Growth strategy

Just after the dot-com bubble burst, Adnovate launched as an AI  pioneer in marketing campaign management.

Adnovate’s mission was simple: “Perfectly Engineered Campaigns.” The promise was to revolutionise an otherwise low-tech advertising industry with high-tech solutions. Adnovate disrupted the advertising landscape by streamlining the connection between creative campaign development and media, offering significant reductions in both costs and time. Its technology integrated a single-instance SaaS platform with multi-user workflows, along with an AI-powered artwork generator (“smart robot”).

Initially, the company achieved significant success in disrupting traditional processes, setting a new standard for digital optimisation, and winning large customers. However, despite these advances, it struggled to become the central hub of advertising logistics as it had hoped.

Adnovate’s journey underscored the complexities of scaling AI-driven tools in a traditionally service-heavy industry. The company’s story offers valuable lessons for anyone using AI-based productivity solutions and provides valuable insights into scaling AI-based platforms.

Disrupting the advertising value chain

Adnovate’s goal was to build an automated platform that offered a highly productive and rapid connection between campaign creation and publishing. The AI robot, combined with the SaaS platform and media-artwork integration, replaced manual executed campaign management and desk top publishing. Adnovate’s platform offered a dramatic productivity increase: a drop in variable cost to less than 15% of traditional methods. This value proposition helped Adnovate to quickly build a strong sales pipeline. The company served diverse markets—from recruitment advertising to automotive brands, real estate, retail, and global enterprises. Notable clients included Philips, TomTom, Hema, Yamaha, Ford, Omron, Land Rover, AEGON, Unilever, Kia, Volvo and Opel.

The company even earned a spot in the Gartner Magic Quadrant as a “Challenger.” Adnovate expanded through acquisitions, increasing its volume while also facing compatibility challenges.

The limitations in the advertising value chain

At the heart of Adnovate’s disruption was its effort to address inefficiencies in the advertising value chain. Simplified, the value chain has three steps:

1. Campaign Design & Planning: Creative and media agencies develop the campaign.
2. Production: Production agencies and lithographers create various versions of the campaign and distribute these versions.
3. Media: Printers, media outlets, and distributors ensure the campaign reaches the target audience.

Media constituted only a bit more than half of the marketing expenditure by advertisers. For a typical mixed advertiser, the value added would be distributed as follows:

1. Campaign design & plan: 20%
2. Production: 25%
3. Media: 55%

Adnovate’s technology streamlined production and campaign management, but it couldn’t handle video and audio content. TV and radio, while important for marketing and creative decision makers but were less suited for Adnovate’s platform.

The core focus was print media, including newspapers, brochures, point-of-sale materials, and door-to-door marketing and some online.

Even though variable production cost were very competitive at 15%, there would also be overhead costs of setting up the platform, instructing the robot for each campaign and training the users.  For mixed advertisers, is was feasible to save 50% on the production cost, or more than 10% on overall marketing costs.

Although Adnovate’s solution offered a cost saving of over 10% on a company’s overall marketing budget, these savings often weren’t enough to convince larger advertisers to switch, as it would add a new type of supplier.

Adnovate’s pushed to reduce complexity for its customers and become a “one-stop shop” for all campaign tasks, including production, distribution, and asset management, ultimately diluted its disruptive power. The company began to resemble a traditional production agency with a technological backbone, rather than a true technology-driven innovator.

The Red Queen Effect: Running Just to Stay in Place

Five years into its journey, Adnovate began to experience what’s known as the Red Queen Effect: “Now, here, you see, it takes all the running you can do to keep in the same place.” Despite its technological advancements, Adnovate struggled to maintain high productivity. As the company scaled, the challenge of maintaining its technology and innovation became increasingly difficult.

The strategy of merging full-service campaign management with AI-driven automation didn’t deliver as expected. The platform’s user interface failed to keep pace with evolving market demands, and the combination of complex full-service offerings with an expanding technology base became more difficult to manage.

This challenge of leveraging AI for productivity, creating substantial value as a new solution, while avoiding unnecessary complexity and exceptions, is a problem that many AI-driven businesses face today.

Aligning financing

Adnovate reached a 2% market share in the Netherlands, which was impressive for the fragmented market it operated in. However, this was not enough to generate the free cash flow required to maintain leading-edge technology and innovation.

The company’s conservative investment structure, pressured it to become cash flow-positive early, leading to a focus on adding more customers and entering new market segments. Unfortunately, this approach restricted other growth options, with a much longer break even-horizon:

1. Expanding economies of scale via a aggressive pricing / freemium model: While the platform’s variable costs were highly competitive, the cost structure was still too high for a truly disruptive, low-cost freemium model, without accepting later break even point.s
2. Focusing on Niche Technology Solutions: The niche technology solution could create substantial value when scaled internationally, but would require a longer investment horizon to become profitable.

Key takeaways for scaling AI-driven platforms

Adnovate’s experience offers several valuable lessons for companies aiming to scale AI-based platforms:

• Simplicity vs. Full-Service: While AI-driven platforms can offer significant productivity gains, complexity often undermines their scalability. Balancing automation with human intervention is crucial for long-term success.
  • Keep the focus: Where possible, run the service proposition separately with the tech solution as a supplier.
  • Services should be a way to acquire volume on the core platform, not a long-term business in itself.
  • Be very strict on feature growth for the tech platform.
• Acceleration through Partners: The disruptive power was too limited to move large advertisers with their full advertising package, requiring customers to add a supplier type. If this is the case, you should reduce your arena and partner with others (in Adnovate’s case, media agencies and creative agencies).
  • Scale your sales through partnering with anyone who will respect your core technology.
  • Look for larger full-service partners to stomach some of the investment risk (solution inside).
  • Prioritise international scaling over functional expansion.
• Align Financing with sustainable tech disruption: Tech investment is highly risky. Even if service operations can generate some of the cash flow required, this extends life but should not take away the focus from making the tech solution a standalone, cash-flow-positive disruption.
  • Be very conservative in estimating required investment.
  • Set up the opportunity to be suitable for multiple additional financing rounds.
  • Look for technology partners to share development risks.
  • If you acquire a competitor, include rebuilding the technology platform in the business case.

In the end, Adnovate was sold to a larger international digital/production agency from the U.S., Tahzoo. Adnovate brought highly efficient multi-channel processes but, especially, a wide and strong customer base.

As AI continues to reshape industries, Adnovate’s journey serves as a valuable case study for navigating the complexities of scaling technology in dynamic markets.

This blog post was edited with the assistance of Le Chat by Mistral, an European AI language model