Fast Company

Outbrain's Content Recommending Ways Seduce Readers To Stick Around

The New York-based startup demolishes conventional wisdom about the best ways to draw in readers--and snaps up $64 million in financing.

Online recommendations systems are usually based on the assumption that if you're interested in one thing, you'll be interested in similar things--a principle called "relevancy." That might work on shopping sites, like Amazon, but it turns out, according to a company called Outbrain, that it doesn't work so well for content sites. 

The New York-based company is turning the whole publishing recommendation engine business on its head. Unlike many such engines, Outbrain doesn't serve up links based on how similar the topics of the new stories are to the one the reader is already reading.

It also eschews another standby in the business: serving up links based on the likelihood that a reader will click on them. Instead, the system makes its determinations based on how likely the reader is to stay engaged on the site once they click through.

It's an idea that's gaining traction. Outbrain's recommendation engine is now used on almost 1,000 brand publisher sites in the U.S. and Europe (as well as tens of thousands of smaller sites). And today, the company is announcing that it has closed a $35 million round of funding that brings its total financing to $64 million.

The company's chief insight has been that traditional recommendation strategies don't actually deliver the results publishers are looking for. Publishers don't just want readers to click on links. They want readers to stick around on the site, surfing from one story to another--and, of course, running their eyes across a bevy of ads in the process.

Serving up links based on relevance actually works very poorly, Outbrain founder and CEO Yaron Galai tells Fast Company. Unless the reader is a sports fan who wants to read obsessively about their home team, related links don't actually perform as well as links on seemingly unrelated subjects, but ones that Outbrain's algorithms have discovered somehow appeal to similar readers.

The relevance criterion is "one of the lowest performing in our network," Galai says. "It has hardly any meaningful impact on the content that we're serving."

Similarly, serving up sexy-sounding links also doesn't work very well, Galai says. Over the last few years, headline writers have become devilishly skilled at penning seductive headlines for stories that don't deliver the goods, simply to gather up as many clicks as possible. 

But those strategies apparently are beginning to backfire. "When we focused just on clickthrough rate and not on how engaging the experience is after the click, our algorithms got very aggressive at serving links that are sensational," Galai says.

Readers, however, are becoming inured to the kind of link bait that promises much and delivers little. "They're getting good at becoming blind to anything that duped them into having a bad experience," he says. "There's only so many times you can dupe people into clicking on links they didn't actually want to consume." 

So instead, Galai says, Outbrain's algorithms focus on measuring how engaged a reader stays on a site after they've clicked through--how many subsequent pages they view--and ranks their catalog of hundreds of thousands of stories accordingly.

Which leads to the second way that Outbrain is turning the content recommendation game on its head: The company's engine doesn't only recommend content on the publisher's site, the way, for example, the New York Times' "Most Popular" widget only lists New York Times stories. It also includes links to external sites.

For example, in the image below, the recommendations on the left ("We recommend") are for content on the host site (in this case, CNN's Health channel). The recommendations on the right ("From around the web") link to external sites.

The host sites don't mind, Galai says, because of the unique business model Outbrain has developed. The hosts get the recommendation engine for free. It's the external sites who fork over the cash to have their content listed (they pay on a per-click basis).

The system works for all parties, Galai says. Host sites--the 1,000 brand publishers along with another hundred thousand or so smaller publishers and blogs--get a recommendation engine that surfaces the content on their site that is most likely to keep readers engaged. (Galai says sites get a 5-10% lift in views.) But they also get a revenue stream when readers click over to other sites.

And the publishers who pay to have their links placed in the engine--which includes several hundred publishers--get their money's worth because Outbrain surfaces stories that have been proven to be correlated with longer stays.

Readers also win because Outbrain's system of measuring how long people actually stick around means that they end up recommending much higher quality content, stories, and sites that readers would genuinely be interested in.

Outbrain's system generates about 200 million monthly clicks, Galai says, which results in a total of 3.5 billion subsequent page views. He won't reveal the company's annual take, saying only that 2011 revenues will be in the "eight figures."

The latest round of funding was led by Index Ventures, and included investments by Outbrain's previous funders, Carmel Ventures and Lightspeed Venture Partners. Index partner Dominique Vidal, a previous CEO of Yahoo Europe, joins the board.

Galai says the company will use the money to expand globally as well as develop their nascent video and mobile recommendation products.

Read also: "Brains And Bots Deep Inside Yahoo's CORE Grab A Billion Clicks"

[Image: Flickr user Davichi]

E.B. Boyd is FastCompany.com's Silicon Valley reporter. Twitter | Google+ | Email

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8 Comments

  • Lee Ellis

    I think Outbrain has built a real business but it’s based on
    Illusion.   A few facts:

    1.      
    First of all Outbrain does not bring in any new
    money for online publishers as does Google, Yahoo, MSN, Quigo, advertising.com
    etc.  All Outbrain does is move money
    from one publisher to another and they take their 40% margin in between.  So no new money into the eco system.

     

    2.      
    A five or 10 cent CPC is not monetizable by any
    publisher is today’s world of shrinking CPM’s. 
    So I spent $1.00 with Outbrain to drive 12.5 users to my site (average
    CPC of 8 cents) and those 12.5 users generate 70 page impressions (6 each and that’s
    being highly generous).  Those
    impressions gross the publisher around 40 cents or maybe 60 cents at best.  So I am losing at the best 40% of every
    dollar I spend with Outbrain but wait, it gets worse.

