A look at how-to video sites and in-text ads

Technorati CEO Richard Jalichandra helps us evaluate Graspr and Kontera

Sponsored by:

In this Vator Box, we added a new segment. It's called the Liquid Scenarios Minute. In this minute, we look at total funds raised for both companies, and Liquid Scenarios provides an estimated valuation and exit analysis for both companies. The startups under the microscope this week are Graspr and Kontera, two companies that are the starting point to a broader discussion of the how-to video and in-text advertising industries.

Who better to help us evaluate a content company and an advertising company and their industries, but someone who has a lot of experience in both. This week, Richard Jalichandra, Technorati CEO, formerly at content site IGN, and an expert in online advertising, helps us look at the opportunities for Graspr and Kontera.

Graspr is a Draper Fisher-backed video how-to site, with some 20,000 videos in its library, and 2,000 partners that it syndicates to. Kontera is a Sequoia Capital-backed in-text advertising company that links ads to keywords in articles. As one scrolls over those highlighted words, an ad pops up. 

We started with Graspr. We all liked the pitch. Teresa Philips, the founder and CEO in the video pitch, does a great job articulating her vision and mission. But both Ezra and Richard questioned whether there was an opportunity to create venture-sized returns. "There's some great long-tail opportunities," said Ezra. "But is this a billion-dollar business or a midsized, interesting content company?"

"I love the how-to market," said Richard. It's a great vertical and there are clearly endemic advertisers, he said. "The issue becomes, there are a few other entities doing something similar – everything from YouTube, to Howstuffworks." Indeed, it is a busy space. In the how-to category, there's also ExpertVillage and Instructables.

All three of us agreed that Graspr was doing the right thing by syndicating its content aggressively. And, at the end of the day, there is a roll-up opportunity here, said Richard. So, if Graspr does well, it might be a contender to be bought out.

Liquid Scenarios estimates that Graspr raised money at a pre-money valuation of $5 million. 

In-text ads

We then turned our sights to Kontera, a company that provides in-text advertising. We all agreed that in-text advertising was very novel. It's pretty nascent, and it's only a $100 million yearly business. Ezra and I both agreed, however, that it was tough to get people to click onto an advertisement while they were reading. "The trick with any kind of online advertising is the context of the consumer," said Ezra. "The whole game is are you getting the consumer in the right moment for making the right decision... the trick for these guys is they're in the middle... When someone is looking for something versus reading an article, they're in a different mindset."

And, the links in the keywords may actually be annoying, especially if they're not relevant.

But Richard, while at IGN signed up for Vibrant Media - a competitor to Kontera - said that in-text ads worked quite well, depending on the vertical. For gaming sites, in-text ads seemed to work.

The upside is that there are probably only two players in the market, he added. The downside for Kontera is that Vibrant Media (the other player), probably has a larger market share, he said.

Richard and Ezra believe that Kontera has a great shot at being acquired, given the demand for advertising networks. The successful exits by Right Media, Blue Lithium, Quigo, etc. in this space augur well for companies playing in it, Ezra said. 

Added Richard, Kontera will likely do fine with blue-chip Sequoia Capital as its backer. 

Liquid Scenarios noted that Kontera raised $17.3 million in total, and that its pre-money valuation at its last round was between $34 million and $41 million. 

Don't forget to watch the show to get the Liquid Scenarios exit analysis for both companies!