Facebook (NASDAQ: FB ) has done well to monetize its users and now is looking beyond its walled garden to help other companies better monetize their users.
Last week, the social network acquired video ad platform LiveRail, which puts it in close company with AOL (NYSE: AOL ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) . Not only do these three companies take the top three spots in video watcher numbers, they now represent three of the top five video ad providers.
With the rapid growth of premium online videos, Facebook is well positioned to continue growing its business outside of facebook.com.
Where are those television ad dollars?
One broadcast network executive mentioned last week that a company makes more ad revenue per online viewer than per traditional broadcast viewer. What's more, he expects the disparity to increase.
As more television ad dollars shift online, companies like Google, AOL, and now Facebook are battling to win those spots. LiveRail already touts customers like MLB.com, DailyMotion, and the online platforms of several cable networks. The adtech firm was on pace to record $200 million in gross revenue this year.
That's chump change compared to Google's YouTube video empire. The subsidiary brought in $5.6 billion in gross revenue last year. But that's a market unavailable to anyone outside of Google. Likewise AOL has a monopoly over its video content across its wide variety of web properties.
As more networks offer more premium content online, however, the company that provides the ad supply will be the one that provides the best bang for the buck. LiveRail, with the addition of Facebook's trove of data and its Atlas acquisition from last year, could certainly win more share from AOL, Google, and the rest of the competition.
Just how does LiveRail fit into Facebook?
Facebook rolled out 15-second video ad spots on its website in March. The roll-out has been slow, with Facebook going after big-name advertisers first. The minimum ad spend is $1 million per day.
That strategy, however, diverges from what has allowed Facebook to grow its ad revenue so successfully. Facebook attracts small business advertisers by allowing them to set their ad spend at any price they want -- even $1. Video ads often use much higher budgets, though, and Facebook is looking for premium-quality ads that will annoy users less. That's where LiveRail can help.
LiveRail already attracts premium-quality ads to fill its inventory. Facebook can add its own video ad inventory to the bunch and thus attract a wider breadth of advertisers.
On the flip side, LiveRail adds a huge missing piece to Facebook's acquisition of Atlas last year. Atlas allows advertisers to track campaigns across multiple platforms that include desktop, mobile, and television. With the addition of LiveRail, Facebook is setting up to provide an all-in-one video ad solution with inventory, targeting data, and analytics.
Third party ad revenue is next
Facebook has successfully grown its ability to monetize users on its website. Its next step is expanding its reach beyond Facebook. The company unveiled its mobile ad network at f8 in May to help app developers monetize their users, and now LiveRail will help video publishers better monetize their viewers.
When AOL purchased Adap.TV last year the company saw an immediate impact on its revenue. In the fourth quarter, the company increased its total revenue 13% and third-party ad revenue 63% year over year. The first quarter of 2014 saw similar improvements.
Facebook could almost certainly replicate AOL's success considering that it adds more to LiveRail than AOL did for Adap.TV. As Facebook expands beyond its properties, LiveRail will be key to its third-party success.
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