May 16, 2022
What is Worth a Look?
As part of our research process we are continuously reading, watching, and listening to a wide range of content related to our portfolio companies. We often come across underfollowed material, or conduct an industry expert interview that might be of interest to our investors from the perspective of:
(1) highlighting an important transition happening within in a sector we cover
(2) help explain changes affecting the way you do business or consume life
(3) general curiosity
Research interview with Shiv Gupta, founder of U of Digital
Takeaways from the interview that are important for our portfolio:
Ad Pricing Power
- The three most critical drivers of CPM (advertising cost per thousand people) continue to be Scale, Measurement and On Platform Conversion. Scale is a gating factor for larger advertisers who need to deploy tens of millions in ad budget per digital channel.
- Achieving enough scale to attract large budget clients such as Consumer Packaged Goods advertisers unlocks massive demand and therefore pricing power. Measurement is critical because efficiency of marketing spend is always front and center.
- “On Platform Conversion” is a focus of larger platforms where the user converts from an advertisement to an action or even purchase without leaving the platform or experience. Think of buying Nike shoes viewed during a Roku CTV commercial by either pressing a button to “buy now” or a saying a voice command to place the item into an Amazon shopping cart next time you log in.
Data privacy changes is a zero-sum game
- Recent data privacy changes from Apple and Google have severely restricted cross platform tracking. This is leading to market share gains and pricing power for those platforms that can execute On Platform Conversions.
- Visibility on return on investment for marketing spend has become murkier after these privacy changes. Platforms that can prove an ad has been watched by the targeted consumer, or better yet, acted and purchased something, will distinguish themselves from competition and take share from those that cannot.
Direct response ad pricing is the Holy Grail
- A focus on platform conversation is increasing exponentially (view, click, purchase) within the walled garden (Instagram, Spotify, Roku, YouTube, etc.) will likely. Performance ads are also more expensive and inherently higher margin for the advertiser. instance, the average Cost per Click on Google AdWords is around $2.30 today. However, the average Cost per Action (a sale, a lead, a download, or some other conversion) can be over 30x greater at $60. While this is only a proxy, it is clear that measurable consumer outcomes are worth exponentially more than traditional brand advertising.
Future of ad-based business models
- Ad-based consumer business models are striving to create an experience where they can capture multiple touch points across the user shopping journey.
- Platforms where consumers spend the most time, that have the best data, and have the widest view of consumer behavior will win wallet share.
- Without 3rd party cookies ad strategies must invest in measurement capabilities to prove brand lift and multi-touch attribution.
What are the biggest blue oceans of opportunity in ad tech models today?
- Connected TV and streaming audio are set to convert significant market share from linear to streaming models.
- Out-of-home media (example: billboards) overlaid with programmatic ad buying.
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About JDP: JDP Capital Management LLC is the manager of the Survivor & Thriver Fund, LP. The fund is a private investment partnership that makes long-term investments in public companies with significant unrealized potential. www.jdpcap.com
Disclaimer
This content is for informational purposes only and should not be considered legal, tax, investment, financial, or other advice. Nothing contained in this document constitutes a solicitation, recommendation, endorsement, or offer by JDP or any third-party service provider to buy or sell any securities or other financial instruments in any jurisdiction. This document is intended only for investors in Survivor & Thriver Fund, LP and its affiliated entities, and prospective investors who have attested to qualifying as an “accredited investor”, also referred to as a “professional” or “qualified” investor based on the country of domicile. Funds managed by JDP might maintain positions in companies discussed in this document.