What Industry Insiders Think of Marissa Mayer's $640 Million Deal for BrightRoll
BrightRoll is a good company, but Yahoo could buy its competition for less money.
This story originally appeared on Business Insider
A couple weeks ago, TechCrunch's Ingrid Lunden and Sarah Buhr broke some big Yahoo news. They reported that Yahoo has signed a term sheet to buy a company called BrightRoll for about $700 million.
Today, Yahoo finally announced it has acquired BrightRoll for $640 million.
BrightRoll is a video ad tech company. It hosts videos for publishers, and, with algorithms, helps them pick which ads to run against them. Advertisers can also work with BrightRoll to find the right videos to sponsor.
There are a few reasons it makes sense for Yahoo to buy BrightRoll.
- For a while now, Yahoo has sought to acquire a company that would give it more video advertising inventory to sell in a "programmatic," or automated fashion. First it tried to by Dailymotion. Later it tried to buy Twitch.
- BrightRoll's algorithms might be able to help Yahoo match advertisers to videos more efficiently, thereby allowing it to sell the video ad inventory it already possesses for higher prices.
- Yahoo would like to turn Tumblr into a YouTube competitor. It needs video-hosting and ad-serving technology to be able to do that.
- BrightRoll generates $100 million in revenue each year, and it will immediately help Yahoo's top line start growing again.
Back when TechCrunch first published its report, we reached out to several ex-Yahoo ad tech people as well as a number of other sources in the industry to hear what they think of this potential deal.
Here's what we heard.
BrightRoll is a good company, but Yahoo could buy its competition for cheaper.
Says an industry source: "BrightRoll is a good company, been around a long time, has good revenues (maybe $100 net) and good gross margins. It's interesting that there are three publicly-traded video ad nets for less $ and none of them are being considered for acquisition (YuMe, Tremor, TubeMogul). Both YuMe and Tremor are highly discounted because their tech sucks and they don't do programmatic well. TubeMogul is almost entirely buy-side, so Yahoo is probably more interested in sell-side technology."
Yahoo is paying too much.
Says shareholder Eric Jackson: "Typical Yahoo deal. Buy the also ran at double the price. Wish they bought Liverail. If it happens, it's far less objectionable than Tumblr or the 6 dozen acqui-hires – at least there's going to be some revenue."
BrightRoll is just a clearing-house without great tech.
Says a former Yahoo exec: "Desperation play. Too much of an ad network (just a buy/sell operation, not a true platform). Valuation is absolutely ridiculous."
Yahoo is splitting the baby.
Says an industry source: "I think Yahoo is schizophrenic about if they need/want a DSP [a product advertisers can use to find ad inventory] or an SSP [a product publishers can use to sell inventory], Brightroll gives them something that splits the middle."
BrightRoll doesn't have great tech or software, and Yahoo just acquiring scale.
Says a former Yahoo exec: "Terrible. While BrightRoll is a scale player in the hot video space... Their revenue is primarily driven by their media ad network business. It's IO driven, not tech or SaaS [this means its not as automated as you think]. This is Blue Lithium & Interclick for video [two ad tech acquisitions Yahoo made in the past that some say haven't gone well]. Yahoo needs ad tech and all they acquire are mobile startups that are going out of business and more unreliable, insertion order driven media networks."
It's a smart deal, but Yahoo is paying a lot — and it doesn't have the people to run a smart ad tech business.
Says a former Yahoo exec: "I think it's actually smart. It's becoming widely acknowledged that the ad format of choice for mobile is video and this gives them a great solution from a recognized leader in the video space. It's an expensive price though. The problem is after acquisition that you have inept product people like [Yahoo executives] Scott Burke and Mark Morrissey who will more than likely sabotage this from within and until those guys are gone, Yahoo will continue to have problems on the revenue product side."
Where's the synergy?
Says an ex-Yahoo executive: "Not sure I see the real synergy with Yahoo. More video inventory? [Feels like they are saying,] 'We need to do something. This is something. Let's do it.'"
It doesn't solve Yahoo's real probem.
Says a former Yahoo executive: "Buying ad tech doesn't solve the company's fundamental problem as not being relevant to users (declining engagement) and consequently not having mindshare with advertisers/agencies. While it could help squeeze out higher prices from it's own inventory, it cannot be a game changer. Plus Yahoo's poor track record of integrating ad network businesses raises questions on how well it can integrate the ad network piece of BrightRoll. Yahoo hasn't made much of the Blue Lithium or Interclick acquisitions. As a shareholder I'd rather have the estimated $700M given back - as a dividend or stock buybacks."