Chit Chat Stocks - A Shifting Advertising Technology Landscape With BWG Strategy

Episode Date: December 28, 2023

The advertising technology industry, driven by data analytics and digital innovations, continually transforms the landscape of marketing and media but grapples with issues of consumer privacy, ad fraud, and the need to adapt to evolving regulations and technological advancements. Listen as Brett and Ryan ask questions about the industry. Enjoy the show! ***************************** Chit Chat Money is presented by Interactive Brokers. Switch to the best brokerage in investing today: ⁠⁠⁠⁠⁠⁠⁠ibkr.com/info⁠⁠⁠⁠⁠⁠⁠ ****************************** Want updates on future shows and projects? Follow us on Twitter: ⁠⁠⁠⁠⁠https://twitter.com/chitchatmoney ⁠⁠⁠⁠⁠ Subscribe to our Substack to receive free show notes and charts for our Tuesday episodes: ⁠⁠⁠⁠⁠https://chitchatmoney.substack.com/⁠⁠⁠⁠⁠ Want more from Brad: https://x.com/BLyons151?s=20 More more Justin: https://www.linkedin.com/in/justin-taylor-ruiss/ More on BWG Strategy: https://bwgstrategy.com/ Contact us: [e-mail] Timestamps What is Ad Tech? | (6:30) What is a Publisher? | (19:25) Changes | (44:03) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hitchhat Money is brought to you by Interactive Brokers. Designed for active traders and sophisticated investors, Interactive Brokers offers trading assets in 150 markets with 27 different currencies. Interactive Brokers also charges USD margin loan rates from 5.83% to 6.83%. They've also got the ability to trade stocks, bonds, futures, options, commodities, and more, all from a single unified platform. Brett and I use Interactive Brokers ourselves, and I honestly have to say that if you spend a considerable amount of time managing your investments, if you're spanning the globe

looking for new stocks, I highly recommend using Interactive Brokers as your platform of choice. Restrictions apply, but for more information, visit ibkr.com, member SIPC, open an account with IBKR today. Welcome to Chit Chat Money. This is our Thursday deep dive episode where we're doing a sector overview on advertising technology. We've got on the show Brad Lyons and Justin Ruiz from BWG Strategy. BWG sells industry research to funds. So if you work in the fund realm, longshore, anything capital allocation wise, and you want some specific industry research. You're going to see it here during this interview, but these guys are really good. At least go check out the website. They might have some forums or discussions going on

with sectors that you invest in. So I really think it's worth checking out their website, but this was a fun interview. We go over the basics. So what is a cookie? What's happening with Google's new privacy changes, who are going to be the beneficiaries and who's going to get hurt by some of the new changes as well. And it's all kind of getting started here, I believe in like 10 days. So it's kind of a timely interview and it seems like this is kind of a fundamental change in the ad tech space. I believe they call it a foundational shift.

So it's an interesting time for this. Lots of good tidbits in here. lots of talk around who could be potential winners and losers of these changes, but I'll leave it at that. Here's our interview with Brad Lyons and Justin Ruiz. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Anything discussed on Chit Chat Money by Ryan, Brett, or any other podcast guest, it's not formal advice or recommendation.

Now, please enjoy this episode. Okay, welcome in everyone. Today, we have on two guests, two new guests to the podcast. It is Brad Lyons and Justin Ruiz. I hope I'm saying that correctly. It's a little bit of a last name to say there, but they are two people from BWG Strategy. It is a, well, maybe I'll let them describe what it is, but guys, welcome to the show and kind of what's your expertise in the investing and finance world? Got it. Yeah, I guess I can kick off, set a baseline for kind of who we are, what we do, and then I'll pass it along to Justin here. But just first off, I want to say thanks for inviting us on.

Big fan of the podcast. Always love to listen in to see who you guys host. As you mentioned, a very timely and dynamic topic on our hands today. Call it digital data privacy and the resulting impact of signal loss across the ad tech ecosystem. So no shortage of topics to discuss today. So anyways, brief introduction of myself. I'm Brad Lyons. I am the head of research at BWG Strategy. For those that are not familiar with BWG, we are a primary research firm utilized by some of the world's largest investment managers. came to market 10 plus years ago with what we call our forum product. And we bring together groups of subject matter experts to engage in 60 minute moderated discussions on specific topics,

companies and industries here. So we host approximately 40 to 50 of those forums per week across our firm. And then investors listen into those discussions to get a pulse check on the latest and greatest trends, just influencing the companies and sectors that they care about. So real-time, high-velocity nature service, and clients are able to pick up and identify inflections just before the broader market. And then I, beyond the forums, also lead our written research product, which just means surveys, custom research, go down the list. And they're an extension of our forums and just expand the breadth and depth of our coverage here.

So in terms of my focus today, I'd probably say I'm more of a generalist. And that probably comes across clearly in my Twitter or XFeed. But my roots were within the media and ad tech space. With that said, fortunate enough to be joined by my colleague here, Justin, who leads our ad tech and media forums. So I'll pass the mic along to him. And thanks for that, Brad. And thanks for having us. Really, this is awesome.

Great to be part of the platform. Justin Ruiz, I lead our media and e-commerce conversations and discussions at BWG Strategy. Again, like Brad said, I host probably around eight to 10 of these events per week, whether it's in the media or e-commerce landscapes. My background, five and a half years of sell side equity research and five and a half years of primary research with another organization before this, but glad to be here and glad to share some of the insights that we've been picking up over the course of these forums and what the sentiments are among those in the landscape.

