In the Land of the Giants start-ups get rolled over

• Facebook and Google: the Gargantua and Pantagruel of the early 21st century...
•  … but without the laughs
• Ad Tech a US$88 billion sector, 92 per cent of which goes to Facebook and Google
• Competition thwarted

The sheer size and market clout of Facebook and Google is now so great that, as upstart competitors are overwhelmed, competition (such as it is) declines and further consolidation distorts the market. The two behemoth companies (and a few others) now have such a stranglehold on digital advertising technology that would-be competitive start-ups have hardly any chance of survival (or even to get going) as venture capitalist investors turn away to other opportunities.

It's now an odds-on bet that unless there is regulatory change the US digital landscape (and, in due course, many other countries too) will be dominated by an unassailable de facto duopoly, and that's the anthesis of a genuinely competitive environment.

The latest statistics from CB Insights, the New York City-based financing and investment research house, indicate that investment in advertising technology start-ups is in steep decline. Venture capital financing reached its apogee in 2015 when  US$2.92 billion was pumped into them. It is forecast that for 2018 that figure will $1.2 billion or less. In other words the appetite for investing in a sector where two big, greedy giants are eating all the pies, has fallen by more than half in three years.

Another indication of the ever-growing reach and strength of Facebook and Google is that the number of independent ad tech companies has fallen by 21 per cent since 2013 and the number of start-ups and relatively well-established but still young and vulnerable ad tech companies is falling as they are either forced to the wall or gobbled up by bigger fish. In June alone three ad tech companies, AppNexus, Integral Ad Science and Acxiom were all swallowed by opportunistic buyers.

According to PitchBook, the private market financial platform and analysis company, in 2014, when the market was more of an open free-for-all, 260 deals were agreed between ad tech companies. Last year that number was down to 122 and to date this year that number has declined significantly again to just 53 deals.

New ad tech companies are an easy target because few (if any) of them are actually profitable and they haven't had the time to prove themselves before the vultures descend. It's consolidation by attrition.

Of course, the man in the street will be all unaware of the shadowy battle over a few unknown businesses fighting for existence in a sector that brooks no effective competition and uses a fat chequebook to ensure that it doesn't face any. However, consumer's online activities are daily influenced by ad tech outfits as they battle it out to defend and expand their share of advertising impressions on smartphones, tablets and laptops. In this battle it is the amount and quality of the data gathered from consumers and their online purchasing habits and histories that is the ammunition that drives others from the field.

It is important to remember that start-up ad tech companies are the ones that come up with innovative apps and services while the giants sit on their massive cushions of cash and rely on tried and tested but ageing solutions. It was start-up companies, not Facebook, Google or their established ilk, that introduced new technologies such as those that permit 'programmatic advertising', (i.e. the automated purchase of advertising) and 'header bidding' where many ad exchanges simultaneously bid for publisher's space.

It's so much easier for the big boys just to buy upstarts when they see a good new idea working, but what happens when there is no investment in ad tech wannabes and innovation stutters to a halt? That's when gargantuan edifices start to crumble. Percy Shelley had it right with his sonnet 'Ozymandias' which is about hubris, entropy and the inevitability of and decline. He wrote, ""My name is Ozymandia, king of kings. Look upon may works ye mighty and despair". Nothing beside remains: round the decay of that colossal wreck, boundless and bare, the lone and level sands stretch far away."

In 2017 the amount spent on online advertising was $88 billion and rising but 92 per cent of that immense figure went to Facebook and Google. Now, that's market domination in practice. Recently AT&T has been spending big to buy its way into ad tech in a bid to compete head-to-head with the Gargantua and Pantagruel of the early 21st century and so become a third force in the US ad tech market but most analysts believe the telco is on a hiding to nothing in its efforts because Facebook and Google are simply to big and powerful to be affected. However, others believe that having three monsters in the market would be somewhat better than just two. And then of course, there's Amazon lurking just below the horizon.