needs, and I think this will be fascinating. So they're just not offering me everything that might interest me, but they will know exactly what will interest.
Thomas Gatten 36:23
Excellent. Philippa, let me let me try and get you in on this because you and I had a very interesting conversation about value exchange, perhaps in a slightly different context because we were talking about the exchange between a brand, someone who is wants to sell something and the consumer and where the information exchange might happen. So previously, a lot of consumer marketing has been based on cookies. And see that's, that's going away. I think you were particularly interested in on chain cookies, the idea of the the consumer themselves or the buyer themselves from b2b perspective, owning some information about themselves and consciously exchanging this with a brand whilst also to some extent controlling it or better than is at the moment.
Speaker 7 37:09
Yes, so well, that is part of the new iteration of the internet, right? US kind of as consumers taking control of our own data in a way in a more decentralized manner. I'm happy to touch on that point. And also on everything that was said about AI actually, I disagree with some of the things that have been said but are brilliant in that case, definitely say definitely. Chip on that. So I'll start by saying briefly maybe answer a question about the cookies. So yeah, there's there's, I guess, you know, as more and more people put their data on chain, there's solutions right now that are being developed as cookies that are going to be replacing you know, the way cookies are today. And they're going to be based on on you know, you having a single sign on that is on chain and that basically spurs a whole new conversation on, you know, how is ad tech going to leverage all that data that is on chain, and how is that going to be interacting with some of the, you know, artificial intelligence tools as well, right. So I think it's kind of bringing everything together like cookies are now the way to get gathered data on online. In the future. It won't be it won't be like that. In fact, if you use a browser like brave, you're not able to target ads, because your I can basically block ads and so you actually need to I'm actually getting paid to see ads so this whole idea of the world Continuing down the same road it has gone in the last 10 years and how the Internet has developed for last 10 years is going to change in the next 10 years. There is no doubt about it. So So yeah, you know, essentially I think that you know, there's solutions that are being built right now and how to essentially have you know, sort of cookies that are you basically signed on with your as you would sign on, you know on with a Bitcoin wallet or exactly with Yeah, with your wallet, but that would still enable you to, you know, to have your own data and you will only share data that is not so personal, potentially just about your behavior. And then obviously there would be analytics that come at the back of that which are also on chain that are you know, specifically targeting you because of your behavior and your interests and not necessarily because of other aspects of your persona that you perhaps do not want to share, right? And also the way in which, you know, there's going to be an ownable part of that. So you're going to actually be able to own digital assets that will also allow ad tech to kind of get gather information based on what you own, which is now you know, you can show showcase that digitally you have that you have that digital proof right now and so for the first time,
Tom Gatten 40:09
you're gonna say I really would be in trouble if you could own digital assets and they weren't allowed to crawl it, or you could go and extract your information from their training cents. That's mine.
Speaker 7 40:18
Yeah. I mean, yeah, I mean, so I think, you know, I think that the interaction of all of those, you know, it's really interesting and I, you know, maybe going back to everything that was said in terms of, like generic trend setting. I think that we are at a verge of a hype you know, the the AI hype, just like we had a web three hype, but both were essentially used to enhance customer facing activities. And whereas I think, you know, I think that AI itself is you know, people talk about this all all seeing thing, like AI is a God like what, what are we talking about? It's just a bunch of, you know, machine learning engines and I think that people are overriding the power of, or they are overestimating the power of open or at some of the some of the ad tech startups that are out there today are startups that are being built that are leveraging AI because the truth is 90%. So, first of all, let's not forget that 90% of startups are using Open API, which means that if tomorrow the API changes, the startups will be deeply in troubles, number one, number two, let's not forget that investing in in AI is actually really a really complex thing to do, because you would have to invest a very large amount of money to get returns because marketing or going to market with an AI product, especially if it's in the b2b space is extremely difficult because b2b sales cycles are very long, and the development of a true Machine Learning Engine is between six to nine months. It's not something like you can build an MVP that is on AI in three months and deploy it. And that's it, you're done. It's very, very complex. So actually, what we're seeing right now is a lot of companies that are using the open API for to you know, operate better or faster or to enhance some kind of activity, but the truth is, there is no back end to it. That's the first thing and the second thing is it's also limited in terms of its creativity, like yes, it can, you know, make video creation, like video editing faster, but it won't it won't you know the video creation is going to be sort of objective eyes because it is based on what we feed it right. So at the end of the day, it's always going to normalize creativity rather than fostering. I think that it is it can be used for deploying for enabling for you know, all of these things, but it cannot be the source of creation. And I think that that is the misconception that is happening today in space.
