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Another marriage of telco and adtech reinforces ties between the two industries

March 14, 2016  | Subscribers Only

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Another marriage of telco and adtech reinforces ties between the two industries

Telenor, a leading Nordic operator acquired Tapad, an ad tech firm founded in Norway but headquartered in the US for $360.0 million.

This is another in a series of acquisitions made by mobile operators in the ad tech space that has included Verizon and Singtel.

Our Analysis

Skills/technology synergies

The Telenor acquisition of Tapad is yet another telco-ad tech marriage that took place to enhance the relationships of the two sectors and the ever growing co-dependencies and synergy opportunities. In June 2015, Verizon acquired AOL for a massive $4.4bn. In 2014, SingTel bought Kontera (for $150m) and Adconion (for $235m). Mobile operators are seeing a plateau in their revenue from their core business (voice, messaging, and data) due to the increased market saturation and the intense competition in the mobile market. Although the operator revenues from subscriptions are significantly higher than the online advertising revenues, the increase in mobile video consumption has presented an opportunity for an additional revenue source.  The ubiquity of smartphones has opened up an opportunity for video monetization- a business normally executed by the ad industry, from which telcos have traditionally been excluded.

The mobile advertising opportunity has attracted interest from network technology-based companies including mobile operators. Verizon has been a leader in this field moving its core mobile business in the direction of monetizing mobile content using an ad funded model and is bringing on board AOL’s ad sales expertise to bolster it. The synergy of those two players has brought about the launch of the G90 mobile video player, an ad served video platform.

Moreover, the two sectors can work together in the increasingly important area of data. Data has become a key differentiator in the advertising market. Mobile networks with a plethora of mobile user data can capitalise on their data to better target ads as the mobile and video advertising industries continue to grow. On a global level mobile advertising revenues grew 71% year-on-year in 2015, driven largely by the deployment of video and native ad formats. This trend has sufficient momentum to sustain further growth this year; IHS forecast mobile advertising will further grow 42.3% in 2016. Moreover, mobile advertising will command the majority share of display advertising at 55.3%.

 The deployment of ad tech firms’ technology by mobile operators is occurring on global level although it mostly stems from the US adtech market. SingTel for example, in Singapore, has used its Californian based subsidiary Amobee to acquire Gradient X a real time bidding start-up. RTB is a technology that is of particular interest to mobile operators: Telefonica has invested in programmatic and RTB through its shared ownership of the relaunched mobile ad platform Axonix.  These examples of launches/acquisitions show that, at least in theory, mobile operators have two elements of the equation covered: the technology and the user data.  The element that is missing is the ad sales expertise. Verizon is putting itself in a great position with the acquisition of AOL’s online advertising operations.

The telcos investments in the adtech space are summarised in the following table of operator acquisitions:

Competition race

IHS expects that other telcos will follow Verizon and look into the ad tech space. The ad tech ecosystem has become a pool for picking investments from, rather than a stand-alone business technology hub. Incumbent mobile players strike deals in the ad tech ecosystem in order to move above the competition. Additionally, as IPOs for ad tech companies have been less successful (mainly from the investors’ point of view) acquisitions seem to be a better exit strategy for young ad tech companies. It is not only the telecommunication corporates that are ad tech hungry; other sectors are seen to also tap into the adtech pool: some traditional IT service firms are investing in the digital media space, including IBM (The weather company, Silverpop and Resource/Ammirati- a digital agency) and Deloitte (heat- a digital agency).

The side effect of this race is that in some cases tech firms have been acquired and subsequently discontinued or shut down, only with some of their original technology deployed by their parent company. The following table shows some examples where adtech firms have been closed down or discontinued past their acquisition:

Cost/revenue benefits

Bringing onboard the ad technology capabilities in a traditional network provider is a move that opens up new channels of revenue to the business. Specifically for Telenor for example, annual revenue growth rate was 3% in 2014, coming mainly from growth in subscriber base (with the addition of Myanmar in their country of operations in the Asian Market). The main revenue from subscribers has reached saturation in the mature operators industry. The valuable data that those subscribers provide back to their network provider is a new unexploited area that can be interesting to other parties such as advertisers. Telenor has 200 million mobile subscribers with a large proportion of smartphone users among them. In their Asian operations the smartphone adoption is growing very rapidly. Advertisers are very keen to use smartphones as a medium to help them execute and sell campaigns. Beyond Asia, Telenor has a large global footprint and user data that could be utilised by Tapad’s technology and analytics to turn it into usable sets for advertisers. Tapad claims a cross-device matching accuracy of 91.3% (in more than 500 million devices, reported in 2015). This seems high, however Tapad’s main competitor, Drawbridge (still backed by independent tech investors) claimed a higher rate of accuracy at 97.3% (with 3600 million devices matched, reported in 2015). Cross-linking of devices is an area that advertisers and publishers are very interested in as it allows for holistic audience campaigns. It will not be a surprise then to see Drawbridge as an acquisition target pursued by the telco industry as well.

Geographic expansion

Scale is still a primary goal for both mobile operators and advertising companies. This means that in order to provide an attractive data offering, mobile operators must engage in international expansion either through new user acquisition of partnerships with other operators. From the ad tech perspective therefore it is a giant opportunity to expand their client base to as far as the mobile operators can stretch. The reason is twofold: it will increase the interest from the local advertisers in the new territories but also from the international players that run campaigns pan-regionally.

Tapad has been operating mainly in the US and key European markets, primarily the UK and Germany. Accessing Telenor’s database provides them with an opportunity to expand to other markets in Europe and Asia. Furthermore, Telenor (and Telefonica) will also benefit from honing in on its user data in their current markets and better position their advertising business proposition as an integrated telco/marketing business.

In order for Telenor’s Tapad acquisition to be executed successful, two conditions will have to be met: 1) The integration needs to foster and develop the synergies between the two companies and 2) Telenor will need to train its sales force to sell to the advertising industry.  Integration is always a challenge in a large, traditional organisation like that of a mobile operator. However it is also a great opportunity. The intersection of mobile, technology and advertising is the holy grail in an ad industry that is on the cusp of becoming mobile-first. 



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Research by Market
Media & Advertising
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