Why Facebook Purchased LiveRail for over $400 Million


Lest we forget, Facebook is an ad company first and foremost that earns a majority of its revenue through monetizing the content that people share with friends across its massive social network. (How else would it make money? Through Facebook Gifts? No.) So as a news and personal lifestyle aggregator of photos, videos and links, Facebook is constantly looking for new technologies and datasets to make its algorithms much more intelligent and effective in driving not only user engagement, but ways to serve ads that are extremely relevant to people online.

As it turns out that the video ad company LiveRail has done a great job of dominating the programmatic video ad world, providing technology that helps premium publishers sell it’s video inventory across desktop, tablet and mobile devices in an instant to the highest bidder. LiveRail serves round 7 billion video ads to visitors each month and has a roster of over 200 customers including CBS, ABC, MLB, Univision, BET and A&E. Needless to say, Facebook took notice and acquired LiveRail to the tune of $400 million to $500 million according to Techcrunch, although the specific terms of the deal were undisclosed.

According to sources, LiveRail will continue to operate as its own entity for now as a wholly owned subsidiary under Facebook, yet both companies will benefit from the shared knowledge, data and insights that each brings to the table to help fuel more effective and relevant advertising. This means ad best practices, demographic targeting information, ad optimization algorithms and historical data are now accessible to Facebook who can use this mound of information to amp up its video ad game in perpetuity.

Before the acquisition, LiveRail raised a total of $12 million in funding, primarily from Pond Ventures and everyone in on the deal must have been grinning from ear to ear over the Fourth of July weekend, having made a boatload of cash from the sale.

“When we started talking to the team at Facebook about how we could work together, it quickly became clear that we shared a vision for the future of digital advertising. They believed, as we do, that publishers deserve a new generation of audience-aware advertising technology,” said Mark Trefgarne, LiveRail co-founder in a recent blog post. “We realized that by joining forces we’d be able to draw upon our respective strengths to move even faster towards our shared vision of creating the advertising platform of the future.”

According to their PR firm, LiveRail was preparing for something big to happen this year and prior to the sale, was potentially eyeing an IPO earlier this year, on track to hit $200 million in gross revenue for 2014, although some sources say the company’s 2013 revenues were closer to $60 million rather than the $100 million claimed by the company. But with several other programmatic ad companies recently going public like Tremor Media, YuMe, Criteo and Rocketfuel with somewhat lukewarm results, LiveRail may have made a smart move in electing to accept Facebook’s offer, rather than entering the programmatic grudge match on the open market.

If you want to know more about how LiveRail works, basically it’s like an invite-only eBay for video ads where ad buyers and sellers connect and bid in real-time on premium inventory – video ad slots on premium publisher sites. According to Forbes, users on the platform can create bidding environments with strict inventory access and pricing controls so that preferred buyers can have weighted-priority. It uses price floor algorithms to analyze historic bidding patterns, audience segment values and business rules to dynamically set optical price floors for inventory.

To put the deal in context, at f8 this year Facebook launched a service called Audience Network that allows advertisers to extend campaigns beyond the world’s largest social network – the perfect place for integrating LiveRail’s tech stack. The Audience Network service can be used to drive app installs and mobile ads. Basically, Facebook first enabled existing online ad intelligence to power retargeting on its platform with FBX, and is now going its own data layer to power ads across the web and in mobile apps. Makes sense in its next step towards world domination.


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