Vertebrae – The Advertising Platform for VR

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Consumers don’t like to pay. But they don’t like banners either. Vetebrae allows developers to monetize their content by seamlessly integrating Vertebrae's pioneering Virtual Reality ad units and analytics into interactive VR experiences and 360° videos.

Vertebrae formed in 2015 with a clear goal of solving the “advertiser’s dilemma” of the twenty-first century: Not many consumers today appreciate intrusive advertisements in the media they consume, but they do not like to pay for it either. According to Vertebrae, new advancements in VR technology provide a big opportunity to create targeted advertisements with high engagement ratios, and in addition collect a lot of data for analytics purposes.

 

Product Offering

Vertebrae is designing a back-end advertising system designed specifically for VR, across all major platforms (Rift, Vive, Gear VR, etc.); under the business model, advertisers will be able to place their products in either targeted VR rooms or as part of the user’s experience.

“Vertebrae’s 3D Ad Insertion technology allows publishers to create
interactive 3D Ad Placements within a Virtual World.”
Photo: www.vertebrae.io/advertiser

 

For Publishers and Developers, Vertebrae offers seamless integration of its ad unit into VR experiences and 360 videos. Vincent Cacace, CEO and founder of Vertebrae, said “We want to be sure that we’re doing advertising that is isn’t regurgitating banner ads and 2D video”. In the same breath, Vertebrae assures its customers that it is not an idle banner service, but consumers will experience a positive interactive format.

 

Additionally, Vertebrae’s tools allow VR game developers and 360º video publishers to add incentives and rewards to their ad content, “for even more reach and engagement”, and prides itself of being easily able to convert between 2D and 3D environments for those publishers who want to work with multiple platforms.

 

For Advertisers and Brands, Vertebrae offers its unique native solution to connect to consumers “through the most engaging, immersive, and dynamic medium ever created”.

 

According to several sources, Vertebrae also aims to provide a strong analytics toolkit with its product offering to better increase its attractiveness to the developers. While its website offers no additional details, growth in the field of analytics will be interesting to observe; as we learned in the reading, Oculus Rift’s original ToS raised many privacy concerns regarding users’ personal data.

 

Profit Formula

As a startup, it is yet to be determined how exact profit will be earned. Vertebrae currently employs 13 people, and in September 2016 raised $10 million in funding to further grow its staff and build out its technology. As with most ad-based web/online products, it is reasonable to assume that monetizing the revenue from the publishers will be based on shared profits between the content producer (game developer, etc) and Vertebrae, based on click-through ratio and other engagement metrics.

 

Risks

Vertebrae’s concept and business model present an enormous upside with a good value proposition to all sides of the VR market, a promising scene; publishers, consumers and advertisers will undoubtedly enjoy a free-to-use ecosystem with ads that are non-intrusive, fun, and engaging. The rise of Augmented Reality (a-la Pokemon Go) provides another fascinating opportunity for seamless integration of sponsored interaction with consumers as part of this experience.

 

However, several key risks reside in the attempts to control the VR ad space:

1. Questions around Total Addressable Market

 

The first quarter of 2016 broke many records with an enourmous $2.0B total VC investment in VR/AR, but growth has immediately fallen by 75% with only about $500M invested in the second quarter of 2016. Many people are “Still waiting” for a long-promised VR revolution. Vertebrae’s business model, as sound as it may seem, must see a strong user base to gain traction and get started.

2. Competition

Should the “no banner, interactive ad” concept prove itself valuable in VR, competition is likely to rise fast, very fast. With strong players like Facebook – who not only owns Rift but is arguable the best-in-class in online targeted advertising – and google with its mass resources, too much success may also be the end for the small and promising CA startup.

 

Summary

Vertebrae is attempting to be a revolutionary first-mover in the VR ad space, by setting a high standard and a full package that provides value for both advertisers and developers. Having raised a significant amount of money it is now up to them to appeal to a large audience in a way that will not hurt the consumers’ experience, and systematic market trends in VR “can make or break” this intriguing venture.

 

Sources:

https://www.cbinsights.com/company/vertebrae

http://www.vertebrae.io/about

https://www.cnet.com/news/vr-ad-tech-company-vertebrae-raises-10-million/

https://www.crunchbase.com/organization/vertebrae#/entity

https://venturebeat.com/2016/09/14/vertebrae-secures-10-million-to-bring-advertising-technology-into-vr-worlds/

http://variety.com/2016/digital/news/vertebrae-vr-advertising-1201859925/

https://twitter.com/vertebraeinc?lang=en

http://www.vertebrae.io/publisher

http://www.vertebrae.io/advertiser

 

15 thoughts on “Vertebrae – The Advertising Platform for VR

  1. As always, YuvalG, great post. Given that Vertebrae went public with this business model in advance of a large VR user base, I can’t help but wonder if their ultimate goal is to be acquired by Facebook or Google. Leading the development of a large VR user base only gives competitors time to copy and improve upon Vertebrae’s product/model. This seems foolish when some potential competitors are tech giants that develop VR platforms and rely on advertising revenues.

