• Taboola recently acquired Outbrain in a deal to combine the biggest content-recommendation companies.
  • While pitched as a merger of two companies backed by a common mission, the Israeli-born pair who founded the two companies had fiercely battled each other since their inception more than a decade ago, in adtech's version of the Coke-Pepsi's soda wars.
  • Outbrain had a head start but lost its lead to Taboola, which was known for more aggressive sales tactics.
  • The two competed by paying lucrative guarantees to publishers that delivered revenue but ultimately stifled innovation among the publishers they purported to serve, according to industry execs. 
  • As the companies fought each other on price, the rivalry also took energy from competing with much bigger foes, Google and Facebook, that came to dominate digital advertising, insiders said.
  • Now the question is whether the combined company can come up with a new identity and product features to effectively compete with the tech giants.
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In October, the two dominant content recommendation companies Outbrain and Taboola announced plans to merge to create a $2 billion company. In a well-choreographed announcement, they talked of mutual admiration and a shared mission to support quality journalism.

But the reality behind the deal couldn't have been more different. 

Outbrain and Taboola aren't household names, but their products — the "recommended for you"-type article boxes you find at the bottom of news articles — are ubiquitous across the web. They provide meaningful revenue to publishers from Fox News to CNN by renting space to advertisers at the bottom of the publishers' article pages.

Behind the scenes, the two companies warred for years to dominate content recommendations. From interviews with 10 current and former employees and publisher clients of both companies, the picture emerges of a battle that eventually wore down and ultimately undermined both companies.

The price war ultimately hurt the publishers they purported to serve by restricting their ability to innovate, and took energy from competing with much bigger foes, Google and Facebook, that came to dominate digital advertising, insiders said. 

Shareholders of Outbrain — which once sought a $1 billion valuation — will receive $250 million in cash and 30% of Taboola stock, but the name will go away and Taboola's CEO will run the combined company.

Now the question is whether the combined company can come up with a new identity and product features to effectively compete with the tech giants.

The companies declined to comment for this article, saying the deal hasn't closed.

Outbrain's CEO mentored his future rival

Outbrain was co-founded in 2006 by Yaron Galai and Ori Lahav. Galai, who became CEO, was a serial Israeli entrepreneur who'd just sold his search engine marketing company Quigo to AOL for a reported $350 million. With Outbrain, Galai talked of helping online publishers by giving readers better article recommendations.  

A year later, fellow Israeli Adam Singolda started Taboola, which would become Outbrain's closest competitor. Galai said he even helped the younger Singolda in the beginning.

That relationship quickly evolved into a rivalry. On the surface, the companies shared similar origins, size, and basic product offerings, despite their having made a number of acquisitions over the years. But those similarities only served to fuel their competition. 

Both companies fought to have their content-recommendation boxes be carried by marquee publishers so they could in turn sell that inventory to advertisers. Outbrain and Taboola would give the publishers a cut of the revenue generated by selling the real estate on their sites.

In addition, Outbrain and Taboola offered publishers lucrative revenue guarantees that became meaningful and easy income for publishers — as much as 30% of their revenue, in some cases, Outbrain has said.

Outbrain obsessed about reader experience

Employees described Galai as a hard-core product guy who sometimes wore sandals and shorts to meetings, and lived in a rented apartment. They said he was frustrated seeing the content-recommendation boxes show click-baity content that was lucrative but cheapened the host website.

In 2012, Outbrain banned deceitful or spammy marketers from advertising to improve the quality of content in the widget, a move it took knowing it could cost 25% in revenue.

Rather than obsess about getting the highest yield possible from content recommendations, Galai often said "the consumer's the customer," said Nic Paul, who co-founded a company, Revee, that sold to Outbrain in 2013.

Taboola was aggressive with deal-making

Singolda, meanwhile, was a consummate salesman. The story he tells is that he got his first funding for Taboola by pitching an investor at his daughter's bat mitzvah, which Singolda hadn't even been invited to. He's known for constantly traveling (just read his Twitter feed), whether to negotiate multi-year deals with publishers or take them to lunch in the interim to butter them up.

In negotiations, he was described as pragmatic about how publishers could make more money by permitting more down-market content in their content recommendation boxes, even if it risked them reputational damage. 

"Adam would fly to multiple cities in a day to pitch a client; Yaron was a more laid-back guy," a former Outbrain exec said. "You never heard from Yaron," said a publishing exec who's worked with Taboola at two companies.

Both companies took similar amounts of outside funding — more than $150 million each. Outbrain raised money from investors including GlenRock Israel, Lightspeed Venture Partners, Gemini Israel Venture. Taboola's investors include Evergreen Venture Partners, Crescent Point Energy, and Daily Mail.