Thanks for having me. Yeah, of course. We're excited to have you both. we're going to kick things off with kind of a for for people that know ad tech it might seem like a very dumb question but for the the beginners or the novices such as ourselves can you explain what cookies are i think people see this all the time and it's maybe not that well known and then can you explain the difference between first party and third party cookies for sure um yeah i can just set a baseline and then justin can layer in some incremental thoughts here so cookies essentially

just a tracking mechanism at the user level, where information is just collected on a user's behavior across the web. So these are essentially text files made up of bits of information that a website will then store on a user's device. As you alluded to, there's two types of cookies here, first and third party cookies. First party cookies created by the website that the user is actually visiting, so currently on, and they're typically used to improve site experience through session management. So that's like covering, hey, remembering your user preferences. If you leave this site, it will still have the items that you had in your cart still there when you revisit. So those are just two quick examples of first party cookies and how they're used.

And then third party cookies, on the other hand, are placed on a site by a third party to collect user data. So when a web visitor visits your website, the third party cookie tracks this information and then sends it to the third party who created the cookie. what's nice about third-party cookies or why they've been used is it provides a comprehensive view of just user behavior and they've really just been a foundational component of internet advertising that marketers have truly relied upon to serve users with highly personalized ads and targeted ads for products and services so the removal of them and pivot away given how entrenched they've been in just marketer workflow is a pretty monumental and pivotal moment within the industry. And one of the reasons why I said this is probably a good time to

actually have a podcast on it, because this is really a big shift across the ad tech ecosystem. So the easiest example of third-party cookies here is, hey, whenever you see a shoe ad following you across 10 different websites, that's third-party cookies for you. So that's pretty much the rundown on first and third-party. yeah i well said brad and i think you know as you alluded to and as we've seen in the past with what apple has done google is similarly going to deprecate that third-party cookie with with some anticipation of many thinking next year um so next month is actually a certain percentage Do you believe it's 1% that they plan on deprecating the cookie in January with basically a full rollout over the course of the year? Yeah, I would say rationale, just to set the stage a bit for those that are unfamiliar, for deprecating the cookie, it really came into the picture with the EU's GDPR ruling in 2019,

where they brought data privacy issues to the forefront. So they required websites to get users' consent before they could capture any analytics or like web tracking cookies that are placed on the browser. So before GDPR was in place, there was like an implicit opt-in where they could just capture your cookie. GDPR went into effect and they had to get explicit consent

from users. So now we're actually, we have seen some of those data privacy regulations kind of come over to the US here with the closest lookalike to GDPR, California Consumer Privacy Act, CCPA is the moniker. And there's a whole suite of other states that have similar regulations in place is there so i've been saying that all the time i think everyone has where they log into a website and they get that pop-up that's you know do you accept the or do you consent or not consent and i'm curious do you guys have any idea like what the opt-in rate is on that like how is it is it the minority that people actually consent or do most of the people ultimately just kind of

I don't know do they have a preference? Do people, are they actively choosing not to consent? I'm really curious because I kind of just do it as quickly as I can to get it out of the way and I'm curious what like if that's the actual like

common use case or if people actually think about it Justin, do you have any views there? I can take that If you want to, I mean Yeah, even from like the gaming landscape, we cover gaming too, you know, the idea of like venturing off to another area, even if it's like an app store or something like that, it's highly unusual to see somebody want to go outside of an ecosystem. And exactly like you said, Ryan, kind of like blaze through and get like, I need to read this BuzzFeed article right now, you know, kind of blaze through and go through that. even on an app store basis, most will gravitate towards what they know versus deviating.

But Brad, you probably have some good insight on that. I mean, I believe the last metric I saw was opt-in rates around that 30% mark. I'm not entirely sure. I think that was it. Opt-in, somewhere around there. It could be higher, though. I'll double check right now. Interesting.

Okay. And maybe we can come back to that as you're checking, because I think for any listener here that's not doesn't know this space at all, which, you know, the fun thing about this episode is Ryan and I are kind of trying to learn along with you guys is why this is also relevant. I think we'll get to it, but I'll take a few questions. We kind of have to lay some context. So the next topic we want to hit is why is Google getting rid of third party cookies

in Chrome? And you talked about the timeline. It's been pushed back a bit. But what is the timeline here? like you know what's all the context listeners need to know and maybe to double down on that like what are you mentioned the privacy concerns from the eu ruling what are the like specific concerns yeah it's uh it's around just uh user data and just making sure that it stays in the right hand so that's kind of what spurred uh gdpr and why they're they're deprecating uh cookies to an

extent. It's all about just, hey, giving more control back to the web user. So I would say that's pretty much the driving force behind it. In terms of the timeline, Justin kind of alluded to it. But before we get into it, I think it's just important to note that, hey, Google initially announced their intentions to replace the third-party cookie functionality with what they call their sandbox API back in January of 2020, where back then they said, hey, we'll transition off the cookie within two years. However, that clearly didn't pan out as they were forced to delay the timeline after they received a tremendous amount of pushback from the industry because people largely conveyed,

