Why acquiring LiveRail will help Facebook’s video ads business

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Facebook acquired LiveRail to leverage the fast-growing video ad market

A few weeks back, Facebook (FB) acquired LiveRail, which is an online video advertising platform that helps customers to monetize their video inventory efficiently. This is an attempt by Facebook to leverage the fast-growing video ad market. According to a report from eMarketer, U.S. digital video ad spending could increase from $4.14 billion in 2013 to $9.06 billion by 2017 at a healthy compounded average growth rate of 22%.

During the company’s conference call to announce second quarter earnings, Facebook explained that it plans to use LiveRail to expand its video ads to marketers and publishers outside of Facebook. This move should spread Facebook reach even further.

If Facebook can successfully leverage this market, it will benefit exchange-traded funds (or ETFs) like the DJ Internet Index Fund (FDN) and the Nasdaq Internet Portfolio (PNQI). These ETFs have high exposure to Facebook.

Ad Video Properties Reach

LiveRail is one of the leading video ad platforms

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According to a report from Comscore and as the chart above shows, LiveRail ranks third in terms of percentage reach of the U.S. population among all online video ad properties. BrightRoll and Specific Media are the top two players in this market. AOL (AOL) and Google (GOOGL) rank fourth and fifth. Surprisingly, AOL ranks higher than Google in this market because AOL acquired video ad exchange Adap.TV last year.

According to another report from eMarketer, Google’s YouTube generated ~$850 million in revenues from video ads in 2013. This is about 21% of the overall U.S. video ad market. However, Google has started to become even more aggressive in this market and is now going beyond YouTube to expand its video business. It launched the “Partner Select” program a few months back. This is also an interface between publishers and ad agencies for video ads.

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