The giant ad tech bubble may soon burst

At first glance, the ad tech industry looks like it's doing fairly well. Most stocks for major publicly-traded firms — along with related marketing tech and data broker firms — experienced gains in the first quarter of this year.

Reality check: The recent collapse of Sizmek, one of the biggest demand-side ad platforms, suggests that the positive momentum behind these companies could be inflated, and that the big money bubble that's floated dozens of hot ad tech companies over the past few years is about to burst.

Why it matters: The downfall of one company hurts dozens of others that are tied to it in the fragile ad tech ecosystem, creating real risk that the entire industry could face a major collapse.

"There's a perfect storm brewing. In the next 12 to 15 months, we're going to see more dominos fall. Eventually we will have maximized the elasticity of the market to sustain this and you'll see other companies go down."

Driving the news: Sizmek's bankruptcy declaration last month highlighted the financially instability of the ad tech supply chain.

• Publishers on the supply-ad of the ad ecosystem have long been floating the debts of demand-side vendors like Sizmek on a monthly basis.
• If Sizmek defaults on its debts, it could leave publishers out to dry for millions of dollars, forcing many of them and their supply-side providers (SSP) to be more cautious about working with demand-side providers (DSP) like Sizmek in the future.
• The news has many ad tech execs wary of what's going to happen next, Digiday reports. One executive tells Digiday that this ordeal "will lead to a couple of legal fallings out between agencies and their DSPs and SSPs and publishers.”

The big picture: For publicly-traded companies, it's easy for some firms to make the rising debt by obfuscating those operational costs when reporting earnings.

• For the many privately-held ad tech companies, the hope is that investors — mainly private equity investors — will be able to consolidate operations to reach profitability at some point and sell off the companies quickly before the bad books catch up to them.
• Bottom line: That's becoming harder to do as privacy becomes a bigger focus in ad tech and more publishers and advertisers are demanding transparency.

Be smart: For this reason, you don't see many ad tech companies go down slowly, Morgan notes. Most fold almost overnight, pointing to a greater problem of transparency in the ad tech ecosystem.

What's next: The common thread between much of this movement is that ad tech and marketing tech are beginning to collide, which plays into experts' predictions that more consolidation within the industry is on the way.