The advertising industry's transition from third-party to first-party data infrastructure is the most significant shift in digital history. Companies across the ecosystem need to invest in transformation to evolve and rebuild their businesses, infrastructure, and capabilities.
There are two paths to transformation. Both rely on the definition of the word in business accounting: his one-time, non-recurring investment in the business.
The first option is to acquire a small company that was founded with the purpose of using first-party data, allowing the acquirer to leapfrog into a new era of status. The non-recurring investment in this case relates to the post-merger effort of integrating new assets brought into the team and business.
Another option is less widely discussed, but perhaps more attractive to some companies. It's his one-time, non-recurring investment focused on re-engineering, rebuilding, or rebuilding technology to support the new first-party data reality. This path may be less traveled, but it can make a huge difference to the future and value of most advertising companies.
fine print
In business accounting, a transformation, or new or obsolete operation, is a one-time investment that produces transformative results in a company's organization, infrastructure, and/or products, resulting in revenue and tax benefits for the organization. Contribute. This has the potential to directly solve many of the problems mentioned above, such as removing old legacy systems and replacing them with modern technologies and systems.
Even if these projects are not pre-budgeted, their strategic importance to the company allows management to make a strong case and execute quickly.
Digging deeper into accountants, non-recurring items are gains and losses that appear on a company's income statement that are not expected to occur on a regular basis. This includes legal costs, write-offs of bad debts and worthless assets, employee turnover costs, and the cost of repairing damage caused by natural disasters. If a non-recurring item has a material impact on the company's finances, it is shown as after-tax on a separate line under Net Income from Continuing Operations.
The need for change
So what constitutes transformation? The shift from an ecosystem reliant on third-party data and cookies to an ecosystem built around first-party data will help brands, publishers, platforms, and agencies It offers a variety of ways in which the path can be pursued.
Incorporating first-party data capabilities requires assets and teams with first-hand knowledge and capabilities to enable, enrich, and measure first-party data for companies involved in the advertising ecosystem. Many companies looking to the future are considering one of his three options for adding technology and teams: build, buy, or license.
subscribe
AdExchanger Daily
Get our editor's roundup delivered to your inbox every weekday.
For those considering the acquisition route, the problem is that there is currently no end-to-end solution on the market that performs all of these functions. Although clean rooms are designed for data collaboration, most clean rooms have minimal activation and measurement capabilities. Alternate ID providers can convert first-party IDs to alternate IDs for activation purposes, but measurement and optimization capabilities are not yet available. A customer data platform (CDP) is the closest thing to having the necessary pipes and capabilities, but none are connected to a clean room or alternate identity.
Going the acquisition route requires purchasing a CDP, data clean room, alternative ID, and content marketing platform and combining them to create a comprehensive end-to-end solution. Companies that acquire all of these pieces will face significant challenges in integrating their teams and technology into their current business.
M&A approaches still require transformation as businesses need to pivot. The transition from third-party data to first-party data requires updating operational workflows and technology, as well as upskilling teams and updating privacy policies, legal agreements, terms of service, and policies.
That is the acquisition route and the mode of transformation through M&A. For those looking to take advantage of one-time costing tricks, the transformation instead pursues a build or license approach. In this case, the brand, publisher, platform, or agency will need to build all the technology assets listed above. This is very expensive and almost impossible.
Obtaining a license is a path many people take. Here you can make one-time non-recurring investments. Similar to the purchasing route, these companies will need to assemble the necessary technology to continue operating in a world of first-party data. The difference here is that you are paying for a license rather than an acquisition.
Advance
Much of the conversation in the advertising industry this year will be about how companies must change as needed or risk being left behind. Organizations need to explore transformation from an accounting perspective, rather than trying to buy their way into the future.
By investing in one-off transformation projects, companies can recoup project costs in EBITA, improve valuations and future-proof their business without the significant engineering effort of incorporating technology from acquisitions. can be secured.
This is a unique opportunity to solve your organization's biggest business challenges around products, technology, organizational inefficiencies, and infrastructure, resulting in significant ROI and alignment with organizational goals.
“data-driven thinking” is written by members of the media community and contains fresh ideas about the digital revolution in media.
to follow madtech and AdExchanger On LinkedIn.
For more articles featuring Bob Walczak, click here.