How Taboola and Outbrain's plan to create a $2 billion clickbait company fell apart

  • Content-recommendation giants Taboola and Outbrain scrapped their plan to create a $2 billion company that would help publishers compete with Google and Facebook. 
  • The two companies faced pressure to merge and end their costly rivalry.
  • But the deal was hampered by regulatory hurdles, the pandemic-induced economic downturn, and cultural differences that were laid bare by the downturn.
  • Visit Business Insider's homepage for more stories.

Last October, longtime rivals Outbrain and Taboola announced they were merging their content recommendation companies as part of an effort to give advertisers an alternative to the Facebook-Google ad duopoly.

"We hope that this is a huge win for the industry, giving small and big advertisers more choice in terms of where they can run their ads online and, in turn, help to grow revenue for publishers," Taboola founder and CEO Adam Singolda said at the time.

Ten months later, the deal is dead after both sides failed to agree on the terms. 

At a high level, the two Israeli-founded companies do the same thing. Their "recommended for you"-type article boxes have provided significant revenue to publishers from USA Today to CNN by renting space to advertisers at the bottom of article pages.

But they have vastly different cultures, and the economic crash laid bare some of the cultural differences between the two companies — and a weakness in their business model.

Outbrain was founded first, in 2006. Its cofounder and CEO Yaron Galai was a product guy who obsessed about the customer experience and resisted taking the more lucrative but spammy forms of ads as content recommendations. 

Singolda, a fellow Israeli who founded Taboola a year later, was a consummate salesman who aggressively chased Outbrain clients, especially the more prestigious ones. 

"It was incredibly competitive. You were waiting for exclusive timelines to expire," a former Taboola exec once recalled. When Outbrain was negotiating a new deal with CNN, the story went, Taboola execs camped out in the lobby to wait for CNN execs to come down and counter with a richer offer.

Still, this competition was costly and put pressure on the companies to merge.

The hope was to close the deal by this past April, but it faced regulatory hurdles. The Justice Department and UK and Israeli regulators were looking into whether a merger of the two would hurt competition and in turn, harm publishers that rely on those two companies for revenue. 

The pandemic exposed the companies' divergent business styles

Meanwhile, the pandemic hit, temporarily denting the two companies' ad revenue. 

In their war for market share, Taboola and Outbrain made generous guaranteed payments to publishers, which helped win publishers but put a strain on the firms' finances. Every few years, when their contracts with these firms were up for renewal, publishers would pit one against the other to get the highest payment terms possible.

So when the pandemic hit, Taboola caused a stir when it asked some publishers to give up their guarantees in favor of a revenue sharing model.

In a June blog post titled "A Letter From Our CEO to Our Community: How We're Weathering COVID-19 Storm," Singolda wrote that it's "had to ask our publisher partners to work with us through these challenging times."

"Publishers were irate that they were told they weren't paying the guarantees," said a source close to the situation.

Singolda told Business Insider the switch was temporary and that many publishers that agreed to the switch have already moved back to guarantees.

But that approach didn't sit well with Outbrain, which left its guarantees with publishers alone, according to a knowledgeable source.

It also didn't help that the pandemic also forced any back and forth to be done remotely, which made it hard to forge a common culture across both companies.

The two companies seem destined to go their own way now, an outcome some publishers are welcoming.

And while Taboola and Outbrain have all but owned the content recommendation space, that could be changing. This summer Verizon Media won a big fish in Fox News, a former Taboola client, over to its native ad product — which suggests to some that Verizon is aiming to take a bigger stab at growing this business.

Another company called Connatix is going after publishers' real estate, with a module focused on high-value video advertising.

"It helps to have some competition," said a publishing exec that uses Taboola, expressing relief that the merger won't go through. "I'm already dealing with three unmovable objects, Facebook, Google, and Amazon. I don't necessarily want to deal with a fourth."

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