hey, this is way too soon for the full elimination of cookies since there was no reliable alternative tracking mechanism to replace cookies. So now, after two lengthy delays here, the time is coming, January 4th of 2024, and Google will migrate 1% of Chrome users to their new mechanism, which within Privacy Sandbox, and they'll disable third-party cookies as they want to move to call it this new privacy-compliant web. So they dubbed that new mechanism, which will actually restrict the cookies as tracking prevention, I believe is what it's called. And it essentially will limit cross-site tracking by restricting access to third-party cookies by default. Anything to add, Justin? Brad does a very good job of really succinctly nailing a lot of this stuff. But yeah, it's the 1% mark. And to harp on what Brad said before, these conversations we've been having for quite some time of, hey, is Google moving the goalposts or not? It's something we've been tracking for a while. And it finally seems that next year is the year, right? They've already set these deadlines. They're going to do the migration. It is going to happen. and the conversation has switched over from if to when and ultimately what's the impact and that's

really one of the big things that we've been having discussions on in our uh in our realm but yeah yeah yeah i mean we're going to get to a lot of the potential effects here throughout we have plenty of topics of what the companies you know just as a teaser for the listeners we're definitely going to be talking the trade desk and then all the other companies around there but what I think the other thing people need to know about is this privacy sandbox. So what exactly is Google trying to push here? You know, what's been the feedback on it? Do you, is it, are they trying to get ahead of the regulation?

That kind of seems to be what's happening here, but they're kind of one foot in one foot out, but you guys explain for the listeners. Yeah. So that mechanism tracking prevention that, that i mentioned before that was essentially spun up within the privacy sandbox so uh privacy sandbox is essentially just your virtual digital sandbox and it's the place where google has been working with other ecosystem participants um which includes like publishers ad tech companies brands agencies and developers just to participate in the development and testing

of the new technologies that they're trying to roll out that are cookie-less based. So that's just essentially the testing ground for all of these new mechanisms that they're trying to bring to market in an effort to move away from the cookies. Which publishers have been engaging in now, right? they're already in this mode of testing and trying to see what the results will look like. The demand for it waxes and wanes, but right now it's really in testing phase. Okay. We want to take another pause today to talk about our friends, Interactive Brokers, otherwise known as IBKR. We love Interactive Brokers. Ryan and I both

use Interactive Brokers on a regular basis for our investment accounts. And the reason we love them is because they have the breadth of asset classes and geographical diversification you can invest in options bonds stocks and in all sorts of markets that you can't find anywhere else whether it's the nordics where we like to research or down in latin america where we also like to research or in east asia you can find stocks that are listed in all these local exchanges and you can buy them on ibkr plus so many other features that we've talked about before if you want to check out IBKR, make sure to go to IBKR.com, member SIPC. If you are a professional investor, if you like doing a lot of research, such as ourselves, which if you listen to our podcast,

I think you do, you're going to want to check out IBKR and open and switch your accounts over there today. Okay. I want to make sure we bring all the listeners along with us. What is a Publisher, because I know a lot of people are aware, but what's an example of a publisher? So I think people can get an example. You're I mean, Bradley, your news sites, you know, your posts, your you know, any anyone that's publishing content that's driving advertising alongside it as a form of revenue. So think about, you know, I joked about BuzzFeed before, but your publishers or those content creators are going to drive site traffic with high quality content and then monetize off of the advertising that accompanies it. So banner ads, things like that alongside it. What has the feedback been like on Sandbox?

um so it's been um at least from from kind of what we've picked up uh very very mixed so like i'll just table the the rhetorical question back is hey will google fully deprecate cookies in 2024 and i would say hey at this stage it's probably not a hundred percent um a few components there. One of the stipulations is they need to get approval from the UK's competitions and market authority, the CMA. And the CMA has to be satisfied that the privacy sandbox technology that they ultimately move forward with aren't anti-competitive. So the first thing is before they kind of roll out something in full, they need to get the CMA's approval. So who knows if that's a lengthy process or not, but that's kind of step number one. Beyond that, I would

say the feedback that we've picked up from our own checks points to like some growing skepticism about Google's ability to meet that timeline in terms of full cookie deprecation. Why is that? Just a general disarray around privacy sandbox from Google themselves. Coincidentally, I'm doing another project on this for another firm and spoke to a programmatic lead at a large ad agency today who essentially said Google's privacy sandbox, very fractured and impossible to get a consistent response from the Google team.

So each rep that they speak to tells them something different, and there's no consistent messages going around the Google team themselves. So it's hard for a publisher, an agency, a brand to have confidence in kind of what Google is deeming as the cookies replacement when Google themselves doesn't have a consistent message. And then just to go off of the question I said there of, hey, Google has delayed the rollout twice before, so people aren't putting it past them,

that they could potentially delay it again. Yeah, and I saw that the trade desk ditched it entirely. I guess, what are your thoughts there? And then what kind of implications might that have? Yeah, I think that the interpretation there and kind of what that all means is still up in the air. uh hey some people believe that that this will actually just strengthen google's moat because it's within kind of their back end and ecosystems and hey if they have visibility into all of this data from all of these external sources um are they going to say one thing externally and do something else internally that would give them an advantage and they tend they've done that over

time. Even if they won't admit it, people that are in the weeds will say it's 100% happening. Trade deaths, yeah, I mean, interesting that such a big player would pull out. But hey, if you look back to their earnings calls, Jeff, the CEO, has voiced skepticism, uh i think over over the last few quarters um and i pulled up one of his quotes but he he said hey believe this is a strategic mistake for google to get rid of cookies uh one they're facing more antitrust scrutiny uh rather than other regulatory scrutiny so he didn't think it was in their their best interest to kind of do go forward and deprecate uh because of the way that case states are stacking up so his opinion i think this was on his q2 call uh was uh they're not

