The on-going success of pre-roll video ads in the online ad industry will help Akamai (NYSE:AKAM) drive revenue growth in its advertising decisions offering, one of the value added services that the company offers to its customers. Value added services offered by Akamai account for more than 50% of the company’s revenues with the remainder of revenues attributable to it’s traditional content delivery service.
Akamai witnessed a significant rise in new customer sign-ups in the recent quarter for its advertising decision solutions. With an improvement in the overall ad market, Akamai’s solution attempts to leverage shopping data to increase effectiveness of ad campaigns. Below we discuss the success of pre-roll video ads and how they will impact Akamai.
Pre-roll Ads Dominated Online Video Ad Market in 2009
According to a study conducted by online video ad network YuMe, pre-roll advertisements were the most popular video ad format and constituted about 81% to 94% of the video ad inventory during each quarter of 2009. Pre-roll ads have generally been tolerated by internet users who wish to watch quality videos.
Internet users tend to watch 70% of these video ads and the click-through rates are often better than alternative forms of video related advertising. Furthermore, interactive pre-roll ads tend to be four times more effective than standard pre-roll ads due to increased user engagement.
Pre-Roll Advertising an Opportunity for Akamai
Akamai helps its customers conduct targeted advertising to increase the effectiveness of the ads and returns on ad spending. Akamai’s ad services are especially useful to its online shopping (e-commerce) customers who take advantage of Akamai’s advertising solutions to reach their desired audience. We believe that Akamai will continue to benefit for demand for video ads and that its value added advertising solutions can help drive up Revenue per Online Shopping Customer.
Online shopping content delivery (including related value added services) constitutes about 35% of the Trefis price estimate for Akamai’s stock. You can modify our forecast above to see how Akamai’s stock depends on Revenue per Online Shopping customer.
