Osher Deri

How Israeli Adtech is Adapting to Fundamental Global Industry Shifts

The global adtech industry has sustained some seismic disruptions over the past few years. We’ve seen a series of changes in both the regulatory landscape and the ways in which major platforms operate, which have forced adtech companies to adapt.

Historically, many of the most hyped companies in the global adtech space had been Israeli, but many of these struggled to live up to expectations amid all of the shifts. On the other hand, there are signs that a new generation of Silicon Wadi adtech startups has begun to gain a foothold.

Meanwhile, the adtech industry worldwide continues to experience rapid growth and is expected to reach $786.2 billion by 2026, so it will be interesting to see in the years ahead if the Startup Nation manages to regain momentum in this space.

Global pressures and moving targets

Some of the world’s largest companies such as Alphabet and Meta initially built their revenue models on targeted advertising using personal data. Their valuations skyrocketed as the ad industry realized how this information could help to run campaigns with a higher chance of success on a smaller budget.

However, this model grew before lawmakers and the general public could fully understand the implications. Privacy concerns have become a greater concern over the past decade as the conversation has shifted towards the ways the tech companies profit when on the surface the products they offer are free. What’s more, with concerns surrounding “brand safety” on ad platforms and rampant fraud, the science of media buying is in a constant state of flux.

When GDPR was introduced in 2018, it marked a major change in conditions for the adtech industry. This uncertainty was later compounded by decisions made by private companies such as Apple and Google. Apple decided to add the App Tracking Transparency feature in iOS 14.5, which massively decreased the knowledge ad companies have of users. Experts estimate that some 95% of iPhone users worldwide have opted out of ad tracking.

Google, meanwhile, has announced they are going to phase out third-party cookies, which is another major source of information for adtech companies.

Against this backdrop, it’s not surprising that today’s innovative startup leaders are challenged to create and maintain a competitive advantage in the adtech space.

Flying high and free-falling out of vogue

Israel’s reputation for innovation and technological prowess has spanned many different areas of technology, but until recently, adtech was considered a particular strength. It seemed Israel had a neverending list of new companies that were raising money and growing rapidly.

Taboola and Outbrain were both founded in 2006, and both allow their customers to place paid “native” content promotions on extensive networks of reputable news sites such as the Washington Post and CNN. With a reach of 1.5 billion people per month even in early 2017, they were goliaths of the adtech industry.

On value alone, Ironsource was considered perhaps the greatest company to come out of Israeli adtech. The company raised $1.9 billion over five funding rounds before finally going public for an eye-watering $11 billion last summer. Taboola and Outbrain would follow soon afterward, which didn’t go as planned.

Indeed, none of these hyped-up companies have quite lived up to their potential, and they’ve seen their valuation growth either slow or retreat.

Today, taking a look at Similarweb’s leaderboard of the fastest growing technologies, none of the top adtech solutions are Israeli. In fact, only three – OpenX, AppNexus and Criteo – are not owned by the duopoly of Facebook (Meta) and Google. But none of this should come as a major surprise, as the writing has been on the wall for a number or years already.

In 2020, Taboola and Outbrain attempted to merge but couldn’t seal the deal. Outbrain eventually went public for $1.1 billion, which might sound like a lot but was far below what industry experts were predicting. Taboola used the SPAC method rather than an IPO at a valuation of $2.6 billion, but their share price has crashed over the last year, to the point where today the company has a market cap of just over $1 billion.

Both companies received significant backlash for encouraging clickbait articles that tarnished their brands. Ironsource is down nearly two-thirds from its IPO price to a $3.8 billion market cap.

Another adtech company that people had high hopes in was Webpals. Yet they became mired in scandal through the use of complex fraudulent investment vehicles. It’s always a danger when there’s a buzz around a particular industry for investors to flock in while trusting that the other investors have done enough due diligence.

The promise of a new dawn

The book is hardly closed on Israeli adtech, though, and there have been signs of a new generation of local rising startups in the space. Though there isn’t an Israeli company in the top ten at the moment, it’s only a matter of time before another company manages to break in.

AppsFlyer is an example of an Israeli adtech that is thriving. The mobile ad analytics company has focused on customer privacy as a unique selling point and has helped app developers find the information they need to grow profitability and retain their users. Their client base includes Coca-Cola, Nike and Pinterest, and they’ve raised over $300 million so far.

Skai, formerly known as Kenshoo, is an Israeli adtech firm that took advantage of the ecommerce boom during the pandemic. The software is AI-powered and helps companies to make better decisions about their advertising. The company was recently awarded Microsoft Advertising’s Independent Partner of the Year award.

Zoomd is more of a niche player but has seen encouraging 181% year-on-year growth. The company is also focused on mobile and has built a unified dashboard with over 600 media outlets. This makes the process of finding places to advertise significantly easier, and Zoomd has clients like eToro, Sony Pictures and NordVPN.

Where next

It hasn’t been smooth sailing for many of the Israeli adtech companies that initially took the industry by storm, but Israel is still a major hotbed of innovation, and adtech remains a growing subsector of tech. There are several companies that are in strong positions to continue growing and to represent Israel well on the global stage.

Whereas companies like Taboola, Outbrain and Webpals no longer have the reputations that they once did, AppsFlyer, Skai and Zoomd look well placed to be making positive headlines for the foreseeable future.

About the Author
A Blockchain geek and crypto advisor. Osher holds an MBA in innovation and technology, speaks finance as a second language and believes smart contracts have the potential to disrupt the world as we know it.
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