Yahoo! encroaches on Taboola, Outbrain territory

Yahoo!

Yahoo! is entering the content-recommendation market dominated by Israeli start-ups, Taboola and Outbrain.

Yahoo! is entering the already-crowded content-recommendation market, which is currently dominated by two Israeli start-ups, Taboola and Outbrain. Yahoo! recently decided to take advantage of its connections with content websites, and its insatiable thirst to find new revenue sources beyond banner ads, and has found what it has been searching for in the world of content recommendations.

Like Outbrain and Taboolas products, both of which have systems worth roughly a billion dollars and revenue in the hundreds of millions, content-provider partnerships with Yahoo! will place a small box of Recommended articles, alongside a small Yahoo! logo, at the bottom of text articles - three recommended articles from the same content website, and another article through a paid promotion.

The paid promotion article is the services revenue engine, and a click on it earns Yahoo! money, which it shares with the content provider on whose site the link was displayed. The site that receives the traffic pays for each click on the paid promotion that links to its article.

Yahoo!, which offers its new product for desktop and mobile, began operating with companies like CBS Interactive, Vox Media, and others, under the name Stream Ads. Yahoo! is not actually introducing an entirely new product, as the Stream Ads service was already incorporated in content sites that Yahoo! has operated since their launch in April 2013, but it is now bringing them to sites outside of the Yahoo! network.

Since its launch, advertisers have fallen in love with Yahoos relatively new advertising product. Yahoo CFO Ken Goldman said in the companys second quarter report that 40% of Yahoos display ads come from recommendations at the end of articles. However, the popularity of content recommendations, or Stream Ads, have hurt Yahoos revenue from premium ads, which, according to the website Ad Age, was down 8% in the second quarter compared with the corresponding quarter of the previous year.

It seems Outbrain is not afraid of Yahoo! just yet - or maybe it is. Outbrain VP Product Marketing Matt Crenshaw rushed to the popular tech blog Venture Beat to criticize Yahoos native advertising activity, an area in which both companies operate, and in which Yahoo wants to increase its footprint.

According to Crenshaw, Yahoos native advertising does not create enough credibility. He claims that the product more closely resembles advertising than recommended content. Crenshaw claims that the lack of trust in advertising can harm the advertisers, and thereby also the involvement and trust of the reader base. Crenshaw bases his assertions on short survey that Outbrain conducted among 300 users on Yahoos homepage, and showed that readers have 32% confidence in an advertisement based on Yahoos product, and 60% confidence in an advertisement based on Outbrains product.

It is difficult to judge to what extent Crenshaws and Outbrains statements are motivated by real market analysis, and to what degree by their desire to reduce Yahoos ability to threaten Outbrains core business. Yahoo is not the most stable company in the world, and it is difficult to wager on whether its new product will succeed in threatening Outbrain and Taboolas hegemony, when behind them is a long line of smaller companies that have also managed to survive over time. That said, Googles name has also come up recently in the context of entering the content recommendation market, but no known formal steps have been taken to that end.

The Israelis are battling head to head

Outbrain, founded by Yaron Galai and Ori Lahav in 2007, is very close to an IPO. It is not clear whether it will happen this year, or if the company has postponed the plans meanwhile, after having already postponed them in the past. The latest plan is to raise $100 million at a company value of over $1 billion. Goldman Sachs and JP Morgan are meant to lead the IPO.

Taboola, on the other hand, is still far from taking steps towards becoming a publicly traded company. Last month Taboola acquired a US company for tens of millions of dollars, with the intention of significantly increasing its advertising tools beyond the network of content recommendation that it has succeeded in expanding over the last two to three years.

This expansion, which includes launching a different advertising product in the content-recommendation-company space, is meant to create a new revenue pipeline in the long term, and to bring it beyond its current annual revenue rate of $250 million, as announced in early August.

Taboola is currently in the middle of a large fundraising round, one that is meant to increase its estimated value and to create a significant channel towards the launch of the new advertising tools, and expanding its core products. Such fundraising, when and if it is completed, will increase the companys future IPO options in the foreseeable future, but will leave founder and CEO Adam Singolda with an eye on Outbrains performance as a public company, for when it decides that the conditions are right for an IPO.

Published by Globes [online], Israel business news - www.globes-online.com - on September 3, 2014

Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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