TubeMogul Talks Programmatic Direct In Video, As Q4 Revenue Rises 64%

TUBEQ4Video demand-side platform (DSP) TubeMogul touted its self-serve model, which now accounts for 76% of total client spend with the company, during its Q4 earnings call Thursday. The remaining 24% constitutes its managed-service model, but TubeMogul hopes to reach an 80-20 split by the end of 2015.

The average client spend committed by self-serve Platform Direct users has substantially increased, with advertisers now committing more than $500,000 to the platform annually, up 62% year over year. Total advertiser spend through the platform totaled $254.3 million, a 127% increase over last year.

"There are some clients who value the attributes of a services model," explained Brett Wilson, TubeMogul's CEO. He cited high-touch custom creative as an example. However, about 78% of spend in Platform Direct was recurring, meaning customers TubeMogul signed between 2011-2013 represent the majority of platform revenue.

"We're focused on building a sustainable company and we believe our software model and sales leverage will make us highly profitable over time," said Wilson, who noted the inherent predictability of a software vs. managed-service model, and its contribution to client retention. 

TubeMogul notably endured a rocky IPO process in 2014, partially because it needed to prove the value of its platform model vs. a solely managed-services offering.

During its IPO, Wilson told AdExchanger preceding its earnings, "We had to reduce the price we went to market with because it was hard for people to understand we [didn't operate the same] as some of the other video ad networks. We were selling a software platform with longer sales cycles."

Clientwise, TubeMogul's DSP has been particularly attractive to large brand advertisers like snack-foods brand Mondelez International and Heineken, who signed on as customers last year alongside their media-buying agency, Starcom MediaVest.

"Heineken management was very specific and expressed that they wanted to buy through a platform independent of a media supplier," Wilson said, seemingly taking aim at "Internet companies" known as Google.

"The key pillar that separates us from other players in the industry is we never have the incentive to shift budgets from one channel to another," he added. "The trend of brands taking ownership of their marketing tech stack is real and we're committed to serving brands only."

Wilson acknowledged large-client wins in 2014, including the aforementioned Heineken and Mondelez and newer brands like Allstate and Quiznos, who are each testing its programmatic TV buying platform, "PTV." Due to their size, however, there is often a lengthier ramp-up period both in terms of deployment and spend, he said.

In some instances, advertisers are now cutting direct deals with publishers, representing 3 billion automated impressions for TubeMogul in 2014. This push toward automated direct buys is a trend TubeMogul's seizing upon, and Wilson noted forthcoming products designed to automate more of these premium direct buys.

Likewise, more advertisers are asking for an unduplicated measure of audience across platform, which Wilson said will result in the roll-out of a cross-screen planning and buying tool later this year.

Analysts peppered TubeMogul's executive team with questions about viewability and what the video platform would do to satiate advertisers' concerns.

"It plays to our strengths," Wilson said, and noted that "we created the technical code around viewability and open-sourced it to the industry [through the OpenVideo View Consortium it launched with myriad industry constituents in 2013]. Generally, the more advertisers truly know about what they're buying, the better it is for us since we're not a source of media. We can [help them] make those choices."

TubeMogul's total revenue for the quarter was $36.1 million, up 64% year over year. Total revenue in 2014 was $114.2 million, a 100% increase from $57.2 million in 2013. Although TUBE beat its revenue estimates slightly for the quarter, shares were down 25% in after-hours trading.

3 Comments

  1. Kelly- any word on how current customers are responding to Tube's gross margin of 70%?

    Relative to other public DSPs in the space, this is astronomically high. Considering the price and scarcity of quality video inventory, the amount Tube ran in 2014, this margin, and Tube's competitive pricing, it's seems impossible to hit those financial figures without using mostly low-quality (muted in-banner) or fraudulent inventory.

    Reply
  2. Jose Brando

    @Eric: I've bought throughTubeMogul for over a year, and my understanding is their software is plugged into all programmatic video inventory sources, so they can exploit the overlap that's inherent in video exchange inventory. This allows TubeMogul to purchase inventory at the lowest possible price-point, which in-turn creates leverage for a higher margin.

    If the customer is ultimately hitting their goals it shouldn't matter where the cost is being counted (inventory, data or tech fees). To your point about mutable in-banner, this is exactly the type of low-quality inventory that TubeMogul helps me detect and avoid (unless I specifically want it). I can eliminate 300x250 auto-play from the campaign before it even gets a chance to bid.

    ULR-level transparency, Viewability rate and average video player-size should be the standard for assessing video inventory quality and detecting fraud - TubeMogul is the only video DSP that offers this insight into inventory quality, to my knowledge.

    Reply
  3. @Eric - since our business is based on our clients using our software on their own, we recognize ~80% of our revenue using a fee based on the % of spend that flows across our platform. That fee is similar to a software license, where there are minimal Cost of Goods, which generates the high gross margins in our model. As a result, our financial metrics are not comparable to ad networks and we are most certainly NOT keeping 70% of advertiser dollars. In fact, using our platform is a much more efficient way of buying video ad inventory than an ad network, whose typical margins are 40-50%.

    Reply

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