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.
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.
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.
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.
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.
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.
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.