@andrewchen

Subscribe · Featured · Recent · The Cold Start Problem 📘

The difficulties facing video ad networks

Here’s a recent link on VideoEgg raising money and trying to start an ad network: GigaOM » VideoEgg Lays on Ad Network, Funding.

Following on the previous post about YouTube, it’s clear that there will be a footrace to create a video ad network. This is all well and good, but I hope these guys realize that they have one well-pocketed competitor that will probably crush them. (Well, maybe two well-pocketed competitors) For most people, it’ll be obvious who these competitors are.

Why are they at such a disadvantage? Well, the reason is that these guys are going to fundamentally try to compete on Brand advertising. Because of how these ads will be set up (pre-roll to user-generated content), there’s no reason people will click the ad to get off of the site. Also, because of the ad unit is video, and it’s expensive to develop effective creative, only deep-pocketed ad agencies will have the money to do it.

The funny thing about Brand advertising is that it’s very backwards to what you’d expect. Most rational nerd-types would approach it with, "Well, just prove that the branding works and you’re good, right?" But NO. That’s not how it works. Branding is just not ROI driven for most advertisers. (Whether or not it should be is another question) So because of that, and because effectiveness is difficult and expensive to measure, people just use TRUST and RELATIONSHIPS as proxies. Furthermore, rather than Google’s 200k advertisers, which look like the Yellow Pages, with lots of mom-and-pop stores, instead, all the dollars belong to 4 or 5 major brand agency conglomerates.

That’s right, it means that some of VideoEgg’s $12 million needs to go towards opening a big office in Midtown Manhattan and hiring some very expensive ad sales people. And it’ll be an uphill battle even then, because they have zero track record and no brand. Why would the advertising agencies, which act as gatekeepers for ad dollars, go with something as unsafe as VideoEgg when they can put their ads on Yahoo, ESPN, CNN, and all the other major outlets? It will take a long, long time for them to develop enough track record to get connected into the insular world of NYC brand advertising.

So who has the best chance to develop a video ad network? Well, what companies have the largest online ad sales forces today? And who could just sell these pre-roll ads as part of a larger media bundle, which is always easier. Basically, you sell a $500k ad deal across your huge brand network, and 10% of that is line-itemed towards video without anyone really noticing. That’s the best way to get started.

In my opinion, Yahoo and Microsoft have the best chances to create a video ad network. They have huge brand ad sales teams, already take video input, and have the pockets to go buy a bunch of video inventory by acquiring one of these video-sharing companies. They just have to bundle this as part of a larger deal, tap their New York relationships, and it’s all good.

Of the startups, the first one to take a strategic round from one of the major ad agency conglomerates will have the best chance. (Think Siebel and Accenture’s equity relationship for a background on that) Or, they need to open big NYC offices and hire very expensive (and in-demand) advertising guys. Otherwise, if these video companies don’t get themselves deep into the ass-backwards world of NYC brand advertising, they will be screwed.

(IMHO)

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.