Israeli Ad-tech in Crisis as Facebook, Google Tighten Grip

Local industry has contracted over the past two years, though big companies still thrive

File photo: A woman looks at the Facebook logo on an iPad in this photo illustration taken June 3, 2018.
\ Regis Duvignau/ REUTERS

Matmony Media Group, the Israeli ad-tech company, fired 15 people in July after a difficult 2017 that saw its co-founder and CEO let go and mass layoffs. Appnext, whose technology enables apps to earn more ad revenues, laid off 25 staffers last month, according to a source, or 10, according to the company. Two weeks ago StartApp fired 25 of its 125 employees.

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And when the Israeli startup Infolinks Development was sold last February to New York-based Thrive Plus, the reported price was in the single-digit millions of dollars, less than the $10 million that had been invested in the company over 10 years. The same loss-making deal reportedly occurred for Taykey, which enables advertisers to target their ads based on the topics that their desired audience is interested in, when it was bought by Innovid last November.

The layoffs and acquisition deals at knock-down valuations reflect the difficult state of the global and Israeli advertising technology industry, which has been battered by the grip of Google and Facebook on the online advertising market, as well as by stiffer rules on user privacy and changing business models.

“I’ve been in the market for 10 years and have seen the industry evolve,” said Ziv Elul, CEO of Fyber, which has developed monetization platforms for mobile publishers.

“In recent years, Google has seen Facebook grow stronger and realized that it needs to do the same, especially in mobile. Facebook has, meanwhile, consumed the entire [ad] performance market with Instagram and its main application. Smaller players don’t have the data that Facebook and Google have.”

Industry sources say the contraction of the Israeli industry is occurring mostly under the radar because companies rarely announce downsizings, much less closings. But data from Startup Nation Central, a non-profit that tracks the Israeli tech industry, found that the number of ad-tech companies is Israel has been in decline since it peaked at 460 in 2016, employing 16,000 people. In 2018, it estimates the industry counts just 424 firms.

Ironically, the ad-tech crisis – which encompasses the global industry, not just Israel – comes at a time when spending on online advertising is booming. eMarketer, a research house, said it expected global spending on all advertising will reach nearly $630 billion this year, of which 43.5% will go to online advertising, either desktop or increasingly mobile.

But ad-tech firms are running up against the Google-Facebook duopoly, which e-Marketer estimates took 60% of all online ad spending last year, or $223.8 billion. In the mobile segment, their dominance is especially powerful, counting six of the 10 most popular apps in the world in their portfolio, including WhatsApp, Instagram, Waze, YouTube and Facebook Messenger.

“Facebook has gobbled up the entire apps market,” said one Israeli industry source, who asked not to be named.

Another blow to the industry came last May with the introduction of tougher privacy rules under the European Union’s General Data Protection Regulation. The new rules make it much harder to collect users’ personal data, the bread and butter of an industry built on creating ad strategies focus on targeted demographics.

The result is that many ad-tech firms in Israel and abroad have had to build new business models – a costly process that the giants like Google and Facebook can afford but startups have to struggle with. While the GDPR standard aims to protect privacy, it’s all tilting the playing field in favor of the tech industry giants, industry sources complain.

Changing business models have also taken a toll on ad-tech. Many Israeli companies sit in the middle of a long value chain between the advertiser and the advertising platform, but the role of intermediary has retreated in favor of companies that provide the technology for targeting audiences.

Another change is the rise of the online celebrity, who uses YouTube and/or Instagram to promote products to their followers.