Roku announced yesterday that it’s buying demand-side platform (DSP) Dataxu for $150 million in cash and stock. Just another instance of advertising technology (adtech) consolidation, maybe? Not so fast. Let’s break down what it means.

Roku Keeps A Good Thing Going

From a strictly business perspective, this is a good move for Roku. The company’s advertising and platform business is growing and is more profitable than the company’s hardware business. And the hardware side of the house, which includes Roku TVs and streaming sticks, relies on Chinese manufacturing — so while it saw a surge in sales as retailers tried to get ahead of a trade war, uncertainty lies ahead for the hardware business.

Roku noted in its Q2 shareholder letter that it doubled the number of ad impressions it monetized versus Q2 2018, and it needed a more robust technology foundation to keep up with this growth. Dataxu nicely fills this need.

Adtech Loses Another Independent Vendor And Continues Its Focus On OTT

Independent DSPs are getting harder to come by. For example, Amazon acquired Sizmek’s ad server earlier this year (much to our chagrin), with Zeta scooping up Sizmek’s DSP. This came on the heels of AT&T’s acquisition of AppNexus in 2018.

Dataxu was in a good spot to be acquired, though. This acquisition jives with the findings from the Forrester New Wave™ on cross-channel video advertising platforms, which found that the bulk of the major buy-side players are investing in over-the-top (OTT) and connected TV (CTV). One possible added bonus: Dataxu was also expanding to offer sell-side platform capabilities to the media companies, which will help Roku’s content partners better manage monetization of their inventory. There’s appeal and growth opportunity as OTT plays a bigger role in consumers’ media consumption and publishers’ monetization strategies. And as Forrester VP and Principal Analyst Joanna O’Connell told AdAge: “Identity talk, audience-driven buying, unduplicated reach, and frequency are all hot topics among more sophisticated buyers, which are what all the big advertisers are increasingly requiring.”

Advertisers Potentially Face Another Walled Garden

Roku can make a strong pitch to advertisers looking to reach a sizable OTT crowd and find targetable audiences built off Roku’s first-party data.* That said, we expect that this value proposition could lead Roku to adopt a walled garden approach and require advertisers to buy direct. Roku knows it’s sitting on valuable data — the final paragraph of its most recent letter to shareholders says, “Our first-party relationships with consumers and sophisticated content promotion and advertising capabilities provide significant competitive advantages.” There’s a strong possibility Roku will want to keep these customer relationships close to the vest, so advertisers using partners with direct access to Roku inventory, such as Adobe, should wait for the other shoe to drop.

* Roku has more active accounts than Comcast has residential subscribers: 30.5 million for Roku compared to Comcast’s 27.6 million.

Thanks to Steph Liu and Sarah Dawson for contributing to this blog post.