Israeli Outbrain and Taboola In Market War

A heated confrontation is taking place between Israeli Outbrain, and its Tel Aviv-based rival Taboola, over the $250 million market of monetized content recommendations controlled by the two companies.

al-monitor Outbrain, a leading content recommendation service headquartered in Netanya in central Israel and in New York, is preparing an initial public offering at a company value of about $1 billion. Photo by Facebook/Outbrain.

Topics covered

world wide web, israeli technology industries, internet, idf, high tech, computers, business sector

Oct 4, 2013

In recent years, behind the scenes of the world's largest news websites, an Israeli-led sub-industry has been flourishing, grossing more than $200 million a year: content recommendation services that propose monetized content to web surfers for further reading. Among these, the leading company is Outbrain, headquartered in Netanya in central Israel and in New York, which, as recently reported by Israel’s daily business newspaper Calcalist, is preparing an initial public offering at a company value of about $1 billion.

Yaron Galai, Eytan Galai and Ori Lahav — the team behind Outbrain — have devised a unique and smart way to personalize the links at the bottom of news website articles, referring the reader to other articles that may be of interest. While in the past, online content recommendations were primarily based on the common-sense assumption that readers of articles in the technology section would be interested in other articles in the same section, Outbrain is looking beyond mere related links. It is currently using 30 different algorithms to match personalized recommendations to surfers based on their preferences, browsing history, network activity and demographic data.

Their focus on a more personalized reader experience aside, the three have turned their personalization engine into a revenue-generating engine for both news websites and themselves. Outbrain conceived the idea of monetized articles — journalistic articles to all ends and purposes that are promoted by commercial companies: It may be a flattering review of a car model that its producer seeks to market, a feature lauding the special qualities of a food product sponsored by its distributors, a commercial article on life insurance published on an insurance company’s website or even articles from other news websites that are willing to pay their competitors to attract readers.

Outbrain charges these advertisers hefty fees, about half of which it forwards to the news website where the article appeared. Within the seven years of its existence, the company has thus managed to reach revenues of approximately $120-140 million annually.

However, Outbrain is not alone in this field. Its biggest competitor in the last two years, which has grown and thrived mainly at its expense, is the Tel Aviv-based company Taboola, which offers virtually the same services.

There is no room for two at the same time

Outbrain’s growth rate could have been much higher had it not been for the competition from its rival Taboola, which is managed by Adam Singolda, who happens to be the son of guitarist Avi Singolda.

In fact, it is primarily on account of Taboola that, while it is considered to have a highly lucrative operation, Outbrain has not yet achieved its target profit rates. The competition presented by Taboola is so fierce and close that the bulk of its growth over the past two years may be attributed to its aggressive strategy of pushing Outbrain to the sidelines on news websites or altogether banishing it from those sites.

Taboola started out in 2006, the same year that Outbrain was established, but adopted a quite different mode of operation. Singolda, who is a veteran of the elite algorithm development unit of the IDF Intelligence Corps, was looking for an innovative method for locating personalized content based on algorithms that detected users’ preferences. At first, he focused on video content identification, but soon shifted his attention to algorithms that analyzed the text attached to the video and which could find the most appropriate video for users in terms of their personal preferences. While Outbrain focused on recommendation engines for text articles, Taboola focused until two years ago on a recommendation engine for videos.

The two companies were doing business side by side until Outbrain came up with the offer to purchase Taboola. When the latter turned down the offer, the two companies entered into a fierce competition, in the course of which Taboola broadened its engine to recommend text articles, as well. When the newspaper USA Today sought to adopt a single comprehensive solution rather than divide the cake between the two Israeli companies — Outbrain, for text recommendations, and Taboola, for video recommendations — Singolda was quick to offer Taboola as a comprehensive and uniform solution. This triggered a race for the trophy between the two companies, from which Taboola emerged the victor, and it has been providing all-inclusive services to the website since December 2010.

Later on, AOL, too, decided to discard Outbrain in favor of Taboola in June 2013; this happened thanks to its expertise in video content personalization, a field that had become central to AOL’s activity. Outbrain, for its part, did not waste time and expanded its operations outside the United States, its natural territory, where it had been operating right from the start. Among the websites Outbrain has partnered with in the last year are the French daily Le Monde and the British news websites Mirror and Sky.

