Two Israeli players and long-time rivals in the online content-recommendation business said on Thursday they were joining forces, with Taboola agreeing to acquire Outbrain for $250 million in cash and 30% of its shares.
The merger will create a global giant in an industry internet users encounter everyday in recommendations attached to articles and videos coming “from the web” or “you may be interested” on sites like CNN.com and the BBC. The merged company, which will be called Taboola, will employ 2,250 people (900 of them in Israel) across 23 offices, serving over 20,000 clients in more than 50 countries. Taboola and Outbrain boast a blue chip list of media clients. Outbrain’s include the BBC, CNN, and The Washington Post while Taboola counts CNBC, USA Today, Fox Sports, MSN Huffington Post and Business Insider
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The merger will also enable both firms to better compete against Google, Facebook and, increasingly, Amazon, which dominate the online advertising market. The three account for about 70% of the United States alone, market research firm eMarketer says.
“Advertisers have told us over and over that with Facebook, they can have large-scale access to high-quality audiences, so they are reluctant to split their budgets into smaller platforms like ours. Thus, Facebook has seven million advertisers, while each of our companies has tens of thousands,” said Outbrain CEO Yaron Galai.
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The merger follows persistent speculation that the two firms would tie up and end their fierce rivalry. In an interview with the tech news site TechCrunch on Thursday Taboola CEO Adam Singolda attributed the failure to do so until now to a lack of trust.
Singolda, who founded Taboola in 2007, will be CEO of the merged company. Galai, who co-founded his company a year before Taboola, will move into an advisory position to assist with the merger for at least 12 months after its completion.
Both companies have developed algorithms that gather and analyze users’ online preferences to suggest editorial content that matches their interests. Their operations bring more traffic to websites and extend the time users spend on them, by offering more of what they were clicking for to begin with.
Their services include branded or marketing content, a practice known as “native advertising.” For example, a company might retain a content-recommendation service to promote articles favorable to its products.
The content-recommendation services get paid per click they generate for articles. The revenues are split between them and the hosting website, with Taboola and Outbrain getting an estimated a 15-20% share.
That is enough to have made both companies profitable over the last five years, with Taboola alone estimated to generate about $50 million in annual profits. Publishers, who have long despaired at the effectiveness of traditional banker ads online, see the arrangement as a key revenue source.
Taboola and Outbrain each bring unique assets to the merger.
Taboola offers its Taboola Newsroom, which analyzes what Taboola’s 1.1 billion users are reading elsewhere around the web and guides editors at content sites to the headlines, thumbnails and placements that have the best chances of attracting users.
Outbrain, meanwhile, offers its Outbrain Extended Network, which it developed after buying the Slovenian ad-tech startup Zemanta in 2017. OEN enables advertisers to buy space automatically and in real time on several sites simultaneously, without a need for any prior agreements.
Since it was founded in 2007, Taboola raised $160 million by 2015 from investors including Britain’s Daily Mail, Fidelity Investments, China’s Baidu, Comcast and Israeli venture capital funds. As of May 2016, Outbrain raised $150 million from investors including Viola Venutes, Lightspeed Venture Partners and HarbourVest Partners.
Singolda told Tech Crunch that both companies were profitable and generating $1 billion each in business annually. Based on the commissions it gets, that works about to about $150 million to $200 million a year.
Neither company has paid dividends over the year, preferring to invest their profits in growth. Industry sources told TheMarker that when the talks began the two companies had about equal revenues, but that Taboola has since been growing more quickly.