Billion Dollar Unicorns: Taboola and Outbrain Exploring a Merger

According to a research report by PQ Media, the global content marketing market size is estimated to grow to $313 billion by 2019 from $200 billion in 2016. Within the space, there are two key players who dominate the market – Taboola and Outbrain. Once potential members of the Billion Dollar Unicorn club, the two companies are now looking to merge.

Taboola’s Offerings

New York-based Taboola was founded in 2007 by Adam Singolda who wanted to create a “search engine in reverse”. He wanted to build a platform that would give users information even before they searched for it. He set up Taboola as a video content discovery engine that worked as a video recommendation widget by offering video content to users based on their browsing history. For the next four years, Taboola’s team worked on perfecting its predictive engine. It developed unique technology that allowed it to integrate over 1,000 signals and select a few key ones for recommendation to deliver higher click through rates.

Today, Taboola offers its content marketing service through widgets that are titled “Content You May Like,” “You May Also Like,” or “Recommended for You“. Its widgets allow thousands of leading publishers, marketers, and agencies to increase user engagement, monetize their traffic, and distribute their content to engaged audiences across the web. It believes that it has helped develop a new marketing channel alongside “search” and “social” and has helped prove that “discovery” can power successful campaigns for companies of all sizes, throughout the customer journey.

Taboola’s Financials

Taboola earns revenues in the form of promotion fee from content creators and advertisers and shares some of its percentage with publishers. It does not disclose the percentage it pays to publishers. It is privately held and does not disclose its detailed financials. But, it is no surprise that it has been growing at stellar rates. In 2013, Taboola was operating at revenue run rates of more than $100 million. By 2014, it had doubled revenues to $200 million. Taboola’s more recent financial performance is not known.

Taboola has been venture funded so far with $160 million raised from investors including Pitango Venture Capital, Marker, WGI Group, Evergreen Venture Partners, and Eyal Gura. Its last round of funding was held in February 2015 when it raised $117 million in a round that valued it at $1 billion. Analysts expected Taboola to list in 2015, but market conditions have kept the company away from listing.

Outbrain’s Offerings

Taboola is not alone in deferring its listing. Its competitor Outbrain has gone through a similar path. Like Taboola, Outbrain was founded in 2006 in Israel by entrepreneurs Yaron Galai and Ori Lahav, It was set up with the mission of helping people discover content that was useful to them.

Outbrain’s Amplify allows brands to distribute content on their partner websites where target consumers are already scouting for new content. It has partnered with publishing sites such as CNN, Fox News, Mashable, and Slate as part of this business model. Advertisers can choose to promote different forms of content including articles, videos, infographics, and slideshows as promoted stories on these publisher sites. Outbrain also offers a service that is focused on media companies and allows them to increase user engagement by offering recommendations and helping the audience discover content on the publisher’s website.

Like Taboola, Outbrain’s content discovery also works through widgets and links under the header “Recommended Stories”, or “Suggested For You”.

Outbrain’s Financials

Outbrain also earns revenues in the form of a fee for the revenue generated through the widgets. Additionally, it earns revenues by including ads among recommended stories. Outbrain is privately held and does not disclose financials. Analysts estimate that its revenues have grown from $45 million in 2011 to $80 million in 2012 to $130 million in 2014. More recent financials are not known.

It has been venture funded so far with $194 million raised from investors including Susquehanna Growth Equity, Rhodium, GlenRock Israel, Lightspeed Venture Partners, Carmel Ventures, HarbourVest Partners, Gemini Israel Ventures, Zohar Gilon, LGiLab, and Leon Recanati. Its last round of funding was held in May 2016 when it raised $45 million in a private equity round at an undisclosed valuation. An earlier 2014 round had valued the company at $350 million. A few years ago, Outbrain was looking to go public and had filed confidentially with the SEC to list in the US. At the time of the filing, Outbrain was looking to raise $200-$300 million at a valuation of $1 billion.

But a lot has changed since then. Startup valuations have become more realistic in the recent past. Additionally, concerns about fake news have turned publishers away from content distribution sites. Recent news reports suggest that the two rivals are now looking to merge together. The two are rumored to be in the “advanced stages” of a merger. The merger would take some competition away from the market as they both contest for the shrinking dollar budgets of the marketers. But their merger talks are not new. Apparently the companies had spoken of a merger in 2015 as well. Talks then fell through as they could not agree on an asset split.

Meanwhile, the macro environment in the publishing world continues to be alarming. Large publishers are reeling from free-riders who are unwilling to pay to consumer their content. Even large sites with 100-200 million users, often, make relatively little revenue. To these publishers, Outbrain and Taboola have been great blessings. However, advertising dollars, including content marketing, are increasingly moving to Facebook that offers unprecedented levels of targeting precision. Even in content marketing, that level of targeting capability is moving budgets away from the generic publishers to Facebook.

We do not have any visibility into the revenues of Outbrain or Taboola for 2015 or 2016. This is he period during which Facebook’s precision targeting capabilities (including Content Marketing) have become spectacularly impressive. We are users of this capability, and while we were once upon a time users of Outbrain, we no longer are. The budget yields much better results on Facebook.

It would be interesting to see what strategic moves Adam and Yaron are plotting, together or separately, to weather the competition from Facebook.