According to sources close to Taboola, the number of clicks the company is currently generating on each commercial article is two to three times higher than that generated by Outbrain. They further note that while Taboola’s revenues grew 15-fold in the last year, Outbrain's revenues grew a mere 1.5 times.

Be that as it may, Outbrain is still considered a most-important web traffic engine. The web analytics company has ranked Outbrain as one of the major traffic providers, third only to Google and Facebook, with 50 million page views per month, while Taboola is ranked by the same study far behind, with only 2-3 million page views a month.

Not compromising on image

The success of Taboola is attributed by its close associates to the more-advanced algorithms that it has developed for matching web content to surfers’ preferences, drawing on its experience in analyzing video content. It seems, however, that other factors are also involved, which the company would rather not enlarge on.

The most significant is the decision made by Outbrain to give up revenues from advertising products that are considered questionable and thus, for instance, refrain from the promotion of Forex sites, unsupervised drugs or various nutritional supplements. Industry seniors say that Outbrain apparently seeks to improve its image before it goes public, and that the move is also designed to distinguish the company from other companies in the field.

Its rivals, first and foremost Taboola, rushed to fill the void left by Outbrain, thus securing especially high revenues, which the news websites gladly shared with them. The initial damage to Outbrain caused by its decision to give up the advertising of dubious products is estimated at 15% of the company’s revenues.

However, sources close to Taboola claim that the company is not promoting any dubious products. They point out that while Taboola may be more flexible about working with some of the products categorically banned by Outbrain — such as Forex products and food supplements — it takes care to check out each website individually so as not to reject potential advertisers without justification.

The profits are in gossip

It is a rule of thumb in the world of news websites that gossip and sex-oriented recommendations generate more clicks and, accordingly, increased revenues. But is Outbrain’s advertising network indeed more virtuous than that of Taboola? It depends on who you ask. Thus, checking it on the Israeli SimilarWeb website, which tracks and measures website traffic, it emerges that both Outbrain and Taboola are making money from similar publishers, among them gossip sites like HollyScoop and Stylebistro. Taboola collaborates with NewsMax, a news website that promotes health products and is popular among elderly Republicans. According to Compete [another traffic measurement website], the two companies share a number of publishers, like CafeMom, which is an online mom community based on baby products shopping, and the Ancestry website, which advertises health products.

According to SimilarWeb, while the browsing volume generated by Outbrain is higher than that of its rival, when it comes to clicks on sponsored articles, the gap between Outbrain and Taboola is not that wide. A study conducted over a period of six months shows that the average number of clicks per day generated by Outbrain stands at about 900,000, as against 600,000-700,000 generated by Taboola — a rather small gap.

Another advantageous competitive strategy adopted by Taboola in its aggressive competition with Outbrain is the payment it guarantees for every thousand views. Taboola representatives promise any news website working with Outbrain a dollar or two, depending on profitability calculations, for every thousand views — which may translate into hundreds of thousands or even millions of dollars.

According to an industry source, “There is no news website that would not sign on the spot when receiving such an offer, certainly not in the precarious financial situation news websites are in today.” Both companies offer their technology for free to news websites, and share the revenues with them. However, when a website administrator receives written assurance for automatic payment, he does not think twice and promptly accepts the offer. It is a challenge Outbrain will have to cope with.

The war may escalate even further

Meanwhile, Outbrain and Taboola are not alone anymore. They have been joined by Contextly, which is offering an updated recommendation engine, which has already been installed on the technology and gadgets website Wired. At the same time, nRelate, a company with a longer track record, managed to take over Cnet's recommendation engine. A new competitor is Disqus, a blog-comment hosting service for websites, which has installed itself in stealth as a recommendation engine emulating the original Outbrain model, without notifying the hosting websites. The latter were outraged to discover it, but soon realized that they could make lots of money from matching content recommendations to various types of comments.

One may wonder whether the market is big enough for other companies to enter it. The market is currently evaluated at over $250 million annually, and it is controlled by the two Israeli companies — the one, which used to dominate the market and might soon publicly trade, and the other, which chips away at it, acting with smart agility. These two companies will no doubt see to it that no other company enters the arena, while going on fighting for every news website — and, even more fiercely, against each other.

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More from  Assaf Gilad