deprecating fully until the end of q1 of next uh of 25 at the the earliest so i thought that that was super interesting um not sure if you have other views there uh justin or if you picked up anything else from from your calls and combos yeah it's it's an interesting conversation on the trade desk side of things and they're they're really you know in a lot of ways kind of planting a flag in the sand a little bit here and and staking their claim on on the open web on tradable advertising over the open web um it's not to it won't dawn on anyone that trade desk is basically like one of the biggest dsps out there so for them to really kind of stake this claim it's uh sort of putting them in a position to really try to innovate and become more of a

power player within the um ad tech space so deviating away from google should really ultimately prove out trade desk's ability to innovate on this front and i think that's sort of the messaging that they went with in terms of basically saying hey we're not participating in this But it's still it's among the landscape. It's still one of those really head scratching moments because I think publishers and advertisers have to start to consider one of two things, whether or not to opt into like the walled gardens of the Googles of the world or continue to operate over the open web with players like the Trade Desk and other other forms of advertising technology companies that can help facilitate. the trading and the placement of advertising over the web. Do you think other demand side platforms will follow suit or do you think trade desk kind of has unique abilities since they're a little larger? Do you want me to jump in Brad? Yeah, I don't.

And correct me if I'm wrong, Brad, but I don't know if they have the power to like, I don't know if they really have the ability to be able to do that. And trade desk is one of those 800 pound gorillas. everyone else is um operates in their own respective manner whether it's you know from a niche perspective and you know servicing a specific sector like healthcare or something along those lines or they service a smaller market group whether it's smb clients or mid mid-sized mid market but you know if trade desk is really operating with many of the big enterprises out

there they they have enough weight to be able to to command this versus some of the smaller players who are trying to gain that market share. Yeah, is it, or sorry, I was going to say it's interesting because it seems to be a part of the Trade Desk brand itself of talking with the advertisers, and it would be kind of weird for them to team up with one of these walled gardens. But I think all that context leads into, you know,

now we can get to the fun question, which is you guys have written, I think it might have been Brad, maybe you, Justin, have said that this is a foundational shift in digital marketing that a lot of people are behind the curve on why do you guys believe that got it yeah i think in the intro i alluded to it hey um the ad ecosystem marketing ecosystem as a whole has been highly reliant upon third-party cookies so uh turning them off um in 2024 and fully call it in in 2025 is kind of a shock to the system um hey the level of impact is really going to come down to how much first-party data

uh any given uh ecosystem participant uh has those with robust amount of first-party data are going to be in a much smoother sailing position than those that have lacked it. So kind of our view that I was trying to relay there was there's a substantial amount of players that lack the necessary first-party data robustness to be able to kind of navigate the change away from third party cookies. So it's going to be exceptionally tough for them to kind of see the same marketing efficiencies that they have, call it in years prior when cookies are enabled. Those that have robust first party data sets, so a lot of your global brands that have all of that purchase data from all of the channels that they sell products through are

going to be very well off, as well as the social media networks and any other, call it publisher, that has a high percentage of logged in users, because that's where you just yield the greatest amount of user data from that logged in user, which is why the The thinking is the walled gardens are actually strengthened on the heels of all of this because of that. Yeah, 100 percent. Like it ends up it ends up becoming a war between, again, the open web and the walled gardens. And there are there are benefits to each side of that equation going in either direction to like what Brad alluded to. the walled gardens have this really rich first party data and it's very executable, right? It's targetable audiences. It's, it's, it's under, it's, it's understanding your customer and that's

a huge, huge advantage. But one of the things that Brad mentioned was there are a lot of walled gardens. I mean, if you think about every retail media network out of out there, those spinning up left and right, those are quasi walled gardens in and of themselves. They have purchase data, they have customer data. It's all things to leverage against if you're an advertiser, if you're selling Coca-Cola, you want to know what your audience and your addressable market is when you're deploying ad campaigns. So there are a lot of walled gardens and in a lot of ways, Trade Desk or some of these DSPs can sort of amalgamate this and deploy your campaigns. And there's a lot less frustration going to, if you're a major CPG brand, going from one

walled garden to the next and deploying 50 different campaigns versus working with one trusted partner who's going to provide all that extra care and customer service and person ability to that relationship. So there's benefits to both sides, but to like what Brad said, you're drawing a line in the sand. You're really kind of making people sort of choose in a way, but yeah. Yeah, and just to kind of parlay off of that, first-party data, like critical, everyone's focused on, hey, how do we increase our first-party data touch points? So what does that mean? Hey, customer purchase history, loyalty programs, mobile app usage, surveys, emails, newsletters, SMS, go down the list. Those are some of the sources that are used to kind of build out just the breadth of your 1P data. um like today i was talking with an agency who had a lot of qsr uh clients and one of the

initiatives that they are spearheading or have called in 2023 and moving into 24 was pushing people to their app so that they would log in and then they have that login user data that allows them to kind of harvest a profile and then use that for for targeting so everyone's trying to create um all of these uh incentives to kind of capture uh those data sources do you think this helps or hurts amazon's advertising ambitions brad um yeah i mean hey amazon is a uh is a walled garden here i mean they have probably some of the best and deepest consumer data because they have purchase history, logged in, scale, they have all owned and operated across Twitch, go down the list.

