Tap to watch a TV show clip on Lifetime’s iPad app, and a high-definition video ad for the Home Depot begins playing, it seems, even before your finger has left the screen.
Shaving milliseconds to get that and thousands of other video ads loaded faster on mobile devices has earned a Brentwood start-up millions. In a recently announced deal expected to close this fall, AdColony is being acquired by Opera Software of Norway for as much as $350 million. Opera, which offers a speedy Internet browser that’s popular in developing countries, says the addition of AdColony will make its own online ad unit more appealing to advertisers.
As consumers spend more of their day staring at smartphones and tablets and fewer minutes in front of TV screens, advertisers want to shift with them. The ballooning market for ads in apps is expected to propel spending on mobile ads this year past the amount spent on radio and printed ads and ever closer to TV’s sum, the research firm EMarketer said this month.
But moving video ads from TV to small screens has often produced shoddy results, marred by poor quality and frustrating buffering. AdColony says its computer code and infrastructure to broadcast high-definition, interactive ads has set it apart, keeping consumers, app makers and advertisers happy.
“Mobile is all about a snappy user experience,” said Nikao Yang, an AdColony senior vice president. “If you’re not delivering within three seconds, your user is gone.”
The 100-person company, spread across seven cities, transmits ads for companies such as Nike Inc., Coca-Cola Co. and Toyota Motor Corp. to apps that include ABC News and Flixster and games from “Angry Birds"-maker Rovio and “Clash of Clans"-developer Supercell.
Ad-buying agency Horizon Media Inc., whose clients include Geico, Capital One and Jack in the Box, is booking business “in the millions” with AdColony at a rapid rate of growth.
Donald Williams, Horizon’s chief digital officer, said AdColony’s narrow focus on video quality and performance attracted clients. Being able to pay per engagement, rather than view, kept them hooked.
“It’s a simple combination, but a rare combination of great performance technology meets a great advertising buying platform,” Williams said.
In 2008, AdColony began as a competitor to many of the apps. As one of Apple’s launch partners for the App Store, the company then known as Jirbo Inc. developed what became 14 of the top 200 apps on Apple’s App Store by 2011. But as Jirbo sought to make money from its apps, sales agents realized video ads turned out grainy or would suddenly freeze.
“We started calculating it out and realized people across the world spent a total of 6 1/2 years a day waiting for video ads to load,” AdColony Chief Executive Will Kassoy said. “That’s what got us excited.”
He shifted his developers’ focus from writing code for games and news apps to programming a video-ad loader that any company could plug into its own app. Kassoy wanted to charge advertisers a premium in exchange for presenting their ads in a “TV-like experience in the palm of a hand.”
“Whether it’s Netflix, Hulu, Instagram or playing Angry Birds, they are all long sessions that lend themselves to short, quick video ads like on a television channel,” Kassoy said.
Three years later, AdColony says its sees a spike in traffic during the evening that rivals the number of people watching prime-time TV shows at the time. The company serves video ads to 300 million unique mobile devices each month, and the figure is expected to more than double once it’s integrated under the global umbrella of Opera.
Though it counts Google Inc. and Facebook Inc. as competitors in the $18-billion-a-year mobile ad market, Opera is banking on integration with the AdColony technology to attract more advertisers to its service. Slacker Radio, for example, has had to separately deal with Opera and AdColony in the past.
Opera’s other business is building a Web browser, similar to Microsoft Corp.'s Internet Explorer or Google’s Chrome, that’s able to reduce data usage and make pages load quickly.
Mahi de Silva, chief executive of Opera Mediaworks, said AdColony’s video compression technology could help the browser display video in higher quality to parts of the world lacking 4G cellular networks. He said he also expects the AdColony team to make ad-viewing a dynamic experience.
“What they do better than any other company on the planet is make that video experience so crisp, clean and pure that advertisers have chosen them to run their campaigns even though there are tens of companies trying to solve this,” de Silva said.
The next goal is to add more interactivity to ad viewing. Advertisers have been adamant about separating the “leanback experience” of television from the “lean-forward” posture of mobile, Kassoy said.
Only about 5% of consumers exit a video ad early, according to AdColony, meaning most people land on what the company calls an “end card.” It’s a screen that can prompt viewers to — without leaving the app — watch a longer ad, tap through a photo gallery or share a post on social media. Kassoy said 3% of consumers take another action, a share that grows depending on how creative the options are.
“If you deliver something that’s relevant, on target and short, this millennial generation will engage more,” he said.
Opera reported that AdColony’s revenue increased nearly fivefold to $53 million in 2013 from $11 million in 2012. If AdColony hits revenue targets through 2016, its sale price could rise to $350 million from a minimum of $75 million. Opera estimates that the final price will reach $245 million.
AdColony doesn’t share details about its InstantPlay technology, but the company says the system uses 33% less data to play videos than it did three years ago. Kassoy said the early bet on mobile video has given AdColony an edge over companies such as Facebook, which has been racing to deliver video ads to small gadgets.
“It’s tricky,” Kassoy said. “People thought we were crazy when we said, ‘Let’s just be experts at this one thing.’”