(Bloomberg) Google Inc. (GOOG), the world's biggest seller of Web-search advertising, is getting one-upped in the surging $7.6 billion market for online-video ads from a six- year-old startup one-tenth its size.
BrightRoll Inc., a San Francisco-based company that helps marketers place video ads on websites, has surpassed Google when ranked by number of online video ads in two of the last three months, according to researcher ComScore Inc. (SCOR)
Google makes money from selling slots for commercials that run before users view clips on YouTube, which it owns and operates. BrightRoll matches marketers to competing websites, and takes a cut. That has helped it to siphon advertisers away from Google in a market that, according to AccuStream Research, jumped 52 percent last year as more people watch television and movie programming online.
"BrightRoll and Google are neck-and-neck," said Dan Piech, a senior product manager at ComScore. "BrightRoll has been doing an amazing job in growing their business."
Like an old-fashioned ad agency, BrightRoll acts as an intermediary between marketers and content providers. Instead of buying ad space during a television show on behalf of clients, BrightRoll finds websites and companies seeking to run video ads, gets them together, and then takes a cut when they make a deal. While Google concentrates mainly on selling ads on YouTube, the biggest Web-video site, it also competes with BrightRoll with a similar agency-style service.
BrightRoll has kept up the pressure by offering advertisers a network of more than 6,000 mobile applications and websites to target a wider audience, and also offers tools to help them measure the effectiveness of their campaigns.
About five percent of large television advertisers' media budgets are going into Web videos, and the percentage is higher for industries such as cars, according to Tod Sacerdoti, chief executive officer of BrightRoll. Video will account for 14.5 percent of all U.S. digital-ad revenue in 2016, up from 7.9 percent last year, according to EMarketer Inc.
"Online video is finally at the scale that's big enough for national advertisers," said Sacerdoti, previously an executive at online address-book provider Plaxo Inc. "It's large enough to matter."
Co-founded in 2006 by Sacerdoti, BrightRoll has also partnered with Arlington, Virginia-based Veenome Inc., which helps advertisers find content and track campaigns. Veenome is just one of several video-ad technology startups -- including Eyeviewdigital Inc. and Brainient Ltd. -- that received venture funding in the past year.
BrightRoll, which has 220 employees, has raised $46 million in venture funding to date, Sacerdoti said. The last investment round of $30 million in November 2011, was led by Trident Capital, and included existing investors True Ventures, Scale Venture Partners and Adams Street Partners.
After trailing BrightRoll in October and November, Google took back the lead in December by serving 2 billion video ads on personal computers in the U.S., versus 1.83 billion for BrightRoll, ComScore said. While Google delivered more ads, BrightRoll's network of video providers reached a larger part of the population, at 43 percent, compared with Google's 32 percent in December. ComScore's data excludes some video ads that reach Google's sites from third-party networks, including BrightRoll.
BrightRoll works with 90 percent of the top 50 U.S. advertisers, and has doubled revenue annually for the past five years. At that growth rate, BrightRoll "could easily be doing over $100 million per year in revenue," according to Tom Taulli, an independent analyst who covers initial public offerings.
Growth in search-based advertising -- Google's main cash cow -- has fueled a 30 percent gain in the company's shares over the past year, compared with a 12 percent rise in the Nasdaq Composite Index. Google, based in Mountain View, California, rose less than 1 percent to $753.68 in New York yesterday. Three-quarters of analysts tracking the stock rate Google a buy, at an average price target of $824.83, according to data compiled by Bloomberg.
Google acquired YouTube in 2006 for $1.65 billion to boost its video content, which attracts more than 800 million monthly unique visitors. Google generates video-ad revenue of about $1.3 billion a year, said Brian Wieser, an analyst at Pivotal Research Group LLC.
Many advertisers remain reluctant to plunge into online video ads because much of the content is created by consumers. They're concerned that commercials might appear alongside low- quality or inappropriate content, according to EMarketer.
"The content is often unsafe for brands, or too short to support advertising," said Clark Fredricksen, a spokesman for EMarketer.
This year, Google and BrightRoll plan to introduce new analytical tools that would provide advertisers with better data on responses to their ads. Both are also stepping up efforts to target viewers on mobile devices. Google subsidiary AdMob, which delivers ads to mobile devices, added BrightRoll as a video-ad provider in May. The partnership lets AdMob offer its clients a wider pool of video providers to advertise on mobile devices, an emerging area of online advertising.
BrightRoll also lets advertisers bid for online commercials in real-time, as they are delivered.
"Real-time bidding is the fastest-growing part of our business," Sacerdoti said. "It will be the biggest growth driver in the next 24 months."
BrightRoll has also introduced tools that make it easier for advertisers to analyze ad-campaign performance against benchmarks, and roll out interactive online commercials, which let viewers design a car, for example.
"We are able to target the right consumer easier," Bob Arnold, associate director of global digital strategy at cereal- maker Kellogg Co. (K), said in an interview. "Sometimes it can be cheaper, and we feel we have a little more control."
Aside from bringing more original content to YouTube, Google already offers a number of channels on topics such as cars, entertainment and fashion. It has also pioneered new ad formats, such as TrueView, which lets viewers select which video ads they want to watch.
"Viewers are choosing to watch the ads," Baljeet Singh, group product manager at YouTube, said in an interview. "The lines between ads and content are starting to blur."
About 182 million U.S. Internet users watched 38.7 billion online content videos in December, according to ComScore.
"We've been gaining share, and a lot of it has been driven by having a platform that's working," Sacerdoti said. "YouTube is a huge player, but there's very strong interest in alternatives to YouTube."