The merger of Taboola and Outbrain is clearly called for. Its business logic is clear, and the efforts to merge the two companies are nothing new. If each company's brand and the almost exact opposite characters of their managers are set aside, it is obvious that here are two companies selling precisely the same product, each with its own separate, large, and expensive apparatus for that purpose. There is no valid business reason for this; the sole reason that this situation persisted for so many years is ego.
The war between Taboola and Outbrain sapped the profititabiity of each of them. It is very easy to see what happened to them if you regard the Israeli market as a microcosmos of the global war that the two companies fought against each other. Although Israel is a small market in terms of media, the two companies engaged in total war against each other over it.
Perhaps this was a matter of prestige - after all, both companies' founders are Israelis - but this fight was a very costly one. Outbrain entered Israel at an early stage, while Taboola did so later, after spending years consolidating itself worldwide. At the time that Taboola penetrated the market, Outbrain already had contracts with local communications firms. In order to obtain a foothold and take the lead in Israel, Taboola offered enticing contracts, and paid communications companies a lot of money to move their advertising real estate to it from Outbrain. This obviously pushed up the price of the said advertising real estate, increased the cost of penetrating the market for Taboola, and made it more expensive for Outbrain to retain its customers.
Had the two companies joined forces earlier, the money that was spent on maintaining their separate sales networks, which sell identical products, could have been devoted to development and entering new sectors essential for Outbrain and Taboola's long-term survival.
What these two companies sell is content recommendations. In order to do this, they take "real estate" from the websites, "stick" interesting content with certain advertising elements on it, and use an algorithm to connect the surfer's field of interest to the content offered to him or her. The recommendation companies are paid according to the number of times surfers click on these advertisements.
In recent years, the two companies have faced the same threat confronting many concerns in the media market: the duopoly that is now inserting its tentacles into the content sector. Google and Facebook have indirectly entered the content recommendations field, and both of them (primarily Facebook) are making great efforts to form alliances with communications companies.
Google and Facebook want to keep surfers within their platforms, so that they will be the ones displaying all the advertisements to them. In order to do this, they have developed special tools enabling them to benefit from two directions: surfers consume content from their favorite providers, but still remain within the Google or Facebook platform.
When surfers do a Google search, for example, the first results that they get are those that leave them within Google's platform, even when they are consuming the content from the website that they entered. Surfers are unaware of this because of the systems connecting the providers with Google or Facebook. Furthermore, all of the advertisements that surfers see when they surf this way come exclusively from Facebook or Google. For Taboola and Outbrain, this means that there are two huge players not only competing with them for the websites' real estate, but pushing them aside.
The original content recommendations offered by Taboola and Outbrain were for textual content. In order to compete with Google and Facebook and adapt their products to the changing market in which the consumer views more video content regarded as premium, Taboola and Outbrain also entered this sphere. This sphere, however, requires investing money in something that is still far from realizing its potential, because at present, it is still difficult to measure the effectiveness of video advertising, in contrast to recommendations for textual content, in which effectiveness is measured according to the number of clicks. This ammunition is not effective enough against competition that is only growing bigger and more threatening.
It now appears that even these two old enemies have realized that they are reaching a point at which they have only two choices: merge or cease to exist. The companies' owners managed to put their egos aside and understand that instead of pulling each other's hair and shedding each other's blood, it was better to combine and combat their common enemy: Google and Facebook.
The merger will enable the two companies to save huge amounts on costs - they will have to maintain only one system instead of two. Furthermore, the two companies have a major advantage in the form of the data that they gather from surfers. The merged company will now have more options and tools for maximizing this advantage vis-à-vis the content providers, and also vis-à-vis the surfers themselves. The merged company will become a dominant player, with Taboola and Outbrain complementing each other and offering a strong product with global deployment. At least for now, they will now be able to compete against Google and Facebook in this area.
Another significant feature of the merger is likely to be extensive layoffs. Nevertheless, Outbrain CEO David Kostman tried to sound reassuring, saying that there were currently hundreds of jobs available in the two companies, whose aim was to grow.
No reason for content websites to celebrate
What is the significance of the merger for Israeli content websites? The content recommendations field has not gained a significant space in the Israeli advertising sector. Content recommendations market share is believed to be no more than 10-15% of the digital advertising market. Nevertheless, the merger of Taboola and Outbrain is not good news for content websites.
Taboola's aggressive entry into the Israeli market was accompanied by large financial commitments in exchange for the advertising space that it received. These contracts account for an important proportion of the revenue of the content websites, which are also engaged in their own war of survival against Google and Facebook. Now that the competition between Outbrain and Taboola is a thing of the past, the content recommendation companies' motive for committing themselves to a high payment will also vanish.The content websites will pay the price.
Published by Globes, Israel business news - en.globes.co.il - on October 3, 2019
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