     

    3.      
    Outbrain ends up driving most of the users to
    slide shows because those are the links that generate the most impressions but
    the least value for advertisers. 
    Advertisers working with these publisher directly (which is the only
    decent CPM’s they get) get no response from this traffic, no interactions and
    no clicks to their ads and then the advertiser looks at the metrics and says
    why we are working with this publisher for $5 CPM, lets advertise on DSPs where
    we can buy these same units for $1.15 to $1.50.

     

    4.      
    Lastly these publishers using the Outbrain unit drive
    traffic to the very publishers they are competing against for consumer eyeballs.  They will take a terrible CPM for adding the Outbrain
    unit to their site under the article (where they should have real advertisers) and
    then instead of satisfying their users appetite for content and interaction,
    they drive those user away to be satiated by another publisher.

    So Outbrain is a little like crack cocaine but it’s a terrible
    midterm and long term plan.  It is a
    house of cards built by publishers trying to make their traffic numbers look
    good while the VC and acquisition machine churns away in this bubble.  But when the tide goes out and it always
    does, publishers will discontinue advertising because it is not sustainable and
    they will remove those units from their site. 

     

  • David Archer

    The New York Times have taken Outbrain widgets off their site.  They learned that the widget only cannibalizes their traffic.  Now New York times is one of the few sites that does analyze things and use data to drive their business.  Dont expect other publishers to do this...they will simply keep the widgets on their sites because Outbrain is telling them its working!

  • Yaron Galai

    Robert, Heather - 

    a) All the links we serve, whether paid or not, all point to a page of content. We don't take any traditional ads into the Outbrain index. The vast majority of the paid links we serve point to publishers' content pages. A minority of the links are paid for by advertisers - those point to either coverage of their product/service that they would like to amplify (like reprints ordered from a magazine), or content they produce which is clearly disclosed as being owned by them. 

    b) All of our publishers display language along these lines in close proximity to the paid links: "Paid DistributionAn Outbrain customer paid to distribute this content. We do our best to ensure that all of the links recommended to you lead to interesting content. To find out more information about driving traffic to your content or to place this widget on your site, visit outbrain.com. We welcome your feedback atfeedback@outbrain.com.View our privacy policy here."
    c) Complying with the law and FTC or IAB guidelines is obviously paramount, and we believe Outbrain is in full compliance with all those laws and regulations. But - we strive for much more than that - Our goal is to serve the *readers* with the most interesting links possible, and have them so delighted with the experience that they'll keep engaging with those links in the future. With that in mind, we want to be held accountable by the readers for having them treated them as respected readers and having served them well to interesting content. Trying to disguise anything or otherwise try to dupe readers into clicking on something they didn't absolutely intend to, is not only against all the principles we stand for at Outbrain, it would also make for a very foolish choice for the long-term viability of our business. 

    Thanks for taking the time to comment here.
    Yaron Galai, Outbrain CEO

  • Heather P

    I think its premature to call outbrain a scam however I do agree that they seem to be disguising paid links which include links to advertisers like Prudential and Exxon as "recommended" or "from around the Web".  The issue for publishers is the CPM those links generate.  If they disclose to their audience that the links are sponsored or advertisements, the CPM will drop and the publisher may take off the widgets.  If they dont disclose the links as paid, they may be fined or face litigation.

  • Robert

    Its a little fraudulent to frame paid links as "From around the Web".  Even in Outbrains own media kit for advertisers they boast that your advertised links will be promoted as "recommended".   This is against FTC and IAB
    guidelines. Google places the text "sponsored" or "advertisement" above all their paid links, why doesn't Outbrain? And shame on the publishers that go along with this.  Also the screen
    shot here shows the paid links as being to publisher sites but the
    ones I see on USA Today, Slate and others right now go to Visa, Citibank, Exxon
    and others. This is a PPC advertising business no different then Quigo
    or Google but pretends to be a content discovery engine. Silly how much people drink the Kool aid.

  • Rachel

    Publishers that carry these links will erode their user base very quickly by driving those users to the advertising publisher's website.  Why do you think publishers want their links on other publishers websites?  The publishers are paying a CPC so they can migrate them to become their own user.  I know a few publishers that have already taken this Outbrain widget down because the small short term incremental revenue is not worth migrating their user base to a competing publisher. If the Huffington Post tried to buy links below article on the Washington Post directly, what do you really think the Post would tell them?  Well now any publisher that places this widget on their website (below their article no less) is opening the door for any competing publisher to rather systematically migrate that audience.  I'm surprised Fast Company didn't report on that critical part of this CPC advertising business white washed as "Content Discovery".

  • Lisa

    Hi Nathaniel, 

    Thanks for the comment. We can help publishers and brands in many ways, it just depends on your goals. In short, we have a self-serve product for our widget to increase engagement with the content on your site/blog and also a self-serve product to drive more people to your content. If you'd like more specifics, feel free to reach out to me at lisa[at]outbrain[dot]com. 

    Lisa 
    Outbrain Marketing 

  • Nathaniel Tice

    WOW!  Impressive. It is so out of the box and the mainstream that it created a niche and market all its own. 

    It is great how it benefits small businesses as well as the larger ones.

    Curious how this would work for Start Ups and Entry Level Entrepreneurs?