Economy

Internet Advertising, Rewired: Yaron Galai, An Israeli Brain Behind Outbrain

Referred to as 'sponsored content,' it is the Internet's way of blurring lines between information and advertising - and Outbrain is leading the charge ahead of a reported $1 billion IPO.

Screenshot of Galai
Screenshot of Galai
Assaf Gilad

NETANYA — When Israeli entrepreneur Yaron Galai describes the interplay between native advertising and journalism in high-brow, glossy magazines, he makes it sound almost spellbinding.

"To pull it out of the plastic bag, to thumb through its pages, from one story to another, even from a story to an advertisement ...," he says wistfully. "It's that magic of leafing through paper that hasn't been cracked and translated to the Internet yet."

Creating that flowing experience is the singular mission of Outbrain, the company Galai started seven years ago. And though he says he sees himself as "a story promoter," Outbrain's first job is to promote products.

Many might not recognize the name, but most Internet users are familiar with what the company does: You visit a website, read a news story. At the bottom of the page, or on the side, you see recommendations for "other stories that may interest you." Some of them offer journalistic content, while others fall into the grey area between journalism and marketing.

Last Friday, the Wall Street Journal reported that Outbrain had filed a confidential request the U.S. Securities and Exchanged Commission seeking a possible $1 billion valuation to list shares on the Nasdaq Stock Market.

So-called "sponsored content" has been around since the early days of the press, but the Internet has long been searching for a way to expose users to it without them noticing. Enter Galai. "I invented this market," he says.

At 43, the serial entrepreneur, a former Jerusalemite who has been living in New York for a decade, is proud to claim title to shaping Internet behavior — enticing Web users to jump from one recommendation to another, at times without realizing their navigation had been carefully planned and paid for.

Targeted audiences

In November 2007, Galai sold his search engine marketing company Quigo to AOL for $363 million. On the very same day that he bid farewell to the company, he'd founded 11 years earlier, he signed the first capital investment for his next venture, Outbrain.

In 2009, headed by co-founders Galai and Ori Lahav, Outbrain launched the native ads of the kind that boast a benefit for everybody — the advertisers, who use them to promote products in a more targeted and efficient way; the news websites that enjoy ad revenues without scaring readers away; and the users, who get a website with less noise and more tailored content. As part of the service, Outbrain also promotes journalistic content alongside promotional content.

The goal is for users not to feel that they're being fed commercials, and so the Outbrain marketing recommendations are labeled with a "sponsored content" disclaimer. Still, this labeling isn't enough to deflect criticism that the method blurs the line between user and advertiser interests.

In a bid to boost Outbrain's image as a provider of quality content, Galai has had to abandon certain clients. In 2011, he dropped those who offered controversial products and lured users to provide their credit card details — forex websites, unregulated medications, food enhancers — thereby ceding a quarter of the company's income that year. In 2013, he parted ways with websites that sponsored content without disclaimers, again writing off another one-tenth of revenues.

It was a price worth paying to attract major brands and key online news players that distance themselves from exactly this kind of sketchy content. In fact, he tried to make Outbrain the premium service in the field.

According to Israeli web analytics company SimilarWeb, most of Outbrain's traffic comes from or goes to giant websites such as international news outlets. Competitor traffic is driven more by viral, entertainment and gossip content.

Yet Galai didn't just establish the market. He actually firmly controls it now. According to market estimates, Outbrain is the leading company in the field of native advertising. It boasts more than 190 billion recommendations a month to more than 560 million users of 100,000 websites, including 800 premium sites and major news outlets such as BBC, CNN and the Conde Nast group.

In other words, more people are exposed to the leads Galai offers than to the content they search themselves on Google.

Ushering in competition

With the company's growth, it has doubled its workforce in two years, now standing at about 430 people, most of them in Outbrain's Israeli offices in the northern coastal city of Netanya. The next natural step would be an IPO, and though Galai can't discuss it, Calcalist sources indicate it is scheduled for the first half of 2015.

Outbrain/FB

Though competitors are trying to challenge Galai at the game he created, he has no intention of forfeiting the lead just yet. "We've bought three firms, mobilized the largest sum in the market $100 million, and we're investing the largest sums in development," he says.

Most of this development is happening in Israel, from which Outbrain's main competition also hails.

Ten years Galai's junior, entrepreneur Adam Singolda launched his company Taboola, a direct competitor, two years after Outbrain. Over the past year, its momentum has been impressive, as it has expanded its global market share, especially after winning strategic client Yahoo Japan in a bid in the tens of millions, beating both Outbrain and Yahoo U.S. It now has 480 million unique users compared with Outbrain's 560 million, but Taboola has registered 30% less revenue than Outbrain.

"Singolda and I have friendly contact, and in the beginning I even helped them," Galai says. "There is a competition between us, but at the end of the day, the real competition is over the user's time, and it's against slightly bigger companies like Facebook, Google and Yahoo."

He adds, "I think that as a marketing network, Taboola is doing a good job and performing well. But we think about things differently."

Outbrain's other key rival is Yahoo's Gemini project, currently being developed at the company's Tel Aviv office. When the last quarter's data turned out to be a positive surprise, CEO Marissa Mayer said that native ads were one of the central drivers for revenue growth.

Two years ago, Yahoo was one of Outbrain's primary clients. "I take it as a compliment," Galai says about the client-turned-competitor, "because they've learned that fantastic results come from using our technology."

The next big player to enter the field is Google, which has already begun cooperating with Forbes. And Galai can't wait.

"Today, there is no website in the world that doesn't implement Google's AdSense, but the prices we charge for our ads are perhaps a tenth or fifth of what Google charges, and the extent of activity our ads generate is much higher," he says. "But we're not complacent. We understand there will be competition, and we invest a lot to prepare. I'm sure that Google will eventually enter the field."


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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

If nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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