Roku Is Beefing Up Ad Targeting in a Big Way

In no uncertain terms, the future of Roku's (ROKU 2.94%) business is advertising. The company has been shifting its focus away from hardware sales, both in terms of aggressive pricing that sacrifices revenue and margins as well as increasing the number of users being acquired through licensed sources (Roku TVs made by third-party manufacturers). Instead, Roku is growing its platform business, which is really all about advertising and exceeded player revenue for the first time last quarter.

The company is now doubling down on that momentum and taking its over-the-top advertising to the next level.

Image source: Roku.

Beefing up targeting capabilities

Roku announced today that it was introducing Audience Marketplace, a platform for advertisers and publishers to better target their ads leveraging Roku's first-party data. Roku is one of the first OTT services to give advertisers direct access to user data for targeting purposes, marking a momentous shift in the media industry.

Roku finished the first quarter with 20.8 million active accounts, which puts it in the same league as the largest cable TV providers' video subscriber bases. Perhaps more importantly, Roku's user base is heading in the right direction, consistently adding active accounts each quarter, while cable operators continue to suffer from ongoing cord-cutting.

Data source: SEC filings.

"The business of streaming is winning -- both in the minds of consumers and advertisers," Roku VP of Demand Partnerships Seth Walters said in a statement. "As the industry's leading TV streaming platform, we're well-positioned to empower our publishers to unlock the full potential of OTT advertising and help them to meet the needs of brands and consumers."

The company already has a handful of prominent publishers onboard, including Fox, Turner, and Viacom. The Audience Marketplace comes just months after Roku unveiled its Ad Insights program, which provides advertisers with detailed analytics regarding their campaigns in order to measure reach and effectiveness. Targeting and analytics are absolutely necessary aspects of any advertising business.

Netflix famously gathers copious amounts of user data around viewership but does not have any advertising on its platform at all. Instead, it closely guards that data and uses it to make decisions regarding its content strategy.

"A big driver is audiences moving to streaming. If you look at the -- some recent Nielsen data showed that 10% of 18- to 34-year-olds in the U.S. are only reachable via TV ads on the Roku Platform," Roku CEO Anthony Wood said on the last earnings call. "That's a big change in the way TV ads are consumed."