Tom Gatten 42:41
But I think this if you're interested in this, we also have another podcast episode that you might want to come along to or listen to in a couple of weeks with a lady for computer scientists from the Alan Turing Institute to telling us all what we think that that generative AI can do that it can't do. And what we don't think that it can do that it can do that. Yeah, I
Speaker 7 43:00
think I think it's going to enhance I mean, I think it's going to enhance the whole search ability factor. And you know, because at the end of the day, so AI you know, what is so first of all, maybe what if what is the definition of web three, and how does it play in the ad tech space? Web three is everything that has to do with the vulnerable internet but also search ability. And so I AI falls into that search ability site. So it's essentially making you know, data searchable or things searchable, right? You want it when you want to search something you want you want to search for, you know, you go to Open AI and you and you look for something and he kind of pulls in data from different places and he creates something for you. That's That's what that's a search ability to semantic layer. That's what it is about. So so the future of the Internet and the future of ad tech as a result of that is undoubtedly one to searchability in the semantic layer and to the ownable part of it which is you know covered by NF Ts and you know, how we interact, how these two interact and immersive experiences that are alive, which brings the third side which is like the gaming side, I guess. I don't know if that. Yeah. That makes sense to how it resonates with them. Sure. I
Thomas Gatten 44:14
think it'd be really interesting to get into gaming as well. But I think given that we have Sanyo here, I think I'd really love to see Mike your experience over a really long period of time with agencies, agencies really critical to the building of the 100 and 50 billion US dollars of ad spend on consumers that that we currently see every year. I'd be really interested to kind of use your both of your experience to just explore the role of agencies going forward. Obviously, we've talked a lot about generative AI but I'd also be interested in new business models or new ways that you think agencies are going to shape the future or perhaps not shape the future in the way that they have done.
Tom Gatten 44:57
What do you guys think about the future of you know, they've been super super great. I
Unknown Speaker 45:01
have a lot of I'd like to hear so in your first lesson. Yes.
Speaker 4 45:06
So so let me continue on this one thread that the Oulipo started us on, which is this idea of we give the current state of AI tools too much credit for finished product. So the reality is and that's for us, obviously we get a lot of pitches in the in the section of AI needs, you know, disruption of agencies space. And the reality is when we go through due diligence, many of these products basically fall on their face. The problem is they're not they're just not there yet. So right now, if we look at all the sort of startups that are used, they're building tools for copywriting, still image generation, video generation, product placement, synthetic voices, synthetic music, these are all components of a value chain that an agency, you know, produces touches, manages edits into a finished product. All of these startups there's not a single one where you can press a button and get a finished product that you can put in front of a client. And there are two pieces why that is so one, the products just aren't good enough yet. So I'm not going to name names here. But we if you look at the top five startups that are doing still image generation, we've run product DD on all of them. You know, the creative teams as far as has an alignment with an operating business called S for capital which goes to market under the name of media monster big agency, and the teams there, you know, effectively told the investing team, you know, look at what this looks like. We still need to spend, you know, four to five hours editing the images we need to you know, the shadows aren't there. The facial expressions are not appropriate.
Unknown Speaker 46:47
Joe's or create scenes, isn't it?
Speaker 4 46:50
Exactly. It's just it's just not there yet, can it? Can it make things faster? Absolutely. Does it help with creative ideation? Absolutely. Does it help with the first step of editing? Absolutely, but it is not anywhere near a finished product and and that's just let's talk about the output. The second part of the puzzle is can you actually use this in an enterprise level context right agencies the reason why they're in the mix is because all the copyright issues all the ownership issues, all the IP is sorted. If you are Unilever, and you hire an agency to produce a campaign for you, you're not worried that they're using imagery, music typography that that doesn't have copyright issues solve for the reality is, if you use my journey, if you use open AI right now, and you put that in front of a client, and you try to sell that into Unilever, Coca Cola, if wouldn't pass the test, the general counsel that those companies would not approve, because you cannot, with 100% Certainty say that it is not derivative. Everybody on this panel knows but maybe not everybody who listens to your podcast knows that open AI shifted from a not for profit model. To a for profit model during their not for profit days. They scraped and you know, the data that their model learned on was scraped under a nonprofit umbrella so they were able to and there's lots of controversy around this right. Reddit is uncomfortable with it. Getty is suing them. There's all kinds of partnerships retro actively with Shutterstock because all of that after all those assets were used to train the model, which effectively means until the copyright issues are resolved. No enterprise market or no enterprise brand is going to be comfortable with using these tools out of the box and I cannot overestimate the impact of that it is a major barrier and until it gets solved it will not continue it will these tools will remain in what I would call ideation prototyping phase, they will not be finished product. Partially because the technology is not there yet. I assume it will be but the copyright issue unless it goes away. This will remain an SMB play. And it will not be sort of enterprise level tooling that we all as investors Sure hope that these companies would would become. So the question was around agencies and I think agencies don't go away because right now, you know, this is a precarious moment in time, and we still need humans to get us the finished products and we need humans to ensure that we can actually service enterprise level clients and not get into any kind of legal trouble down the line.
