Quick, tell me the difference between Tremor and Brightroll? How about YuMe? From the outside, it’s awfully hard to tell the players apart in the online video network world. They’re all huge, they all boast of cutting edge, better-than-the-other-guy’s technology, and they all have the same response when you ask them where their videos actually run. In fact, they all have access to pretty much the same inventory.
It raised plenty of eyebrows this week when all of a sudden roughly $42 million in venture capital funding suddenly flooded the space: $30 million to BrightRoll and another $12 million to YuMe. That influx of dollars comes after Tremor seems to have raised an inordinate amount of cash to date: $37 million in September, $65 million in 2010 and $18 million in 2009. There’s long been talk of a Tremor IPO. These are big bets.
“Everybody talks about Terry Kawaja’s famous slide about the clutter in ad tech, and that makes a fair point,” said Warren Lee, general partner, Canaan Partners, which has invested in Tremor. “But we’re investing in a hot market. I think we’d all agree that Web video is not one of those spaces that you don’t know how you’re going to make money. This is legitimate. It’s close enough to TV that you can see drawing a couple of percentage points from the TV market.”
And that’s the bet right there. For all the talk of their super-duper black-box technologies, these video networks are selling the notion they’ll draw eyeballs from TV and the ad dollars — the TV ad dollars, to be specific — will flow. Here’s a wake-up call: That isn’t happening yet and might not. Online video is growing fast — eMarketer has the video ad market growing between 30 and 50 percent over the next several years — but every media buyer you talk to admits those budgets aren’t coming from TV but from display ads.
Right now, video ad networks are in a great position in a fragmented, immature market. Brands love the sight, sound and motion of TV and feel similarly about video. Agreed. In order to spend in online video now at any scale, a buyer has to go to a network, or rather it’s easier to do so. But pretty soon, it would stand to reason that those buyers will develop their own tools — think of when DSPs are in on the game — in order to easily aggregate their own video campaigns without the network middleman.
And there’s also the inconvenient truth that the lion’s share of the video market never touches these networks. Depending on who you talk to, 50 to 70 percent of the current ad market goes towards TV on the Web, the super-premium, full-episode player stuff running on Hulu and CBS.com and the like. The video ad networks are not considered in the same league. According to BrightRoll CEO Tod Sacerdoti, video ad networks only garner about 10 to 15 percent of the current market despite reaching four times as many unique users Hulu, and delivering billions of impressions collectively.
So, instead, the video ad networks, flush with cash and huge valuations they need to hit, have begun to sound a lot more like infrastructure companies that sell at higher multiples. Tremor talks up its analytics all the time. Brightroll plans to pour more money into data, storage and infrastructure, expanding into what CEO Tod Sacerdoti describes as “a differenet business than an ad network.” YuMe is also fleeing the ad network label, trying to be an early player in interactive TV advertising. In an interview, YuMe CEO Jayant Kadambi continually emphasized YuMe’s supposed prowess in software and infrastucture — not its reach or inventory or targeting — is what attracted investor Samsung Ventures.
“YuMe is about becoming the underpining the technology for connected TVs. That’s something that ABC is not going to build on their own,” explained Stephen Lee, principal at Samsung Ventures. In other words, YuMe plans to power the advertising and content delivery for networks building apps on Web-enabled TVs. And it also plans to make a big play toward powering and selling ads on electronic programming guides and other Web TV user interfaces. No doubt, but I’m not sure it will be an ad network that gets there first and nails it, rather than Google, Microsoft, the cable companies, the TV networks themselves.
“My sense is that some of these ad networks are under a lot of pressure in the market, and there is not enough quality inventory online, so they are betting that smart TV will take off,” said one connected TV insider.
All of which leads to a very simple question: Is the flood of money coming into the video ad networks really pushing the industry forward? With their tacts to being infrastructure plays, the networks are undeniably making rational decisions to maximize the returns of their investors. What’s less clear is if those decisions are maximizing the returns of advertisers and publishers.