Ad-tech companies are increasingly looking abroad for growth. In so doing, they're following the lead from the major brands, many of which generate more than half their revenues outside of their domestic markets. But what does it mean for an emerging ad-tech company to expand outside the United States -- and what are the implications for its clients?
The question of whether or not to move ahead with international expansion is more difficult to answer than it may look. Because the United States is the most advanced ad-tech market, CEOs see virgin territory and low competition when they peer across the seas. Their investors and board members, though, tend to see something quite different. Knowing that focus is paramount for a growing business, board members often hesitate to embrace international expansion. They may urge management to "win" the U.S. market before diverting precious financial and other resources to international escapades. Nonetheless, based on the number of ad-tech companies that have already taken the international plunge (some examples include AppNexus, MediaMath, Turn and DataXu), management seems to be winning this debate at the moment, as companies are pulled across the pond by specific clients, overstuffed financing rounds or sheer ambition.
The next question for the expanding company is "Where?" This answer is more straightforward, given the well-worn path taken by generations of U.S. businesses to the major European markets (Germany, United Kingdom, France), the low-hanging fruit English-speaking markets (Canada, Australia), the tech-savvy (Japan, South Korea) and super high-growth (India, China) Asian markets, and throwing in Brazil for good measure.
The tougher question is "How?" Do you transfer "boots on the ground" from your U.S. team? Staff up a new local team? Pursue a joint venture with an in-market partner? License your technology? Run all non-U.S. client business from the United States? Many first-generation digital media and marketing businesses such as AOL, Yahoo and Doubleclick went the joint-venture route, with mixed results. Today's ad-tech CEOs tend to go it alone, hiring in-country management and sales, while leveraging their U.S.-based tech and ops teams.
Pitfalls await. For starters, if you're not a true technology product, beware. Building publisher, advertiser and/or agency relationships in a new country will be a lot harder than it was in the United States. You'll start off without brand recognition or local "cred." And unless you invest aggressively (i.e., serious cash), you won't have the people to do the selling and account management necessary to compete with local players (whose skills you probably underestimated). If you're a true tech company, you'll face the same issues, but a few major partnerships with leading players in market can solve that . Companies like Tremor Video's VideoHub division are employing this strategy, giving established outside companies, such as Australia's VOLT, access to inventory that was previously unavailable to foreign advertisers.
Companies also need to be ready to "internationalize" every aspect of their offering. Is your product UI easily translated? Do your underlying product capabilities depend on local language? Is hosting associated with your offering? If so, do you have an architecture that can be easily replicated in different regions around the world, and the capital to fund those investments? And, even if you can benefit from all of the great technologies for collaborating across time zones, do you have trusted executives on the ground in your new markets who can provide a face to your business and build lasting relationships?
Then there's the trying issue of complying with local laws and regulations. This is especially trying for digital media and marketing companies, since data privacy and protection issues are even more visible and politicized in many international markets than in the United States. Not only do Google and Facebook tangle with EU regulators over a variety of issues, their executives in India are literally on trial. Even if you don't have that kind of profile, you need to contend with numerous new privacy directives and proposed regulations in Europe.
Finally, there's the issue of focus (remember what your board told you when you first brought up global expansion)? Addressing the many issues highlighted above requires lawyers, technical guns and money, not to mention an inordinate share of management attention. An agile management team can work to juggle these needs while holding down the fort on its core domestic business. However, when a team gets overextended, it risks not only failing to meet its objectives in new markets, but also losing acceleration in its primary market. Management must always be careful not to kill the goose that lays those golden eggs.
Great companies are able to take on the challenges of geographic expansion and build truly global businesses. Just make sure you have the product, business model, resources and resolve to prevail.