Over the past decade, we’ve seen a number of large telecommunications companies acquire advertising technology (AdTech) companies, only to sell them off — often for a loss — just a few years later.
On paper, it makes total sense for telecommunications companies to enter the AdTech business.
Many telcos have multiple digital properties (websites, streaming services, etc.), access to rich consumer data, and the communication infrastructure to make serious inroads in programmatic advertising.
So why are some telcos exiting the AdTech business?
Why Did AT&T Sell Xandr (formerly AppNexus)
In June 2018, AT&T announced that it would be acquiring AppNexus — a programmatic AdTech company that claimed to be the largest independent digital advertising exchange — for a reported $1.6 billion. AT&T noted that it would integrate AppNexus with its first-party data, premium video content and distribution.
AT&T’s ambition was to establish itself as a dominant player in the digital advertising industry and take on the giants of Google and Facebook.
Then, in December 2021, AT&T announced it would be selling Xandr (AppNexus’ new name after a rebranding) to Microsoft for a reported $1 billion — $600 million less than what AT&T paid to acquire it just 3 years prior.
According to comments from AT&T executives, the telco gave up on its plans to become a dominant player in the digital advertising industry.
Why Did SingTel Sell Amobee?
SingTel acquired Amobee, an AdTech company that helps advertisers purchase ad space across websites and mobile devices, in 2012 for $321 million.
The singapore-based telco planned to grow its mobile advertising business to make up for declining revenues from its traditional SMS and call services as a result of the rise of over-the-top (OTT) communication services, such as WhatsApp, and establish itself as a dominant player in the digital advertising industry.
In July 2022, SingTel announced that it will be selling Amobee to Tremor International, an Israel-based advertising technology company, for $239 million — $82 million less than what SingTel paid for it ten years ago.
Despite being in an optimal position to expand its mobile advertising business, SingTel’s acquisition of Amobee never came to fruition, with executives stating the telco was selling Amobee as part of a strategic reset to reshape its portfolio.
Why Did Verizon Sell Yahoo!?
Verizon acquired Yahoo! in 2017 for $4 billion with plans to create a multibillion-dollar media empire.
The US-based telco placed Yahoo! under the Oath brand, which consisted of other media businesses, including AOL, Yahoo! Sports, TechCrunch and Engadget. Oath was later rebranded to Verizon Media in 2019.
Verizon stated that it wanted to build a media giant to challenge the dominance of Google and Facebook in the digital advertising space.
But in May 2021, Verizon Media announced that it would be selling Yahoo! and AOL to Apollo Global Management Group for $5 billion. Verizon stated that media and advertising were no longer core to its business.
Why Have Telcos Failed to Make It in AdTech?
Looking at the reasons why the various telcos have sold off their AdTech acquisitions, we can notice some similarities.
Firstly, it must be said that simply acquiring an existing AdTech business doesn’t not mean that the telco will be able to turn it into a profitable arm of its business, regardless of whether the AdTech company was profitable before the acquisition or not.
Telcos need to have an intimate understanding of how the programmatic advertising and AdTech industries work, both from a business and technology perspective.
For telcos wanting to integrate their newly acquired AdTech platform into their existing systems and tools, they’ll likely be confronted with a whole bunch of technical issues. Integrating systems together isn’t as simple as plug and play.
The question telcos need to ask themselves is: how will we combine all the tech together and activate the user data?
Secondly, the telcos that planned to enter the AdTech business and take on the likes of Google and Facebook may have been setting themselves up for failure.
Google and Facebook own different areas of the digital advertising industry. Google owns the search advertising space through Google Search and YouTube, and dominates advertising in the open web, whereas Facebook owns the social media advertising space.
Competing with these two tech giants requires a solid business plan. How are you planning on taking ad spend from these two behemoths when independent AdTech companies have been trying to do this for years with only a handful finding success?
When you’re acquiring an AdTech company for hundreds of millions or billions of dollars, there’s an inherent risk that the acquisition won’t produce a positive return on investment and just end up becoming an expensive and highly complex piece of tech that nobody knows how to use or extract value from properly. Hence why some telcos have written down their AdTech assets and sold them off.
So What Should Telcos Do Instead?
Despite the many failed attempts at making it work in the AdTech industry, there are still huge opportunities for telcos to succeed in AdTech and establish new revenue streams.
One mistake many telcos made was thinking that an acquisition of a leading AdTech company would turn them into a dominant player overnight.
While this may have been possible with the right strategy, telcos are better off setting their sights closer to home and thinking about how they can build thriving and profitable AdTech businesses off of their existing assets, technology and data.
While this was the plan for some telcos, integration challenges and the sheer scale and complexity of the technology meant that they weren’t able to realize their business goals.
Instead of spending hundreds of millions or billions of dollars on acquiring the tech, telcos would be better off building the AdTech platforms from the ground up.
By building AdTech platforms rather than acquiring AdTech companies, telcos can design and develop technology that exactly meets their business needs, perfectly integrates with their existing systems, and can incrementally develop the platform, making changes and switching direction when required based on changing market conditions or stakeholder feedback.
The challenge with building AdTech platforms, however, is that it requires domain knowledge of the programmatic advertising and digital marketing industry from the business and technical perspectives.
Telcos should look for engineers experienced in AdTech development, which is not an easy task, especially if you’re looking at hiring at scale. The other option would be to find a development partner who specializes in AdTech development. Without these experienced resources, telcos could end up with another failed venture.