Media Dojo

It can’t be a bad day when you close a $25 million round.

YuMe, a video advertising technology player, announced a third round of funding today. Led by Menlo Ventures and featuring its original clutch of investors (Khosla Ventures, Accel, BV Capital, DAG Ventures), a round this size in a difficult economy is solid validation that online video advertising has gone mainstream.

I caught up with Jayant Kadambi, co-founder and President of YuMe, just before they made their announcement. For a quick overview of the company, check out the Media Dojo Tear Sheet–YuMe.

Media Dojo: YuMe has been in the online video space since 2004, which makes you almost a senior citizen. How have the conversations you’ve had with publishers and advertisers about online video monetization evolved over time?

Jayant Kadambi: We started in late 2004, pre-YouTube. In one of our early pitches we characterized ourselves as a company at the intersection of Silicon Valley, Madison Avenue and Bollywood. In 2005 and 2006 we built a video ad platform in order to handle the monetization of video as it spread across web sites and live streaming, HD downloads, smartphones and iPhones, apps, IPTV, Roku boxes, and so forth. Basically, you needed a SaaS type platform to manage all of that complexity from the monetization perspective. So we spent two years working on the ad platform. And then we got a little lucky because YouTube just took off near the end of 2005. All of a sudden people were writing about how video was cool and people were migrating from old to new media. At the same time in 2005/2006, almost none of the big TV advertisers seemed interested in moving beyond getting their feet wet with online video. By 2007/2008, there were people running experiments and there were a lot of questions you might recall about whether pre-rolls were the right ad format, whether they were a nuisance or a necessity. People didn’t know what ad formats to use and what would be the best. There were no standards and so forth. In 2009, we saw people dive in with both feet. From last year, we got scale on both the publisher and the advertiser side. If you look at our video ad metrics reports over the past few months, it’s all TV advertisers buying audiences and trying to reach them efficiently at scale online.

MD: What surprised you along the way?

JK: The cool thing about the stretch from 2004-2009 is that when you look back in time at advertising spending from big advertisers since the 60s, it pretty much matches the advertising spending online that we have on page two of our latest report. The top spending categories remain auto, CPG, entertainment—-more or less the same ad guys are diving into the new medium as they were when soap operas first showed up.

MD: What about this year? Do you see a shift in video publisher and advertiser attitudes?

JK: The emphasis in 2010 is revolving around conversion. We’re seeing that the big brands advertising on TV are looking to advertise the same way online. They’re trying to reach their audiences on safe, well lit, premium content. Instead display and search people looking for clicks/ROI and performance based stuff, the brand guys are looking for contextual relevancy. In online video, they’re looking to reach 18-43 year males who watch a set of dramas to where you know the user behavior because you observed them watch bunch of videos. So the conversation we’re having with the media sales guys are what audience do you want to reach? It’s no longer an issue of explaining online video or why it’s cool. And the conversations we have on the publisher side is that publishers want to take their video, convert it into different formats and get it everywhere. They want to increase their user base. And when they increase that footprint, they want to know if they can monetize it on the iPhone, Android or a Roku Box. Brands and publishers have no problem going transmedia when they believe that the aggregation of content is safe.

MD: So, an alternate definition of “premium content” is that it’s immunized against porn, spam, racist or similar stuff. A publisher’s video site has a shot record to show brands so to speak…

JK: Exactly. That’s why Hulu does well. Everyone knows that Hulu has three types of content. ABC, NBC, and Fox. They know there’s no porn mixed in. Historically, ad networks for brands have had an oily reputation. We have been very careful to cultivate an image of being a short form version of Hulu. We’ve aggregated a set of premium content. It’s safe. And you don’t care as an advertiser where you are included because you know it won’t embarrass you. There’s a cogent argument to say that the recession has accelerated a flight of brand money from print, TV, and display to online video. It’s not a bad place to be when the tide is rising.

MD: Let’s talk new online video ad formats. Until recently, choosing among pre-rolls, post-rolls and overlays was about as appetizing as choosing from the chicken, the fish or the veggie on a cross-country flight. How are you adding more interactivity and performance to video ads?

JK: Last month, we launched something called Triple Play. Basically, it’s about adding different calls-to-action after the pre-roll runs. For example, the viewer can be presented with the opportunity to watch additional videos, learn more about a product, sign–up for promotional offers, or even visit a brand’s Facebook fan page. We are pitching Triple Play to ad agencies wanting to do certain things in video ad units that will show to their clients that there is activity and engagement by the user. If you follow the news, you hear the line “we only want to pay when there’s engagement” or we want to know how much the customer is engaged etc. The cool thing is that there’s a mouse, there’s video and you can have the user do things if it makes sense. You can poll them. Give them free stickers, win a prize or a lot of stuff based on the technical nature of video sitting in that player. Triple play gives the agency the ability to dive into it afterward. It’s good for the studios in that after you’ve seen a 15 sec trailer, you can click on a 2min version and go watch it. We’re using Triple Play and a clutch of over 20 video ad formats to put the advertisement in a video player in front of the customer after they’ve clicked on it and indicated, “yes I want to watch the video”. This is in contrast to putting that video ad in a banner below the fold on autoplay that you often see in a lot of display media.

MD: What’s your business model?

JK: We make money two ways. We take ad $ from the agencies and the brands. It’s a standard ad network model in that sense. We take a percent and spread the rest across our publishers according to the goals of the campaign. For the hosted app software, the model is license based. The video ad management and serving platform is called ACE . The video ad management is licensed according to a cost per impression basis or we barter it for inventory. We have a flexible model to where the publisher or agency picks what they want. If they want to pay us $10K per month for unlimited serving, they’re welcome to do that. Once people get really big, they like that kind of deal.

MD: Last question, what’s your crystal ball for the online video ad business in 2010?

JK: There’s no silver bullet video format out there if that’s what you mean. We regularly put out video ad metrics reports to show both publishers and brands what’s working and what doesn’t work. Our general attitude toward both sides regarding ad formats is they will know best what will work for a campaign and what their customers needs are. Run whatever you want and let’s go see what works. And what works may be different from client to client. Kids respond differently to different ad units than adults. The cool thing about online video is that we can give finely granulated targeting to the customer that then documents the performance of an ad unit. Over time we may figure out that power rolls may work better for people who watch sports while Triple Play works better for entertainment trailers. We won’t make sweeping statements because we think this stuff is complicated. The reason media is fragmenting isn’t 100% because of new devices. It’s fragmenting because people will make different choices under different circumstances.

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