Investors in The Trade Desk (NASDAQ:TTD) got a nice reward in 2019. TTD stock posted a gain of over 120%. But the stock has leveled out so far in 2020. And the company may find that its own business model is an obstacle to future growth.
The Trade Desk is on the leading edge of programmatic advertising. Marketers can target content providers that attract their ideal consumers. And they can fine-tune their ad spending and measure their return on investment (ROI) in ways they could only dream of in the past.
Without getting too technical, programmatic advertising is about the way an ad is delivered. A company opens up its web page for providers like The Trade Desk to bid on that ad space in real time. InvestorPlace’s Josh Enomoto wrote how this opportunity is increasing with the growth of connected televisions.
It’s a model that, although complex, is gaining traction. The issue for investors in The Trade Desk is that the company competes against the major digital ad-buying platforms: Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) who take a walled garden approach to customer data. And right now, that approach is winning.
But does the future favor the independent providers like The Trade Desk? That question touches on the two issues that will dominate the tech sector in 2020 and beyond.
The Trade Desk Is Battling Conflicting Trends
The Trade Desk is caught in the middle of two trends that are finding a tough time co-existing. The first trend is toward customization and personalization. Using programmatic advertising, businesses have the means to target their end consumer in ways that were once impossible. And consumers will respond to ads that they feel are more personalized to them (i.e. “the brand gets me”).
But that is butting up against the trend toward security. If you’ve ever typed something in a search engine and then lo and behold, a digital ad for that exact item pops up on the very next web page you visit, you know what I mean.
Some consumers think it’s cool. Many others find it uncomfortable.
This is where the battle between the open internet and the walled garden is taking place. As mentioned above, Alphabet, Facebook and Amazon have a walled garden architecture. Simply put, although they create a curated experience, they still control the consumer experience. And they are very protective of their customer data.
Programmatic Advertising Spending Is Growing
And let’s be clear, this is a battle worth fighting. According to the ad tech consultant group Jounce Media, global programmatic ad spending on the open internet was projected to hit $49.8 billion in 2019.
Of that number, approximately $33.6 billion would be claimed by the aforementioned Alphabet (via Google Ads, Display and Video 360), Facebook’s Audience Network, and Amazon through its Demand Side Platform.
This means the combined spending power for The Trade Desk and others like it is just over $16 billion. And the larger problem, according to Chris Kane, founder of Jounce Media, is that the number is shrinking.
“If one DSP grows by $1, that means another DSP is declining by more than $1,” said Chris Kane, founder of Jounce Media. ”That will remain the same as long as the walled gardens keep growing the way they’re growing.”
Can There Be a World Without Walls?
The Trade Desk scored a nice victory recently when Amazon agreed to let third-party ad-buying platforms, including TTD, compete for bids to buy ads on its Amazon Fire TV service. Now advertisers can place ads with 100% of the third-party content providers that have apps on the Fire TV platform. Amazon used to restrict access to these providers unless an advertiser went directly though Amazon Publishing Services. This is Amazon’s walled garden.
However, this victory may have more to do with Amazon’s desire to compete with Alphabet and Facebook, than a move to bulldoze its walled garden. And that’s where things get complicated.
Politicians are scoring points by calling for the breakup of the tech giants. The concern is a lack of transparency over what these companies are doing with the user data they collect inside their walled gardens. However, the walled gardens that these companies put up do protect their users with a more secure experience. The solution is not for these companies to allow more access to their garden; it’s finding ways to keep hackers out.
What Does the Future Hold for TTD Stock?
Marketers have always wanted to have measurable results. To be honest, any thoughtful creative professional wanted that information too. If you create an ad that doesn’t help sell the product, it’s like the tree falling in the forest.
That’s why I’m rooting for The Trade Desk and, by extension, TTD stock. The advertising game has changed. And speaking as someone who has been around this industry for a few years, this is a change for the better.
For The Trade Desk to find a path to growth, it’s going to have to come up with a clear solution to the conflict between data that wants to be free and consumers who want their data to be private. If not, this is a battle it can’t win.
As of this writing Chris Markoch did not hold a position in any of the aforementioned securities.