Last week’s successful IPO from Emeryville, Calif.-based TubeMogul, provider of a digital video ad platform, shined the spotlight back on other players in the sector, including Redwood City, Calif.-based competitor YuMe.
Both companies are poised to benefit from major brands shifting more of their TV advertising spending to the digital video market.
While the video ad market today is worth about $5 billion — relatively tiny in comparison to $197 billion spent worldwide on TV ads — it’s estimated to be expanding at a compound annual growth rate (CAGR) of around 30 percent, driven by brands wanting to further extend their presence to where viewers are these days.
Old Habits are Fading
A recent survey of more than 1,000 adults conducted by YuMe indicated 87 percent of consumers (and 92 percent of millennials) use a connected device (the average US household owns 4.4, by the way) while watching TV.
More than 60 percent of the respondents said they view web videos on a tablet and 54 percent use a smartphone, while 44 percent (and greater than 50 percent for millennials) watch on a gaming console.
According to research presented by YuMe, a sample advertiser with a TV ad campaign of $5 million could increase the reach by 27 percent by shifting just 10 percent of the budget over to video ads targeted across various devices.
Another survey conducted by YuMe tested the impact of multi-screen exposure on video ad effectiveness. The roughly 700 adult respondents saw both brand recall and purchase consideration levels increase when ads were viewed across at least three screens. Ads viewed in the triple combination of an over-the-top device, tablet and smartphone saw recall go up 50 percent.
According to comScore, nearly 187 million people in the US in June watched online videos, with Google Sites (primarily YouTube) coming in at No. 1 (153.3 million unique viewers) and Facebook in second place (91.5 million viewers).
Who Leads the Pack?
When it comes to the top US online video ad properties, the BrightRoll platform in June served ads to nearly half of the total US population, followed by Specific Media at 40.8 percent and AOL at 36.7 percent, according to comScore. Rounding out the top five: LiveRail (now owned by Facebook) was at 35.6 percent and Google Sites at 34.4 percent. Smaller players TubeMogul and YuMe had a reach of 32.5 percent and 17.8 percent, respectively.
Last year, more than 2,000 brands (including 67 of the AdAge 100) planned and bought video ads on the TubeMogul platform, using either Platform Direct (representing 34 percent of total revenue), a self-serve model, or Platform Services (66 percent of revenue), which allows advertisers to specifiy campaign objectives to be executed by TubeMogul on their behalf.
TubeMogul: DIY Customers
Since TubeMogul’s Platform Direct business has much higher margins (gross margin of 95 percent, vs. 51 percent for Platform Services), the goal is to shift more customers over to the self-serve model, which provides the company with a fee based on a percentage of the media spend.
In 2013, total ad spending on the TubeMogul platform rose 108 percent to $111.9 million, including Platform Direct spend of $74 million (66 percent of the total), which jumped 196 percent from the year-ago period. The company last year had 208 total Platform Direct customers, a sharp increase from 86 in 2012 and just 25 in 2011.
YuMe: Collecting Detailed Data
YuMe last year worked with 580 customers (up 29 percent from 2012), including 73 of the AdAge 100. Its 20 largest customers accounted for 41 percent of revenue, down from 50 percent in 2012.
Just yesterday, YuMe announced Ngage, which it describes as a global, first-to-market, multi-screen advertising opportunity for brand marketers. The Ngage series is comprised of multi-screen video ad units for connected TV, tablet, smartphone, and PC.
Ngage delivers a holistic message across screens through an all-in-one interactive video ad unit that combines video, branding slate and multiple interactivity buttons all within the frame of a video player," the company claimed in a statement.
YuMe’s multi-screen, Audience-Aware software developer kits (SDKs), embedded into each device, collect detailed data to help build better targeted audience segments and improve the measurement of audience attention. The company believes these capabilities have boosted its competitive positioning with brand advertisers by bringing more of a TV ad-buying experience to the video ad marketplace.
In the first trading session last Friday, TubeMogul shares jumped 64 percent from the IPO price of $7. The stock has since pulled back to around $9.50 a share, giving the company a market cap of $272 million, 4.7 times 2013 revenue of $57.2 million.
In comparison, YuMe shares were recently trading at $6.36, 29 percent below their August 2013 IPO price of $9, with a market cap of $206 million, just 1.4 times 2013 revenue of $151.1 million.
TubeMogul is expanding faster (from a smaller base), last year putting up top-line growth of 67 percent, vs. 29 percent for YuMe. In the first quarter of 2014, YuMe’s revenue was up 40 percent to $37.3 million, while TubeMogul’s top line advanced 130 percent to $22 million. Also, thanks to its self-serve business, TubeMogul has a higher overall gross margin of 66 percent, compared to 46.9 percent for YuMe.