Speaker 1 49:27
Yeah, absolutely. I mean, so you're you're very right. If you look at the trillion dollars, if you want to call it a trillion dollars in advertising out there, a lot of that is tail small and medium sized enterprises, you know, agencies are a bit irrelevant to them. They may use a little agency or something but the big agencies that we think of, you know, that handle Procter and Gamble and General Motors, etc. You know, the top five or six had $100 billion in net revenue. So they're doing something right, you know, and so long ago, big clients said, Look, this is too complicated. I can't hire enough people. I can't hire the expertise. I'm not gonna hire engineers. I gotta put this up to somebody else. So there's an awful lot of direct to brand selling in ad tech and Mark tech, etc, for sure. But that's not the debate. The debate really is kind of how do agencies changed their business model in order to do their job which is to help the clients to be ahead of the curve, but not too far ahead of the curve. Agencies are inherently risk averse. They always have been they don't want to make mistake, that's the easiest way to lose your client. So they say no, a lot. So that's why they're hard to sell to. That's why they look like they're not innovative, but below the surface, you know, they know their job. Is to be innovative. So they've done that over the years through acquisition. And so who are they going to acquire going forward? And, you know, one of our investment theses and you know, we're still, we're always researching this is do tech and do manage services become more tech enabled managed services over time. And what we've seen firsthand we invested in an agency two years ago, it was a streaming agency, so not a traditional, you know, Hero creative type agency and what they had to do in order to increase their value was take their services and productize them, so all of a sudden, it was easier to go to sell them the clients. Here's what we do, here's our rate card, etc. A very different way than agencies sell today. It did extremely well knock on wood they were bought by horizon. Last summer. And the reason horizon bought them is it put them in a new category they could go to take to their clients and say, Look at this, this is media IQ. Now this is that I wish I wish I had so many IQ because I would be on a boat somewhere and not on this bike. This was an agency called the first two. Okay, they do streaming experience for brands and Verizon site is another way for them to innovate with their clients, but also to get this product position thing. So I think you're gonna see more and more of this. I lucky enough to work with companies that work with big brands and work with big agencies, the agencies are dying to figure out how to become product companies, etc. One thing I do think in the agency world that is shifting, and this is kind of part of the thesis as well, is this idea that everything's going to be self served that the agencies are going to have traders and this that the other thing, you know, they just don't have enough people to do it. That's why immediate IQ has done so well. They say right, we get it, we'll do the work for you. You're gonna see more of that you're gonna see privatization of that you're gonna see specialization of that. It's a very exciting space right now. And the thing is from an investing point of view if we all have our investor hands on, you guys get involved in earlier stage for us, like we're getting them and putting them on a path to an exit. There are lots of agencies and the more innovative agencies are going to have a great exit. They just are because the this is a this is an ever lasting commitment that brands have made to outsourcing their marketing, just period into story. So get if you can get into that stat revenue flow. It's a good thing.
Speaker 4 53:19
Agencies are not going anywhere complexity. is positively correlated with agency growth, and our ecosystem is only getting more and more complex. And for agencies to die, we would have to envision very large companies completely up ending their organizational structure, which they wouldn't do, you know, for Unilever. They have no incentive to do that and there are real needs. I mean, if you're launching a global campaign in 35 markets at the same time across, you know, 15 media points, you as afford you as a Unilever article, I mean, you would have to have people you know, if you look at WPP it's over 100,000 people across the globe. I mean, these are massive organizations that can support a level of complexity that a lot of these enterprises have and will continue to have. And so I've been asked a million times this question like, you know, doom and gloom and the reality is absolutely, absolutely not, you know, back to Michael's point, all of the holding companies are growing, even in a difficult environment, such as the one we're in right now.
