The transaction, priced at $640 million, fires up Yahoo's ad tech strategy after a dry spell when the company's M&A was focused primarily on consumer-facing mobile platforms. It also provides a partial answer to those wondering how Yahoo would spend the $6 billion windfall from the Alibaba's IPO.
“Here at Yahoo, video is one of the largest growth opportunities, and BrightRoll is a terrific, strategic and financially compelling fit for our video advertising business,” said Marissa Mayer, Yahoo CEO. "As with every acquisition, we have been extremely thoughtful about our approach to the video advertising space.
This acquisition will accelerate the growth of both companies – we can help BrightRoll scale to even more advertisers globally and they can bring their tremendous platform offering to Yahoo’s advertisers. The combination builds positive momentum for Yahoo’s broader display advertising business in 2015.”
In announcing the transaction, Yahoo noted BrightRoll is on a 2014 revenue run rate of $100 million. The company claims to serve 87 of the largest US advertisers, 15 top agencies, 18 of the top 20 ad networks, half of the top 50 publishers and 350 video platforms. BrightRoll has been profitable since 2010, according to CEO Tod Sacerdoti.
BrightRoll, founded in 2006, is one of the last remaining “independent” video ads platforms serving both the buy and sell sides, recently bringing on Google’s head of platform sales strategy Bruce Falck as chief operating officer in July.
Since then, the company has been subject to debate whether it would IPO or if one of the big platform companies – Google, Adobe or, of course, Yahoo – would swoop in. But Yahoo seemed like the most logical acquirer, considering BrightRoll always intended “to build an alternative stack to Google” as Sacerdoti told AdExchanger in a July 2014 interview.
Meanwhile, Yahoo had struggled with its video offering. It failed to acquire DailyMotion and its rumored buy-out of online video service News Distribution Network never happened.
Considering these misfires and the fact that Yahoo has $6 billion of cash in its pockets, courtesy of the Alibaba IPO, acquiring BrightRoll feels like a natural follow-up to Yahoo’s July acquisition of video distribution platform Rayv. Plus, Mayer has been angling for a turnaround strategy to alleviate pressure from investors and seemingly brought in Amazon's ad sales chief Lisa Utzschneider to lead that charge.
BrightRoll’s platform placed No. 1 for Top U.S. Online Video Ad Properties ranked by percent of US population reached, according to comScore’s August 2014 Video Metrix. BrightRoll served ads to 51.3% of the US population in August, ahead of Facebook’s LiveRail (46.8%), Specific Media (42.8%), AOL (38.3%) and Google Sites (37.6%).
BrightRoll could foreseeably benefit from "the incorporation of Yahoo's first-party data," said Brian Wieser, a senior research analyst at Pivotal Research Group, although "real scale and long-term profitability would likely depend upon further investments in premium video content."
BrightRoll and other video marketplace providers like AOL's Adap.tv have experienced an uptick in private marketplace deals, which better accommodate buyer considerations and propagate the premium investments Wieser spoke of.
For instance, beer brand Heineken, which spoke about its entry to programmatic at a BrightRoll Video Publisher forum, said it's searching for "premium content with the right partners. … We're not looking to bottom feed. This is where we feel private exchanges are differentiated."
One of BrightRoll's key development objectives in the coming year was expanding mobile as a percentage of its business, according to Sacerdoti. Yahoo, too, has been aggressive on the mobile front, notably acquiring mobile app tracking and analytics firm Flurry and mobile gaming platform Loki Studios.
"Marissa is under pressure from shareholders and Tim Armstrong was largely praised for Adap.tv," said one investment source, when the rumored deal first broke. "She used the last earnings call to announce Flurry and it seems timely to announce a big deal and distract investors from core results. … Strategically, it makes sense for Yahoo. Video is too important."
Yahoo needed to make a concerted effort to move deeper into video, particularly with Amazon's recent acquisition of Twitch (which Google and Yahoo were both rumored to have looked at), agreed Jim Daily, North America Managing Director at video ads platform Teads.
"Yahoo has made some considerable strides in advertising over the past year, including their launch of Yahoo Native, their buy-out of analytics company Flurry and offers to video players like Dailymotion," he commented. "With this acquisition, BrightRoll's partnerships will help… bridge the gap in Yahoo's ad offerings." However, he added, "third-party data is a sensitive area for publishers and with Yahoo's access, BrightRoll might run into challenges with some of their existing partners."
Mayer, in the blog announcement, called digital video "display 2.o," describing it as a "format that elegantly and easily transitions from broadcast television to PC to mobile and even to wearables." Although, those in the linear TV and agency constituency may dispute the point about broadcast transitioning easily to digital (after all, one of the No. 1 issues arising from the fluidity of TV and video ad dollars is the argument that video placements are often cut and repurposed TV ad creative. In other words, the creative may work well when watered down to mobile, but in connected TV environments, there are larger-scale concerns around translation).
"We believe the next step for programmatic video advertising is to extend and standardize globally, make cross-device buying simple and measurable, and complement and integrate with TV," Sacerdoti said in a statement. He said Yahoo and BrightRoll will "materially advance" those objectives as a pair. BrightRoll has 400 employees, all of whom will remain focused on digital video advertising within the Yahoo ranks, the company said.
The Yahoo/BrightRoll deal is another sign of the times in terms of digital video's scope in the ads ecosystem, Daily said. It's estimated that digital ad revenue in the US will rise from $5.96 billion this year to $12.8 billion in 2018, according to eMarketer.