At a point, it seemed like Outbrain might be the one to prevail. Back in 2014, Outbrain filed papers for a potential public offering. It had raised $100 million at that point, to Taboola's $40 million. (Taboola would go on to raise another $120 million.) 

But with both companies selling similar products, Singolda's highly visible, personal approach gave Taboola an advantage.

Taboola got the lead on Outbrain

Under Singolda, Taboola went aggressively after Outbrain clients, especially the more prestigious ones. "It was incredibly competitive. You were waiting for exclusive timelines to expire," a former Taboola exec recalled. When Outbrain was negotiating a new deal with CNN, the story goes, Taboola execs camped out in the lobby to wait for CNN execs to come down and counter with a richer offer. 

That didn't pan out, but Taboola did recently land ESPN and ABC News from Outbrain. According to online measurement company SimilarTech, although Outbrain had an advantage in the US, Taboola eventually edged out Outbrain overall in terms of sheer number of sites and number of biggest sites by traffic.

"Outbrain began as a premium publisher network with the promise of helping readers discover interesting content," said another former Outbrain exec, Josh Guttman, a past member of Outbrain's management team who went on to found a startup, Small Door Veterinary.

"As the industry evolved and grew and Taboola came on the scene, there was pressure to take any advertiser who was willing to pay. Knowing the roots of Outbrain and its original vision, a premium content network, that was something Yaron probably wrestled with."

Observers point out that Taboola also had an advantage in video, which is more profitable than article links, having had its roots in video recommendations and acquiring video recommendation service ConvertMedia for $100 million in 2016.

The competition took its toll

Taboola and Outbrain say they're profitable, but the use of guarantees drove down their profit margins, according to multiple people familiar with the businesses. The guarantees also locked publishers into giving the content recommendation boxes prominence on their sites, which limited their own ability to innovate. 

(The companies have since started to move away from those guarantee structures, as have publishers.)

Other factors limited the category's growth and hopes for an eventual exit in the form of a sale or IPO. 

The margins varied widely, resulting in a lack of predictability in the businesses, which would make it hard to take the companies public, said one former exec. Letting more unsavory links in the content recommendation boxes got more clicks and therefore more revenue, but hurt Taboola and Outbrain's reputation. 

Publishers were willing enablers. Some began negotiations by insisting they didn't want smarmy links sullying their pages, but would change their tune as they saw how much money they could make by tolerating clickbait.

Taboola and Outbrain also were heavily dependent on publishers, whose own business model was increasingly under threat from Google and Facebook.

Other, smaller competitors like Yahoo, Revcontent, and ZergNet sprang up, and while none became a serious threat, they were a distraction, Nic Paul said. "It created a lot of noise and maybe took focus off the main game," he said.

With challenges to other exits, Taboola and Outbrain have widely been understood to have discussed merging. In 2017, Israeli publication Calcalist reported the two were in advanced talks after two previous attempts that fell apart because of the inability to reconcile the two CEOs, Galai and Singolda. The large number of shareholders between the two companies was cited as another obstacle. 

Singolda himself once called the two companies "nice competitors" but acknowledged that a merger would be hard for "two Israelis." 

Now, he'll have the chance to make it work as CEO of the combined company. Galai is set to stay on to help during a transition period.

What does Taboola do next?

Some former execs of both companies alike say Singolda, as the more outward-facing, sales-oriented leader of the two, is the better choice to run the combined company. Some also expressed relief at the thought of the years-long competition finally ending. The question is, what does the company do now to grow?

Singolda's pitch is that a bigger company will be better positioned to help publishers compete with Google and Facebook for digital ad dollars.

"There's so much focus on Google and Facebook being too big that it's almost like a rallying cry from the industry to create more choice," he said when the deal was announced. "We hope that this is a huge win for the industry, giving small and big advertisers more choice in terms of where they can run their ads online and, in turn, help to grow revenue for publishers."

People interviewed for this story said they expected publishers to get worse terms once Outbrain and Taboola aren't locked in a market share war anymore, though.

And in the age of programmatic ad buying, advertisers can easily advertise against CNN's or lookalike-audiences through machines.

Finally, Google, Amazon, and Facebook have an edge in that they can let advertisers target ads to people based on things like their shopping behavior or their self-reported information — data that can predict whether people will actually buy. 

That's why even people rooting for the company wonder if it has a shot to compete with Facebook and Google and offer more innovative products to publishers. As one former exec said, "It's hard to tell the difference between the two now."

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