Will GDPR Burst the Martech Bubble?

Some people have feared (or hoped) that the European Unions’ General Data Protection Regulation would force major change in the the marketing and advertising ecosystems by shutting off vital data flows. I’ve generally been more sanguine, suspecting that some practices would change and some marginal players would vanish but most businesses would continue pretty much as they are. The most experienced people I’ve spoken with in recent days have had a similar view, pointing to previous EU privacy regulations that turned out to be mostly toothless.

But even though I respect those experienced opinions, I’m beginning to wonder GDPR might have a much greater than most of us think. The reason isn’t that GDPR requires major changes in how data is collected or used: by and large, consumers can be expected to grant consent without giving it much thought and most accepted industry practices actually fall within the new rules. Nor will the limited geographic reach of GDPR blunt its impact: it looks like most U.S. firms are planning to apply GDPR standards worldwide, if only because that’s so much easier than applying different rules to EU vs non-EU persons.

What GDPR does seem to doing is create a shake-out in the data supply chain as big companies reduce their risks by limiting the number of partners they’ll work with. The best example is Google’s proposed consent tool for publishers, which limits consent to no more than twelve data partners. This would inevitably lead to smaller firms being excluded from data acquisition.  Some see this as a ploy by Google to hobble its competitors, and maybe they're right. But the real point is that asking people to consent to even a dozen data sharing options is probably not going to work. So even though publishers are free to use other consent tools, there’s a practical limit on the number of data partners who can succeed under the new rules.

A similar example of market-imposed discipline is contract terms proposed by media buying giant GroupM , which requires publishers to grant rights they might prefer to keep. GroupM may have the market power to force agreement to its terms, but many smaller businesses will not. With less legal protection, those smaller firms will need to be more careful about the publishers they work with. Conversely, advertisers need to worry about using data that wasn’t acquired properly or has been mistreated somewhere along the supply chain before it reached them. Since they can’t verify every vendor, many are considering cutting off smaller suppliers.  Again, the result is many fewer viable firms as a handful of big companies survive and everyone else is shut out of the ecosystem.  (Addendum: see this Marketing Week article about data supplies being reduced, published the day after I wrote this post.)

There’s nothing surprising about this: regulation often results in industry consolidation as compliance costs make it impossible for small firms to survive. The question I find more intriguing is slightly different: will a GDPR-triggered reduction in data processing will ramify through the entire adtech and martech ecosystem, causing the long-expected collapse of industry growth?

So far, as uber-guru Scott Brinker recently pointed out, every prediction of consolidation has been wrong.  Brinker argues that fundamental structural features – including low barriers to entry, low operating costs of SaaS, ever-changing needs, micro-services architectures, and many more – favor continued growth (but carefully avoids making any prediction).  My simplistic counter-argument is that nothing grows forever and sometimes one small jolt can cause a complex system to collapse. So something as seemingly trivial as a reluctance of core platforms to share data with other vendors could not only hurt those vendors, but vendors that connect with them in turn. The resulting domino effect could be devastating to the current crop of small firms while the need to prove compliance could impose a major barrier to entry for new companies.

I can’t say how likely this is. There’s a case to be made that GDPR will have a more direct impact on adtech than martech and adtech is particularly ripe for simplification.  You could even note that all my examples were from the adtech world. But it’s always dangerous to assume trends will continue indefinitely and it’s surely worth remembering that every bubble is accompanied by claims that “this time is different”. So maybe GDPR won’t have much of an impact. But I suspect its chances of triggering a slow-motion martech consolidation are greater than most people think.