Sun. Nov 17th, 2019

Roku’s $150 million acquisition of adtech firm Dataxu could make it more competitive with Amazon, but advertisers worry it could make Roku more of a walled garden

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Roku’s $150 million acquisition of adtech firm Dataxu could make it more competitive with Amazon, but advertisers worry it could make Roku more of a walled garden

Roku CEO Anthony Wood at the company's IPO in 2017

  • Roku announced that it plans to acquire Boston-based adtech firm Dataxu for $150 million in cash and stock to build a bigger OTT advertising platform.
  • Alison Levin, Roku’s VP of ad sales and strategy, said Dataxu gives Roku expertise in performance-based marketing from brands that don’t typically spend a lot on TV ads.
  • But advertising execs worried that the acquisition would make Roku more of a walled garden for ad buying, measurement and targeting.
  • Dataxu still makes money from selling mobile and digital ads, which Roku could use to handle larger budgets from brands.
  • Click here for more BI Prime stories.

Roku has big advertising ambitions and is betting that adtech firm Dataxu can help it capitalize on the $70 billion TV market.

This week, Roku announced plans to acquire adtech firm Dataxu for $150 million in cash and stock. Roku has been trying to rival Amazon’s ad business as marketers shift money from television to OTT advertising.

Business Insider talked to five advertising execs who said Roku’s acquisition could help advertisers run connected TV ads and buy display and mobile ads through Dataxu’s demand-side programmatic ad platform. Some of them also expressed concern that the deal would shut out Dataxu’s competitors like The Trade Desk and Adobe that Roku also works with, though. 

Dataxu has been for sale for a year. Last October, The Wall Street Journal reported that the company hired banker GCA Advisors LLC and was valued at $300 million after raising $87.5 million.

“This acquisition helps us rightsize media spend and consumption,” said Alison Levin, VP of ad sales and strategy at Roku. 

Levin said Roku gets a few things out of the Dataxu acquisition:

  • A self-serve advertising platform
  • Dataxu’s device graph technology
  • The firm’s digital and mobile footprint
  • Expertise in performance-based marketing

Dataxu buys performance-based ads for in-house teams and mid-level agencies while Roku works with big brands that are shifting TV spend into OTT advertising. In theory, the acquisition will help Roku serve small marketers that aren’t big TV spenders, Levin said.

Industry watchers question how Roku’s plan will all work

A major question is whether Roku will end its partnerships with Dataxu’s competitors including Adobe and The Trade Desk. Earlier this year, Roku inked a deal with Adobe’s DSP that allows advertisers to match first-party data with Roku’s data to serve targeted ads. The Trade Desk also buys Roku’s ad space programmatically.

Read more: Roku has inked a deal with Adobe to solve one of marketers’ biggest pain points in OTT advertising

Advertisers say that Roku holds back data from advertisers and is a so-called walled garden akin to Google, Amazon and Facebook.

Frank Sinton, president and founder at Beachfront Media, said that Roku could push advertisers to buy through Dataxu, squeezing out competitors over time.

“My hope is that they keep it open,” he said.

A consultant to adtech companies also speculated that Roku could control the quality of content that Dataxu’s competitors have access to. In theory, Dataxu could get first dibs on selling ads in Roku’s premium channels and then let The Trade Desk and Adobe sell remnant inventory. In that scenario, Roku would also cut down on adtech fees that it pays third parties for selling ads.

Roku’s Levine pushed back on the idea that Roku is a walled garden, pointing to partnerships the company has with Amazon to distribute content on its platform and its work with measurement firms like Innovid.

Advertisers also wonder how much access Roku will get to ad inventory that Dataxu buys, including a high-profile deal with Amazon Fire.

In July, Amazon inked a deal that allows Dataxu and The Trade Desk to sell ads in some Amazon Fire TV apps through private marketplaces. According to Elgin Thompson, managing director of technology investment banking at JMP Securities, that deal sped up Roku’s interest in snatching up Dataxu.

Dataxu made a hard pivot into OTT

Dataxu is one of a handful of adtech firms that capitalized on the boom of programmatic advertising 10 years ago by building a DSP that helps marketers buy ads across hundreds of publishers’ sites.

Roku’s Levin declined to say to what extent Roku will sell non-OTT ads like digital and mobile but said that the company “is committed to being an omnichannel DSP, inclusive of digital and mobile.”

According to the consultant, Dataxu’s DSP business is healthy but has leveled off. Dataxu declined to comment for this story but a press release from April said that the majority of the company’s revenue was coming from its TV products. 

“The traditional DSP piece of their business is still keeping the lights on but going to market and saying ‘I can buy you a better banner ad’ doesn’t resonate in 2019,” the consultant said. “What makes this market difficult to value is that Wall Street loves SaaS revenue.”

As competitors like The Trade Desk and Google gain clout with agencies, Dataxu has made a lot of changes over the past year to attract a TV-minded acquirer.

“They were able to smartly separate themselves from just being a DSP to being a strong CTV player,” said Will Doherty, evp of global marketplace development at Index Exchange. “Consolidation is a trend, and we’ll continue to see more of it.”

In April, Ed Montes was promoted from chief revenue officer to president and general manager of Dataxu’s TotalTV business.

According to the advertising consultant, a number of telecom and cable broadcasters looked at buying the company. In March, AdExchanger reported that Comcast-owned FreeWheel was reportedly interested in Dataxu though a report from Multichannel News shot down the rumor.

Facebook and Google continue to control the bulk of digital advertising budgets, and Dataxu’s story shows how adtech companies are rapidly trying to get into OTT advertising, JMP Securities’ Thompson said.

“The walled gardens have basically forced adtech vendors and marketers to look at TV as the savior,” he said. “Once the technological capabilities and the consumer interest and demand meet, OTT became viable as a business model.”

Sources said Dataxu’s exit was smaller than some expected and that it’s a sign of ongoing consolidation in adtech.

The consultant said that uncertainty created by privacy laws makes successful adtech exits more difficult.

“We’re living in a world that is riddled with consumer privacy issues and legislation that could come down the pike tomorrow and destroy a lot of these businesses,” the source said. “$150 million in today’s world might be looked at as a slight disappointment, but it is a sign of the times.”

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