In December last year, our adtech specialist Bradley Lewington made a prediction. 2023 was going to be a big one for the adtech industry. The year of cookieless experimentation, contextual targeting, AI, audio ads, CTV, in-game advertising, and plenty of M&A activity. And whilst those predictions have certainly proven true, there’s a common denominator that’s been hampering growth in the world of adtech. And that is the hyperscale cloud.
We caught up with Bradley and our director of new business, Lewis Payne to reflect on the year so far and adtech’s shifting priorities when it comes to infrastructure. This is what they had to say.
As regular industry event attendees, both Bradley and Lewis have a direct line to the adtech industry’s people on the ground. And one topic of conversation that comes up time and again in these circles is infrastructure. More specifically, a growing pain around the cost and efficiency of the hyperscale cloud.
“The pain has always been there, but it’s been bearable. As adtech startups went through initial growth periods, the cost of hyperscale cloud was considered worth it for the ease of scalability that hyperscalers like AWS offered in return”, says Lewis.
But priorities have shifted now. Amidst industry-wide ad spend optimization and cost cutting, SSPs, DSPs, and ad networks want to ensure the long-term financial sustainability of their business models.
It’s something that Andrew Casale, CEO of Index Exchange, has also observed within the adtech industry recently. “There’s a confluence of events all culminating in a drive toward value…a drive toward reducing [bid] duplication, infrastructure costs and ultimately toward a more sustainable marketplace”, he remarks.
“The long and short of it is that adtechs want to know how their businesses will operate beyond the next six months and how to keep that business profitable long-term. All too often hyperscale cloud is the common denominator getting in the way of that,” furthers Lewis.
And that’s because businesses tend to fall into one of two camps.
The vendor locked – businesses that designed their tech stack around the hyperscale cloud and became locked-in. Typically startups that chose to take advantage of free credits without really knowing what they were signing up for.
The vendor agnostic – businesses that avoided over-reliance on a single cloud hosting provider. This was difficult to achieve if under time pressure, but those who chose this route reduced their risk of incurring technical debt down the line.
The hyperscale cloud bubble is bursting and more adtech companies are choosing to find a completely alternative route or at least move some of their estate to a more cost-effective solution. The journey out of hyperscale will look very different depending on which camp you fall into.
The consensus within the adtech industry is that total reliance on hyperscale cloud environments is no longer a financially viable option. “We’re increasingly having conversations about moving away from cloud with businesses reviewing their stance on infrastructure” says Lewis.
And now the topic of conversation has entered the C-suite, with CEOs, CTOs and CFOs aligning on the issue of infrastructure. CEOs want assurance that their businesses will remain profitable, CFOs want to make spend go further, and even CTOs (for whom migrations are the ultimate headache) are coming round to the idea that cloud might be doing more harm than good.
“No CTO wakes up in the morning and thinks I’d love to perform a migration so, when a CTO agrees to migrate, the issue must be business critical”, furthers Lewis.
David Heinemeir Hansson, co-owner and CTO of 37signals (Basecamp & HEY), is a prime example of someone spearheading for reverse migration. In his article Why we’re leaving the cloud, published in October 2022, David shares his experience.
He explains that the cloud excels under two conditions. First, for simple, low-traffic, applications, for whom a fully managed cloud service saves on complexity. And second, for businesses with erratic peaks and troughs in usage.
“But neither of those two conditions apply to us today”, states Hansson. “Yet by continuing to operate in the cloud, we’re paying an at times almost absurd premium for the possibility that it could”.
In a follow-up article, We have left the cloud, published in June 2023, Hansson highlights the pay-off. Savings of at least $1.5 million yearly by buying and maintaining their own hardware rather than renting from Amazon.
37Signals may not be an adtech platform but Hansson’s reasoning is universally relevant and highlights a pervasive problem when it comes to buying infrastructure. Most businesses (adtechs included) are paying for features they simply do not need.
So, what’s the solution? Hansson’s migration story is an impressive one. But not everyone wants or has the resources to build their own data center or maintain servers in colocation.
And that’s okay.
What many businesses don’t realize is that there are other options out there. Options like bare metal server hosting. By leasing dedicated servers from a bare metal hosting provider, businesses can architect their ideal infrastructure setup, supported by experts.
“Everybody’s applications are built differently so there’s no one-size-fits-all solution for adtech. As a bare metal hosting provider, we sit down with our customers to identity their unique bottlenecks and design infrastructure that’s specifically optimized around their application”, explains Bradley.
And in many cases a full migration is not necessary. Businesses struggling in the hyperscale cloud can benefit hugely from migrating a portion of their infrastructure to bare metal. A hybrid approach, with a base layer of bare metal servers and a top up of cloud, offers the reliability and performance of dedicated servers plus the option to lean on cloud auto scaling should the need arise.
“Bare metal is the goldilocks of the hosting world”, says Bradley. “A middle ground between an on-prem data center and hyperscale cloud”.
“I predict that in 2023 we’ll continue to see more and more people being brave enough to challenge the status quo” says Lewis. “People will be motivated by others migrating or, if not that, then by the necessity of it”.
And whilst migrations are far from what people dream of, if it’s not now then it will have to be soon. As the pressure mounts from C-suites and boards looking to optimize spend at the infrastructure level, the time to innovate is now.
Find Brad and Lewis at DMEXCO 2023 to talk all things adtech infrastructure and stay tuned for more blogs covering the latest adtech trends.
In an industry defined by constant innovation, Adtech specialist Bradley helps customers realise their strategies with reliable, scalable infrastructure.
He’s a Reading FC and F1 fan, and father of two.
