Enterprise software disrupts advertising industry

18 December 2018

Artificial intelligence and analytics are transforming the advertising industry with their ability to deliver a more measurable return on investment and a more personalised customer experience.

Digital data is giving software companies increasing influence in advertising and allowing the industry to shift its focus from mass marketing to individually targeted content.

Artificial intelligence and analytics are transforming the advertising industry

Sarah Hindlian, Macquarie's New York-based senior software analyst, says large software companies have access to third party data as well as proprietary first party data provided directly by the customer.

They also have the computing power to track, measure and analyse what marketers know about their own consumer in siloed systems.

"Software companies are emerging as powerful participants in the advertising industry with the move to personalised advertising now inseparable from the software that enables it," she says.1

Macquarie's advertising, media and software analysts track new and old companies seeking competitive advantage in a highly dynamic environment.

Hindlian notes the changing economics of advertising in the current environment.

“Global advertising expenditures are growing at over five per cent a year by our estimates, but marketers want this spending to be effective in reaching consumers at a much more personalised level, " she says.

Market intelligence company IDC notes spending on advertising software accounted for five per cent of total media purchases in 2017. This is forecast to grow to 8 per cent by 2022,2 and continue to accelerate.

Measuring impact in terms of page views, click-throughs and actual response is becoming its own sub-industry.

"Software companies are emerging as powerful participants in the advertising industry. "

There is also significant consolidation occurring in the sector, with large software and advertising technology companies buying smaller competitors, adding capabilities and filling gaps in automation, analytics, measurement and platforms.

“The big players are getting bigger but we also see growth among specialised advertising technology companies that provide new capabilities to traditional marketing systems," says Hindlian.

"These might include using AI to develop predictive insights into what consumers want or creating identity graphs to generate a single view of the customer."

While advertising software and technology companies are positioned to achieve significant growth, Hindlian says channel-based marketing, with its ability to reach large audiences at relatively low cost, remains the main vehicle for branding.

"TV networks, along with traditional advertising agencies, will still play key roles, but the emphasis is shifting steadily toward the use of individual level data applied at scale," says Hindlian.

Magda Global estimates digital ad spending will grow by 13 per cent to $US287 billion this year, while TV ads will grow by 2.5 per cent to $US183 billion, with 50 per cent of ad spending shifting to digital ads by 2020.3

"The common thread is access to the data needed to deliver appropriate messages to desired consumers," Hindlian says.

She points out that with the move to more personalised advertising, successful marketers must demonstrate sensitivity to issues of data security and privacy and adhere to regulations such as Europe's General Data Protection Regulation and California's new data privacy rule.

She believes that brands who can best leverage their first party data will be the ones who thrive in a 'consumer-privacy-first' world.

For a copy of the report Global Addressable Advertising - Tech Disruption Brings Value to Many and/or Advertising Software Getting Even More Heated, please contact your Macquarie representative.

  1. Magna Global 2018, Macquarie Capital (USA), August 2018.
  2. IDC's “Worldwide Digital Advertising Software Market Shares, 2017: Despite Intense M&A Activity, Still a Fragmented Market".
  3. Magna Global 2018 , Macquarie Capital (USA), August 2018.