Market Insight

Adobe’s TubeMogul acquisition hints at programmatic TV ambitions

November 15, 2016  | Subscribers Only


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Adobe intends to acquire the video advertising technology company, TubeMogul for $540 million. TubeMogul is a US-headquartered, demand-side platform (DSP), servicing advertisers and agencies in programmatic video advertising. It filed for an IPO in July 2014 and reported earnings of $56.1m in Q3 2016, up 21% from the year before. Adobe generated $1.5bn in revenue in Q3 2016, an increase of 20% year-on-year. The acquisition is expected to close in Q1 2017, subject to regulatory approval.

 

Our Analysis

Adobe’s acquisition of TubeMogul is its first in the advertising industry since the purchase of Auditude and Efficient Frontier in November 2011. IHS has identified three key factors, which drove Adobe’s decision:

  • Enhancing Adobe services with video capabilities: video consumption and all revenue models for monetising video are surging in 2016; Adobe sees video as central to its long-term growth. The fragmentation in video (unlike search and social which are dominated by Google and Facebook) puts Adobe in a good place to succeed as a video advertising solution. Serving mainly as a data provider through the Adobe Marketing Cloud has worked quite well for the company so far, however advertisers are increasingly demanding DSP capabilities from their data solutions providers. The acquisition of TubeMogul addresses this gap in Adobe’s services by providing a video-specific DSP for Adobe’s clients and offering a full stack solution. TubeMogul will complement the DSP capabilities for display advertising Adobe acquired through its purchase of Efficient Frontier in 2011.
  • The promise of addressable and programmatic TV: the newly acquired video capabilities also place Adobe in good stead to become a contender in the addressable and programmatic TV ad market.  Although still nascent, the addressable TV advertising market is an exciting opportunity for traditional and digital players alike, who are looking to cannibalize each other by attracting digital and TV budgets, respectively. Adobe already has a multiscreen TV platform, Primetime, which offers insights and analytics for broadcasters’ and cable networks’ content. However the Primetime solution does not currently participate in trading TV ad inventory. As more broadcasters leverage their first and third party data to create addressable solutions, they will look to technology players like Adobe for new demand sources. TubeMogul’s capabilities and relationships can be a quickly adaptable asset for Primetime to drive incremental advertising revenue for TV broadcasters and cable networks. Adobe however should be careful when employing TubeMogul capabilities in Primetime, so as not to alienate any of its existing clients. Premium content providers have been reluctant to employ advertising technology in an effort to avoid commoditisation of their inventory; TubeMogul will need to evangelize the programmatic product to the Adobe Primetime team as well as its broadcaster customers. 
  • New clients: Adobe has large client base of advertisers and marketers, who use the Adobe Marketing Cloud. In contrast, TubeMogul has a strong footprint with agencies and agency trading desks. The acquisition will allow Adobe to tap into agencies for immediate new revenue opportunities in the data management platform (DMP) space and enable TubeMogul to work with advertisers directly.

Adobe is the first of the SaaS companies to invest in the advertising technology space beyond pure data solutions. Salesforce acquired Krux, an American DMP, in October 2016; however it has not shown interest in any DSP or SSP capabilities, for now. Oracle has also focused its efforts on the DMP space with the acquisitions of Bluekai and Datalogix in 2014, but so far has stayed out of the advertising business. IHS expects more activity from these companies in 2017 as they aim to communicate their intent to service advertisers more deeply.

The price for the acquisition falls in a similar range to that of other video DSPs. Adap.tv was sold to AOL for $405m in 2013 and Brightroll was acquired by Yahoo for $640m in 2014. If the TubeMogul deal is completed, there will be few independent video-first DSP solutions left, of which the largest are Videology (WPP-backed) and Tremor Video (went public in 2013). This is good news, particularly for big brands, which are seeking a consolidated video advertising landscape to redirect their TV budgets to that is outside the Facebook and Google “walled gardens”. 

 

Geography
USA Western Europe
Organization
Adobe
Research by Market
Media & Advertising
Category
Advertising
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