So they're kind of the holy grail. And Justin alluded to it before, and we'll touch upon it a little bit later, is the growth of retail media, which is a advertising enabled commerce. I mean, that was largely spearheaded by what Amazon has done around AMS, Amazon advertising, and all of their media services. So they've kind of spearheaded that and I think have influenced others to kind of launch their own ad program. So you have Walmart Media Group, you have Best Buy, you have Ulta, you have Kroger. I mean, there's a whole laundry list of retailers that are adding this to the mix because they have the customer data, which is a critical part. So they can sell audiences to

advertisers uh with confidence and say hey target this this cohort of people for x y and z and you'll get this return it's pretty attractive when you have third-party uh cookies being deprecated when there's so much signal uh within retail media networks uh justin anything to add there i know you know it's real really says and and amazon to to exactly brad's point i mean amazon is the one of the leaders if not the leader in this space and they really set the tone uh on the retail media side here uh with that being the case i mean yeah they they own a ton of really rich data brad brad mentioned it you know prime video uh twitch any kind of commerce any kind of transaction checkout payments the whole nine yards they

have a lot of really rich data on the customer um and it's it's one of those extremely valuable uh situations because most customer journeys when looking for a product start on amazon so you're already searching you're already adding search queries to that that site based on exactly what you want you know exactly lower funnel type of activity there so they're they're it's a good it's a good position for them to have just so you guys know that's that's brett the amazon shareholder that's his caution coming out and that's why he's asking the question yeah yeah you want to talk about caution i have two words for you tiktok shop that's your yeah that's i know I want to hit on that one too.

We're going to talk about, we'll come back to the retail media networks because I have a follow-up about just a little teaser for the listeners. You know, the partnerships that Amazon just launched, I believe it was with Pinterest, Snap, and Meta. But I want to talk about the people that are going to potentially get hurt from this. And it's the people with a lack of first-party data. So how are they going to navigate this change? What sort of headwinds do you see them hitting the next five years and how can they solve

that? justin you want to take that i mean you kind of hinted at it they need some of these uh open web ad tech players to kind of uh push forward solutions that helps them uh that enables them to kind of recapture any potential lost revenue but i would say a lot of this is predicated upon some of the major vendors to help out the the independence so that um the the call it uh balance of power just doesn't shift fully in favor of the the walled gardens here it's yeah right it's it's very solution oriented so you have technologies like clean room um which help enrich data or help basically create audiences targetable audiences for brands

to really execute on it's it's technologies like that that will help sort of create a pathway forward on that um and you you can you can get creative with it right it's look-alike audiences it's different types of um targetable customers that you can use and sort of i don't want to say fudge it but like basically come to a conclusion that this is a rich source of, or this is a rich customer base that you can execute on and deploy ads against and basically utilize that to go forward, as opposed to like a very rich first party data set that in some cases, the walled gardens, you know, that's their oil. They don't want to necessarily share a lot of it. So they're not really going to share so much of like the analytics or the really hardcore concrete

data that's set within those that that first party data set so you have to get creative with it to be able to enrich data make it so that it is it it meshes with what you're in you know what your brand is or what your what your brand's goal is whether to create lift sales lift whether to target a new demographic and things like that um it's it comes down to technology yeah so oh go ahead the small guys are largely gonna lean on uh whatever technologies are kind of spun up here to help kind of enable their their business here uh i believe i i saw like some stat like smaller publishers have call it 80 of their revenues coming from third-party targeted ads. So a lot of exposure here to the elimination of cookies. So as it stands today,

a little bit unclear in terms of what the little guys can do. But know that a lot of the call it leaders within the open internet ad tech space are trying to bring forward technology so that uh the open internet kind of survives uh post cookie deprecation not dead not just survive but compete right yeah yeah exactly that's like you mentioned justin tiktok shops i want to go back to that what uh why did you mention that i guess what are you what are you guys seeing there is that garnering a lot of traction uh it's in extremely early phases so brands are testing Brands are learning. Brands are executing and trying to spin up shops as quick as possible. Look, there's no secret here. TikTok's audience is gigantic, primarily skewing younger, though definitely getting older.

You are seeing more older users skew up on onto the platform. But, you know, Douyin, which is the counterpart in China, which ByteDance owns both, really, really works well and almost this QVC style like streaming shopping experience. And I think shops is sort of the first step for a U.S. based version of that. And that being said, super early innings, like we're talking the game basically hasn't even really started yet. But with that being the case, this is a play on social commerce, which is not new. You know, Instagram shopping and things like that have existed. You mentioned the Amazon partnerships with Pinterest and Snap and Meta and all of these types of different shopping experiences that can happen. And TikTok shop and what Amazon is trying to do is they're really trying to eliminate as much friction in the buying process as possible.

So this isn't a cannibalistic situation. This really could end up being more of an additive situation for brands. Now, that being said, when you think about the customer journey, you think about people searching and traveling down the funnel. I mentioned that people start their searches on Amazon. Younger demographics, from what we've heard in our forums, younger demographics start their search on TikTok. Take the friction of actually completing a purchase out of the equation and jumping to another website or jumping to another app. One of the bigger players in that situation that can lose out is Amazon. Because that's where you're really going to delegate most of the purchases on this.

