Contact: Scott Denne
Twitter harbors ambitions of being a force in both online video and traditional television. Now that the distraction of an IPO is behind it, we expect the company to focus its dealmaking efforts on video advertising technology.
Twitter’s audience isn’t growing as fast as it once was, and to ensure that its revenue growth rate doesn’t slow, it needs to squeeze more revenue from its audience. That was the rationale behind picking up MoPub, which will help Twitter build programmatic features into its own platform and serve as a gateway to the mobile ad market. A video ad firm would enable it to monetize Vine, extend into the growing online video ad space and, most important, grab a piece of the TV ad sector (which still dwarfs the entire digital ad market) by bringing those dollars into its own platform and helping spread them to other places on the Internet by enabling advertisers to follow an audience beyond the living room.
Talent and technology have been the guideposts for Twitter’s past acquisitions, and there’s no reason to think that would change. (The same principles shape the company’s organic growth, as it spends a whopping 40% of its revenue on R&D.) Along those lines, potential targets that would be a good fit are BrightRoll, TubeMogul or even a smaller, emerging video ad provider.
While much of BrightRoll’s business comes from its video ad network, it also operates a video ad exchange, which is similar to what MoPub does in the mobile market. We understand the business has about $240m in annual revenue, so it would be a big bite. TubeMogul sits on the other side of the ad tech table, selling a platform to advertisers to distribute video ads across real-time exchanges, making it a potential complement to MoPub. In addition, it doesn’t come with the ad network baggage, making it a more attractive target for Twitter. TubeMogul also has substantial revenue of its own, bringing in $54m last year and likely well over $100m this year, all with profit margins that are far above the norm in ad tech, according to our sources.
There’s also a handful of emerging players that would likely require less of a capital commitment and could impact Twitter’s efforts in this space. For example, firms like Spongecell and Vungle would bring creative talent, as well as tech. Another possibility is StickyADS.tv, a Paris-based company that would bring Twitter video ad technology as well as a deeper presence in Europe, potentially helping it with low spending among advertisers outside the US.
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