At Rembrand’s CTRL + CREATE event, LUMA CEO Terence Kawaja shared his preview on the impact of AI on the Advertising & Marketing Technology industry as an industry “game changer”.
Read Tipsheet.ai recap of the conversation:
Image: Tipsheet.ai
Article by: John Ebbert
At yesterday’s CTRL + Create event, investment banker Terence Kawaja of LUMA Partners shared a summery “take” on the future of the advertising and marketing technology landscape and the potential for mergers and acquisitions.
Mr. Kawaja and his firm have been responsible for bringing together many of the most well-known transactions in the ad and marketing tech space in the past 15 years.
Though there was some sense of “what’s old is new” again – “AI” is the latest shiny new object to tantalize acquirers and startup founders alike – Kawaja made clear during his appearance that this time the innovation is different with a “game changer” ahead in the age of AI versus the “incremental” steps of the past.
After presenting an initial, detailed overview of the AI opportunity, Mr. Kawaja delved deeper in a one-on-one interview with the event’s host, CEO Omar Tawakol of the AI ad tech firm Rembrand.
Topics covered:
The AI “game changer” ahead
How M&A will be different this time
The surging “creator” trend
LLMs will not take over the world of advertising
AI and programmatic: A perfect marriage
The “game changer” ahead
Terence Kawaja: One of the things that’s annoyed me about advertising and technology is everyone’s got a solution that has, maybe, a 10% improvement versus run-of-network. It’s so sad how incremental we’ve gotten.
Of course, you do incremental 10% a year, over 50 years, you’ve got a real game changer…
But, this (AI trend) is a game changer. This is not percent. This is what’s next.
What’s exciting about it is… it’s going to have a massive impact. It’s less about efficiency even though there will be efficiency gains. AI will make things faster, better and cheaper.
But the “better” is the thing to focus on.
The way it will impact the efficacy of advertising is… AI is going to be able to parse what actually works [and what doesn’t]. No more of the John Wanamaker rule where “Half the money spent on advertising is wasted; the trouble is, it’s not known which half.”
How M&A will be different this time
Terence Kawaja: A lot of people that understand how advertising technology works – repeat entrepreneurs that build scalable businesses – are now investing in AI-first solutions. I can’t think of one of them that will be a $50 billion public company. And by the way, there might be one – and I hope there is one – but the vast majority of those will exit via trade sale because some larger incumbent with lots of revenues and customers will come to the realization that there’s a better mousetrap, and they’re being out foxed, and they’re going to need to buy “said” company.
The implication is: build fast or buy fast. It’s hard to “build” unless you’ve got dedicated AI data scientists – and so the default will be “buy.”
And I believe that is going to change the venture capital game by shortening the runway of these startups – they’re going to require less people, less capital, and they’re probably going to be acquired far earlier in the life cycle, versus the 5-15 years historically, where you have to scale before you get an exit.
The surging “creator” trend
Terence Kawaja: In 2025, there will be a little bit north of $20 billion of spend on creator content. There’s a trillion spend overall – and in the “walled gardens” there is $350 billion of spend.
It doesn’t take a lot of math to figure out – it’s going to have a dramatic impact on that whole creator ecosystem. Again, all of creative applications and creative tools have historically been very manual processes. (…) I love that we’re going to finally combine that beautiful part of moving people but bringing the technology tools to be able to scale it.
The impact of that is hard to even fathom. Obviously, for the creators, they’ll be playing at a much bigger scale.
Think about how brands and agencies think of influencer and creator spend today – it’s a little bucket. Meanwhile, the TV media buyers and the programmatic media buyers are in [a big bucket].
I think we’re going to see the creator go from that niche spend to a big chunk of the paid media spend. So it’s going to be thought of differently. It’s going to have a much larger share and a massive impact.
LLMs will not take over the world of advertising
Terence Kawaja: If we go back to the 90s, we had a winner take most phenomena in the sense that the high production cost meant it had to be a big meeting company in order to have scale.
When we got to Web 2.0 the idea was, ‘Oh, we’re going to get democratization.’
It started that way – the Yahoo days and the blog days. But then, it turns out big social “walled gardens” started usurping more and more share. And so that winner-take-most is actually more concentrated than the old ABC-NBC-CBS triumvirate, for example…
The opportunity is that with the explosion of the creator, we will see fragmentation become a friend and not a problem. We’ll democratize yet again.
The issue is whether the controllers of that destiny – that navigation – usurp all of those capabilities.
I’ve got to imagine when you’ve got a sea change of economics and a whole new paradigm of monetization of the answers economy, that there will be room for many.
The LLMs will probably stay out of a lot of the vertical applications, because they’re making so much money and they’ve got such a huge opportunity managing a horizontal infrastructure, that it’ll probably behoove them, regardless of what they do in the interim, because they may need to vertically integrate in order to sort of scale things, but it will probably be an opportunity for verticalized players with specific applications in specific industries.
AI and programmatic: A perfect marriage
Terence Kawaja: There is no industry better suited for AI than advertising. None. There’s no industry that has the same kind of spend, variation of outcomes and data.
Look at programmatic advertising – the kind of data that it puts out… How does an LLM work after all? You need data as the input, and advertising has the most data.
So, I think there’s going to be lots of opportunity for big players, vertical applications and even media. I’m hoping that we’re going to have a robust, fragmented ecosystem that will then consolidate.
Source: Tipsheet.ai