And let's face it, you're talking about apparel. you're talking about collectibles or toys or things like that. We're not buying cases of water on TikTok, although I'm sure you probably could. But the larger purchase or heavier fulfillment kind of items aren't really going to be on TikTok's radar, or at least brand's radar for TikTok. So I do think that there's a little bit of a disruption in the customer journey when you think about it from a TikTok shop perspective, that they can really capture a lot of business if they reduce the amount of friction in the customer journey. And Amazon's trying to do the same thing. If you can complete a purchase via Facebook, Instagram, Snap, without

having to actually go to the Amazon website, that's a huge, huge hurdle to jump over in terms of getting customers to actually convert. So I think Amazon's move is a little bit of an insulation to tiktok shop i think the other one not to travel down this rabbit hole even further but i think amazon's trying to make enough of a play and enough of a uh a move here to even fend off people like tn and she uh t sorry she n and timu which are you know in some cases you could even designate those as social commerce players right but that's really where you know you mentioned it. I think it's, it's really important to, to, to mention that. This fascinating stuff with the,

seems like it's a convergence of the digital advertising space and the e-commerce space. And it's almost merging into one industry at this point. We have a lot of bullet points here in our outline about kind of the, if we kind of bring out of, you know, that specific spot to the overall digital advertising space and some of the emerging themes that you guys are seeing out there. So let me just open it up with a question for either of you guys. What are the themes out there as you're talking to brands, as you're talking to all the stakeholders in this space?

What do you see, you know, as changing over the next couple of years and why is it important? Yeah, so the first one, we'll go through this one fast since we quasi covered it. Just the importance of first party data, companies of scale with high quality data spread across the funnel. will be a lot better positioned than those that rely on others to monetize their content or properties or to drive conversion. Just having that robust first-party data will enable better audience targeting or any... Brad, what's an example, without throwing anyone under the bus, what's an example of a business that will struggle? um i i mean i i would say hey any any small or or mid-size um merchant that that just does not

have a robust crm or or purchase data uh is gonna struggle um to kind of navigate this new reality uh and any business that just has a high exposure to third-party cookies hey they're gonna have to completely reimagine their workflow and marketing execution process. So those would be the ones that are most exposed. It's really, hey, anyone that just does not have a high frequency of 1P data is the one that is going to lose it in light of all of this. Makes sense. Sorry, I cut you off.

Any other themes that you're seeing? Yeah, yeah. So the second one, and we can probably stick on this one for a while because it's pretty interesting. I think there's going to be a lot of industry consolidation and a reduction of non-Walt Garden players here. So what I mean is those lagging behind will prove to drop out of the race while the lead horses scaled players remain resilient. We saw some evidence of this actually this year with MediaMath, one of the first industry DSPs filing for bankruptcy. So I believe this trend only kind of continues and accelerates where the strong gets stronger and the weak get weaker. If I take a look at the ad tech, mar tech landscape here, I think the programmatic space is probably the area where we see this trend take hold with the winners largely being the scaled players, the scaled independents alongside the walled gardens.

So the walled gardens are extremely strong here. So we're trying to figure out who within the open web wins. I would say, hey, on the DSP front, you mentioned it, you have the trade desk. I like to refer to them as the king of the open internet here. They've entrenched themselves within the buy side with their ad agency friendly approach and have really just become the de facto independent DSP demand side platform outside of the walled gardens. um every marketer wants to have uh their eggs diversified uh between enough players so they don't have uh too high of exposure to a google or meta so um the trade desk serves as a perfect outlet uh from that point of view um i will say i was reading something and pretty interesting trade desks themselves when asked about kind of the end state for the industry and where consolidation over time goes. So they envision four to five players where one independent DSP remains, hint them, and then multiple walled gardens. You have Google DV360, you have Amazon

DSP, go down the list. I mean, there's still a very long way to go before we're that consolidated. I think you're upwards of like 30 plus DSPs at this point. But just interesting that they're kind of highlighting that as the end state. And then just to call it rattle off a few reasons why I'm bullish on Trade Desk and all of our reads have been bullish is, hey, one, they have that very favorable position within the ad agencies. So unlike MediaMath, who tried to disintermediate the ad agency, the Trade Desk kind of approached them from a partner standpoint, saying, hey, we want to work with you if you help facilitate business through our pipes. Obviously, that's a win-win for both. MediaMath kind of took the opposite approach and unfortunately had to file for bankruptcy. whether that was the the primary reason or not uh who knows but just interesting to kind of

note the the difference in in strategy there um i would say another reason is just trade scale across channels and they were one of the first to kind of push forward into ctv aggressively So that's really kind of pushed them to the front of the pack because linear dollars have been shifting to connected TV outlets at an accelerated pace. And we're kind of seeing a second wave here, especially with the linear pay TV sub base just decelerating incrementally here in 23. you're going to see another influx of dollars flow into ctv as well as call it streaming because rights are now fully shifting to the amazon's metas apples of the world and dollars are going to follow audiences and content so now uh with thursday night football on amazon you have google uh with uh sunday ticket you have uh apple with mls go down the list i mean that's just gonna

accelerate uh dollar flow and what i'd say is from like our conversations it there was always question marks around whether major packages would shift uh within this like next renewal cycle which is called over the next two years uh people were saying hey it's not the next one is going to be the subsequent one but now given how things have kind of evolved here in the last year uh everyone's thinking a major package uh goes to one of the those key digital players so that's a another really nice uh growth uh tailwind there for trade desk and then they have open path which is their direct uh pipes uh where they cut out the sell side platforms and go directly to publishers um and then they just have the emerging growth opportunities in digital audio

ctv as i mentioned as well as like digital out at home is another growth vector so that that's kind of the the key points on the trade desk uh bull case there yeah and we love hearing the the growth of digital audio so let's keep that going for those type of advertisements for sure i've Yeah, I've heard they're really good in podcasts. Strangely enough, that's so weird. Yeah, exactly, exactly. Okay, any other emerging themes before I hit a question about the walled gardens and their moat steepening? I mean, Justin, you want to hit the flip side of that equation?

