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Facebook Takes This Fight to Google

By Alex Dumortier, CFA - Jul 3, 2014 at 9:00AM

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Facebook acquires online video ad platform LiveRail.

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 ( ^DJI 0.68% ) 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.

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 ( FB 1.47% ) 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 ( GOOG 2.32% ) ( GOOGL 2.35% ) 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$35,135.94 (0.68%) $236.60
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,910.61 (2.35%) $66.95
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$338.03 (1.47%) $4.91
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,922.28 (2.32%) $66.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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