Facebook Takes This Fight to Google

Facebook acquires online video ad platform LiveRail.

Jul 3, 2014 at 9:00AM
Longview

After settling at a new all-time high yesterday afternoon, U.S stocks were pointing to a positive open to trading on Thursday. The benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) were up 0.27% and 0.26%, respectively, in pre-market trading following a stronger than expected government employment report. Expect glacial activity during today's shortened session: The market will close at 1 p.m. EDT ahead of the Independence Day holiday.

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As television cedes advertising dollars to the Internet -- and, in particular, to online video -- the battle for those dollars continues to escalate. In the latest development, Facebook (NASDAQ:FB) announced yesterday that it is acquiring LiveRail in a transaction reportedly worth between $400 million and $500 million. LiveRail, which bills itself as "the leading monetization platform for [video] publishers," helps companies like Major League Baseball and YouTube competitor Dailymotion feature better ads in the videos they post on their websites and apps. LiveRail also directly provides marketers with access to premium video content and the tools to decide where to feature their ads.

What's the opportunity for Facebook? LiveRail will enable the social network to make the video ads it displays on its own website the most relevant possible to its users; conversely, Facebook said it will employ the data it collects on its users in order to optimize the choice of video ads on other websites. The former ought to allow Facebook to charge better rates to marketers, while improving the experience of its users (or minimizing their annoyance, at least).

Facebook's announcement came one day after rival Google (NASDAQ:GOOG) (NASDAQ:GOOGL) announced a deal of its own (albeit one much smaller). In acquiring streaming music service Songza Media, Google isn't just interested in serving up curated playlists, it's also looking at the technology that will help it deliver better-targeted contextual ads. Given that the company owns the largest online video network in the world in YouTube -- one it's working hard to monetize -- one might have thought that LiveRail would have made an excellent acquisition for Google.

Research firm eMarketer estimates YouTube recorded $5.6 billion in gross ad revenue last year, 9% of Google's total ad revenue. After revenue sharing, YouTube's estimated $1.08 billion in net U.S. revenue represents roughly a fifth of the U.S. online video ad market. The battle between Facebook and Google isn't over on this front -- not by a long shot -- but Facebook's acquisition of LiveRail is a decisive action.

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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