So on the buy side, you have Trade Desk. On the sell side, you have the SSPs, Magnite, Pubmatic. You want to walk through what they're doing from like an SPO standpoint? Yeah, supply path optimization. The struggle there, I think, though, is I think that the tough part about the SSPs is there's a little bit of – there needs to be a differentiation factor with the SSPs. They're struggling to really kind of differentiate, which then one of the things that Brad alluded to before was the idea of consolidation, which I think is going to be apparent for the SSP is as they look to any kind of differentiation in the offering, which I think ends up becoming more of a, we have to just build scale.

So I think they need to sort of combine and sort of start to consolidate to be able to, in order to really be able to compete at that front. But I think the SSPs are going to run into some challenges on that point of being able to really kind of understand and differentiate their offering. It's still one of those things, though, I mean, from a private marketplace and sort of a guaranteed placement kind of situation, you really want to be working with someone who has, you know, solid customer service, has, you know, an attentive sales team, has, you know, actual um you know solid personnel to be able to engage with and i think that's where you run into the situation of like magnite being um magnite and pubmatic being like the leaders in that group

being able to have the the personnel and the staffing to be able to service the deals so that ends up becoming one of the major points of differentiation but it is going to be a tougher journey for the s the ssps um as we go forward and essentially the one of the big things that i think brad alluded to that was really important is trade desks open path where you know essentially when you look at the whole entirety in the entirety of it is they could go full stack and really kind of cut the middle cut one of the middlemen out of the equation become their own full ad tech entity becoming the demand and the supply side for for uh brands and advertisers. But those are some other areas to consider. Yeah, I would say, hey, when you take

a look at SSPs, DSPs, the functionality capability lines are kind of blending together and they're kind of meeting in the middle. They're both trying to disintermediate the other. So just interesting to see that unfold. As Justin alluded to, in terms of supply path optimization, I think this is going to enable uh the two horse race and the two lead horses magnite and pubmatic to just further distance themselves from the rest of the pack they're both doing unique things magnite uh they kind of followed the trade desk approach of trying to get ahead of connected tv uh and that has done wonders for their business and then pubmatic um has really pushed supply path optimization of establishing the direct pipe. So I think if you look at their Q3 revenue,

it was like 40 or 45% of total revenue was via SPO. So they just focused on that and kind of forging those relationships from publisher to buyer. And that's paid dividends for their business and coincidentally i'm actually uh hosting rajiv the ceo of pubmatic for a corporate access event in march so uh i'll send the details around when i lock that in but that that should be a fun one they have a good management team so always like doing that so beyond um call it consolidation i think the other one we already alluded to it as well is just the growth of retail media networks. Retail media just offers a very powerful solution in a cookie-less world. It combines first-party consumer data with the ability to target shoppers. So there's tremendous

incentive for brands to kind of move into retail media networks because they'll be able to not only target, but measure performance with the POS and all of the data that they get back from their retail media partner. So it's really, really attractive for people to start allocating dollars there because they'll have that full life cycle visibility. I would add not just only on respective retailers website but off their websites as well so you know deployed through ctv social areas like that so it's it's a pretty robust offering you guys we haven't mentioned this yet but i want to talk about it's the large language learning models the new ai tools how do you think this affects the ad tech space if at all is there any potential impact here

yeah so i would say another theme is just the modes of the walled gardens deepening driven by the overall size of their user bases and the fact that hey like i mentioned before they deal with logged in users another component of that and why they're in such a strong position is what you just alluded to. So they've all, call it Google and Meta, have introduced new ad capabilities that use machine learning algorithms to optimize ad targeting and delivery.

So while these tools, and I'm specifically talking Performance Max within Google and Advantage Plus within Meta. So while those tools are more black box in nature, meaning the tools themselves decide when and where your ads are displayed across the owned and operated sites and services that are under Google and Meta. So despite a lack of transparency, marketers continue to pour money

into them because they're seeing just tremendous return on ad spend via these auto-optimization tools. I think that's been very consistent. We always hear pushback, like people don't like to invest in call it channels that are black box and not transparent. But when you look at the scale reach of a Google or Meta, it's hard to kind of turn your shoulder to the return on ad spend multiple that you can get via some of these optimization tools. So because it's finding the best, you're actually saving best ad slot, you're saving money and marketers need dollars

to go farther in today's environment. So the walled gardens, the walls are getting higher in my opinion. That's a common theme we hear about performance max and advantage. So it's basically this idea, Brad said it well, but why peek behind the curtain?

The show is so good. Why try to see the behind the scenes? So if the ROAS, like the return on ad spend is so solid and strong, especially you know brad alluded to you know over the owned and operated of the entirety of something like google so you're not just talking about search you're talking about youtube you're talking about i think they're activating shorts on it soon too so you're you're talking about a lot of different ad capabilities a lot of different inventory that you can execute against

um to run a campaign so it's it's a hard bargain yeah i mean if it's producing the if it's producing the return you know you don't have to know where it comes from i guess like just trust the number yeah and hey if you look at uh meta as well uh within uh advantage plus they have uh like ad optimized creatives and stuff like that so it will help you kind of uh create the the creatives at a faster pace uh so that's one of the benefits of ai here and how it's a a real life application today. Some of the future use cases and benefits are not well known, but from a creative execution standpoint, it's really improved the time to getting those launched within the meta universe. All right. Well, we appreciate you guys joining today. We're wrapping things up

and we have a closing question about investor takeaways, but I want to add another one here just in case we missed anything. So for either of you guys, is there anything we missed as we talked about the ad tech space today? And what is, for each of you, one thing you want investors to take away after listening to this discussion?