    The Taco Bell/Doritos example reminded me a lot of product placement in TV/movies (specifically, Apple products in House of Cards). Perhaps this type of advertising requires different organizational capabilities than those at Facebook/Google? If so, Vertebrae’s early move could be a signal to these companies that they could acquire these capabilities instead of developing them internally.

    1. Thanks for the comment, J 🙂
      I think that any company that builds a business with the sole purpose of being acquired by someone who has the resources to make a better product from scratch is playing a risky game. In my humble opinion, VB’s only advantage can come as a first mover; if they can generate a strong consumer base, they’ll be purchased and not copied.

      1. Very interesting post! Vertebrae is truly advant-guard and tackling advertising before mass adoption. Thus, my question is that how they can generate a strong consumer base? Since we still have not seen mass adoption of VR, do you think VR will require a completely different business model and hence a new way to advertise?

        1. Thanks Jing!
          As professor Zhu said in class – companies have been saying that VR is the next big thing for a few years, and everyone is still waiting. Vertebrae’s success is definitely strongly correlated to the entire market. If VR doesn’t take off, I don’t see Vertebrae’s business model good for anything else really.

          1. Well said! Co-innovation risks!

  2. Interesting startup Yuval! You are spot on with the ‘advertiser’s dilemma’.

    On first thought this compares to consumer product or auto placements in movies. I wonder what the right balance is between explicitly creating product ad filled worlds and simply inserting products in a VR environment and allowing for the customer to subconsciously or consciously discover product placement. I can imagine that this type of environment can polarize the user in a positive or negative direction (imagine what it would be like to have 10 mountain dews in 1 minute!)

    If it were a binary decision, I’d put my money on a Netflix subscription content type model rather than ad products in a VR world. But then again, we, the customers hate paying so Vertebrae is right to follow the customer’s wallets (or lack of) and run a test in the form of a startup instead of paying attention to their stated preferences.

    1. Thanks, Boris!
      Agree that the dilemma is real, and Netflix solved it in an amazing way. I’m worried though that Netflix’s success is only limited to TV; can you imagine something similar in the app world?

      1. NYTimes/digital newspaper where subscribe option removes ads is one example. The new paid Youtube offering is practically the same model as Netflix. I’d imagine there are equivalents of Angry Birds or other mobile games, offered in ad-supported/free or paid formats.

        I’m trying to think of a work/business offering but I’m struggling.

        1. Good call! I like the “ad removal” paid option. Could work extremely well with those guys.

  3. Another super interesting post, Yuval! This seems like a no-brainer acquisition for Google or Facebook. As we move away from consuming content on monitors to VR, this is a logical extension of their core advertising businesses. There is an interesting subliminal element to consuming ads this way as well, as opposed to having to click on a link.

  4. I wonder whether we will see the same advertising fatigue as the kind you detailed in your first sentences. Either way, advertising is advertising and product placement is a particularly old form; if you look at James Bond movies, it is no coincidence that the car is an Audi versus a Mercedes or that the sunglasses are Tom Ford versus something else. I think we’ve been so sensitized to advertising that something as retro as product placement will feel even more intrusive, no?

  5. This is a great post and a very interesting company. Given that Facebook owns Oculus and that Facebook earns essentially all of its revenue from advertising, do you think that this company is at risk of being shut out of the content that Facebook has on its platform or on platforms that it controls? It seems to me that Facebook would be extremely interested in doing this type of advertising directly themselves.

  6. Yuval, don’t want to bog you down with having to respond to comments during this intense period of transition but, reading your post I couldn’t help but get the sense that this company seems long on vision but short on specifics. Maybe I missed the specifics in your post, but is this a platform in that it enables the creation and delivery of content by other parties, or is this a platform purely in a marketing sense and are these guys really just a content creation house.

    In other words, are they just creating VR ads? Or are they also doing something that allows the creation of additional value?

    1. My interpretation is that this is just a content creation house in the new medium of advertising. I cannot think of this as a real platform with network effects.

      Like there will are numerous ad agencies in each medium, I see this company a first-mover in a low barrier-to-entry market. I wonder how the company can sustain competitive advantage in future.

  7. Nice post Yuval. Vertebrae’s business model is very interesting, as it chose a very specific area to play in VR, a still nascent sector, so early on. I believe its success is highly dependent on the adoption of VR tech as a whole rather than VR ad itself. In this sense, I totally agree with your on your concern of its current addressable market size. Because all advertisers that ever used or want to adopt VR tactics are expecting the format of VR itself is viral enough to attract their consumers’ attention rather than the actual contents. And it will probably take a long time for the VR adoption to be high enough for the advertising industry to be all in.

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