Speaker 1 54:23
Right. Yeah, I do think that the investors look at this problem this way, as far as done so well, obviously, look at this problem and say, Okay, this, this industry has to change. There's got to be innovation, there's going to be disruptors, et cetera. It's a long burning fuse, though it's not happening fast, because of the capital pasady of agencies, because they buy the companies when they see they see the threat. We look at the m&a list of all these guys. So, personally, yes, I do. I talk a lot about the future of the agency and, you know, bad business model FTE plus blah, blah, blah. But at the end of the day, what I'm trying to do is find assets that are going to be attractive to them. Yeah.
Speaker 2 55:10
Yeah, managed service. Versus self serve there, Mike, I think yeah, exactly. Very sort of product. lead tech founders assume that they can build a great product, and they'll just end up being very self serve. But at the end of the day, you know, you just don't need people to actually use those products, as you say, which is one of the reasons MIT has done so well. But any as an early stage investor or investor generally, we will ideally want, you know, sort of very high margin SAS revenue, rather than more kind of campaign based managed services. So it's strictly right to get that sort of balance where you want ideally, as an investor, yeah, that kind of much more SAS business model, but inherently in in advertising, that's not always possible. So that's one thing we've seen as a slight shift is, particularly on the publisher side, you know, where it's sort of iron investments. We were really pushing hard to go kind of pure SAS. I think we're a lot more open now to sort of more managed service and ultimately, you know, you have to if you're trying to help publishers monetize really out to bring them advertising demand as well rather than just a set of tools for them to use.
Speaker 7 56:11
I don't I don't personally think agencies are gonna go anywhere either. But I do think that their scope will change very much. I think that the last few years, you know, starting from the from the from the b2b space, we see that product lead growth has taken over a big part of the of the space. So the idea of outbound marketing in b2b is very much diminished. And in the b2c space, the search ability the search ability factor, especially with younger, younger crowds, has changed a lot because it's all turned to video. So maybe people don't want to admit that that SEO is not nowhere near as effective as as as you know, video like search ability. So you know, that's, that's the first thing and the second thing obviously is in light of that, because upcoming generations of buyers are going to have more purchasing power and you know, digital natives are going to eventually take over. You know, for us specifically it's you know, obviously investment in self serving kind of products of course, but at the same time, you know, a lot of agencies are moving to this kind of venture studio idea where they're building sort of, you know, in light of what is coming in the future, which is the idea of immersiveness in gaming and advertising gaming, and I think that many of the people are not so when I talk about gaming, I don't specifically talk about games, games, but it can it can be any kind of gamified experience, which is, which is also branded right. You know, let's not forget that. You know, more than 500 brands last year entered the web three space, which also includes building immersive experiences. But Let's also not forget that at the moment, a third of the world is in gaming. So 3.0 9 billion people are in gaming, the average age is 35. And there's actually a 49 to 51, female to male ratio. So it is extremely inclusive, and it's very representative of our audiences. So people are, you know, thinking that, you know, ads are going to stay the way they are right now on Google and just pushing more money and the truth is, it isn't because the data is moving on chain and it's becoming more a non people are looking at searchability from a video standpoint. You know, b2b is like cancer, their outbound side of b2b is canceling and people are going you know, the the the purchasing journey of younger buyers is coming from indirect exposure in immersive experiences. So if agencies, whether it's agencies or venture studios that are coming at the back of agencies or whether it's, you know, products that are not addressing these things, or you know, they're just not going to survive, so I don't think they're, it's, they're not going anywhere right now. But if they don't address this in the next, you know, if they don't address this day in light of what is coming in the next decade, they are bound to be in trouble. Yeah, yeah, definitely.
Tom Gatten 59:04
Now I realize we are just coming to the end. So I should I should not take up. You've been extremely generous with the time already. Well, I think this has been an incredibly exciting and diverse conversation given we, you know, started out with some really common themes. I think we've had a very exciting conversation. So thank you all so much for being part of this. We'll have a one on one of course, just to make sure that you're happy with the document and the quotes and the headshot and the write up and everything. But yeah, I will also create a little community on gills like a sub community, for all of you guys to continue the conversation. I'll share any links or whatever you want to do keep in touch. And yeah, thank you all. So much for being part of it. Thank you
Unknown Speaker 59:45
very much. Thank you, thank you very much. Take care bye bye.
