Pandora is buying a startup that's trying to become the Google of audio advertising
- Pandora is buying the audio ad tech firm AdsWizz for $110 million plus a $50 million earn out.
- The move puts the streaming service in a potentially central role in the nascent but promising market for "programmatic" audio advertising.
- Pandora sees AdsWizz also helping play a big role in accelerating the growth of podcast ads and voice-assistant ads in the near future.
Pandora is becoming an ad tech platform.
The music streaming company will acquire AdsWizz, a company that specializes in helping deliver audio ads to streaming music services. The cash and stock deal is valued at $110 million, with a potential $50 million additional earn out if AdsWizz meets certain financial and product development goals.
Founded a decade ago, AdsWizz is an early player in the verdant realm of "programmatic audio" advertising. The company's suite of software is not unlike what Google or AppNexus have built in the display advertising business.
AdsWizz's suite of software and tools can be used to buy audio ads, package them for sale, and make sure they are automatically delivered to the right person at the right time. The Belgium-based startup works with streaming companies ranging from Pandora rival Spotify, Cox Media Group, as well as the podcast network Podcast One.
Pandora has weathered a tough time as a public company, particularly in light of Spotify's explosive growth over the past several years. That's led to multiple leadership and strategic shifts.
The move to acquire AdsWizz essentially thrusts the streaming media company into another category - essentially it's become a facilitator for the audio ad industry as much as a it remains a company that sells ads and music subscriptions.
To date, Pandora has mostly built its ad business by putting sales reps on the ground in local markets, going after ad budgets that traditional have gone to terrestrial radio. But CEO Roger Lynch, who took the role just five months ago, sees acquiring AdsWizz as accelerating Pandora's - and the industry's - adoption of programmatic audio ads.
"The internet breaks down broadcast models," Lynch told Business Insider. "There's a multi billion radio industry to be replaced someday. That's not all going to go to subscriptions. So this is a very very large opportunity."
Right now, programmatic audio ads is still nascent, said Maja Milicevic, principal and founder at Sparrow Advisers, a management consultancy that works with marketing tech firms. "In US overall it's tiny," she said. "But they own it. In the programmatic audio space there is really nobody else but them."
Originally AdsWizz was focused on web video ads, until it saw an opening and shifted to audio in 2011. CEO Alexis Vandewyer said his company was not necessarily seeking a buyer, but felt the timing was right when Pandora expressed interest.
Vandewyer said that in some markets in Europe, 80 to 100% of streaming radio ads are already sold via programmatic platforms, which gives him confidence that the same dynamic will play out in the US. "We've seen extremely aggressive growth in some markets," he said. "Our goal is to continue to serve the industry, and it's also a very clear set goal to remain independent."
That independence would seem to be crucial. And it will be interesting to see how Pandora's competitors react to working with an ad tech company Pandora owns.
Lynch said he's not worried. Besides streaming services, he sees AdsWizz playing a big role in accelerating ad growth for podcasts and eventually voice assistants.
In the meantime, he thinks audio ads within music streaming has tons of upside, given all the recent brand safety challenges in display advertising and on social networks.
"Ads are a away, best as I can tell, for Spotify to drive people to subscriptions," he said. "For us, it's core to our business. And it's a huge opportunity that nobody's really investing in. This deal allows us to really sets standards in the business."
"That's something that Google did quite effectively, and frankly there is an opportunity to do that in digital audio."