Yeah, I think we should spend a little bit more time before we wrap here on just, hey, the rise of alternative ad strategies and data management tools. So Justin alluded to it, and I'll pass the mic to him, but on clean rooms and just the importance of those to facilitating this new calculus world, that's definitely a huge investment area beyond, call it CDPs, consent management platforms, identity solutions. So, Justin, why don't you kind of get the rundown on clean rooms and I'll layer in here. Yeah. And the funny thing is, clean rooms are relatively new and you see the solutions coming out from the likes of Snowflake, LiveRamp, companies like that. They're still relatively new.

And I think when you talk to when you talk to brands, you know, Brad mentioned like having your customer customer data platform and being able to understand who your your targetable audience is alluded to it before. But like the clean room is going to help you basically enrich that data and make it so that it's it's targetable information that you can execute ads against. um i i think it's a it's a paramount service that brands and and and the like are going to have to really sort of kick the tires on and get serious about and and use this this technology and like i said you look at players in the ad tech adjacent world like a live ramp who are facilitating sort the pipes between you know dsps and ssps publishers and brands the the like they're inserting these solutions to be able to help enrich that data to be able to help facilitate the um trading of of advertisements right and being able to help that marketplace along so i think it's a it's it's

technologies like this that are going to help really advance uh the space overall but brad Brad, is there anything else, anything I should have added? No, no, I think that that kind of encapsulates the positioning there. In all the conversations I've had with ad agencies and leading marketers, it's having a data clean room is a critical part of the tech stack moving into this new world. So, yeah, the snowflakes of the world, the live ramps of the world, those are the guys that are truly benefiting from this new shift. It was funny, I was on a call with an ad agency and their client wasn't ideal for a clean room, but the client was asking to have a clean room just because it's the new fancy buzzword and everyone wants it. So that just goes to show what marketers think of kind of having that type of technology in the stack. And then, yeah, hey, as Justin mentioned, live ramps of the world, they do a lot from like a data onboarding perspective and helping marketers get a unified omni-channel view of their customers across, say, retail and online.

So actually seeing a bunch of large scale logos, Fortune 500, adopt live ramps so that they can match customers across channels. So I think that's an interesting vendor to to look at. Like just just a quote from a head of media at a large CPG that I spoke to the other day was, hey, we're moving off TransUnion to LiveRamp because they're a global partner and they have partnerships with retailers. given that we are going to be investing in retail media networks moving forward it makes a whole lot more sense for us to transition to live ramp and have them as a partner within the stack so i think you're going to see a lot more of that their q3 results speak to that where they had one of their highest like net new billing cycles from a large scale perspective so one to definitely keep on the radar i think okay and or go ahead if you want to add more something something no i was just going to say mine is probably a quicker take and it's just look out for newer walled gardens

that are popping up um you know the one that it was not talked about but could be a significant player in basically any vertical of advertising in this is apple right i think that's one that you have to really keep an eye on you know from a ctv perspective with apple tv plus um you know with their own services with their app store uh it's it's an area for them to really kind of capture if they take their time and and take some you know painstaking research to to sort of understand the landscape but i think you know keeping an eye on new walled gardens that pop up is is something to definitely uh you know a future trend that we try to um at least capture a sentiment on and tackle within our research all right thanks guys for joining us today i

was going to ask where people can find more of your work but i do want to have one pitch for brad's twitter which gives out fantastic information i believe every day snippets i from reports you guys do all that good stuff fantastic follow i'll learn something new from you every day but yeah before we wrap up uh where can investors find more of your guys's work yeah i mean you can head over to to my uh twitter profile be lions 151 uh and then you can just click through i'll have a link to bwg strategy site there and then you can fill out any form if you want to uh get a get a trial to kind of listen to our our channel work that that we do on a daily basis so uh yeah once again uh thanks to ryan and brett here for for the invite it was fun and

could probably go another uh three hours here yeah we're gonna have to have you guys come back on uh at some point in 2024 i mean we were talking like four or five potential themes here you know like real estate platforms. I mean, I think that could be a fantastic one in 2024 and a few others. So as a quick tease, yeah, hopefully you guys can come back on, but Justin, same spot or anything else to add there? I'm not as cool as Brad on the ex Twitter side, but if you would like to find more of what I'm talking about or the interests that I have in terms of our forum research and things like that, you can find me on LinkedIn. Justin Ruiz, R-U-I-S-S is the last name. Feel free to send me a request or follow and follow suit on that. We're always

happy to talk more with industry executives and experts. And if investors want to seek me out there, that's usually where I'm hanging out is on LinkedIn. Yep. And if anyone works for a fund, runs a fund, any sort of hedge fund, investment fund out there, definitely go check these guys out. It's fantastic, high quality work. And we'll have links to all that in the show notes for people so it's not confusing but let me hit the disclosure before we get out of here we are not ryan and i are not financial advisors anything we say on the show is not formal advice or recommendation ryan i or any podcast guests may own securities discussed in this podcast may have owned them in the past may own them at the moment and may buy sell or hold them in the future

thank you everyone for tuning in and we'll see you next time don't you wish you could just hit skip on the worst parts of your life you know the same way you can skip an ad i get it i'm siaya and i live in ice cove i've made some questionable decisions that didn't end up the way i planned and today i'm still figuring it out somehow things usually get worse before they get better apparently that's how i roll so bundle up and come along for the bumpy ride. Stream a new episode of North of North

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