Fundamental Startup Analysis: Vertebrae — The Native Advertising Platform for AR & VR

Overview: Vertebrae — The Native Advertising Platform for Augmented and Virtual Reality

Founded: 2015

Founder: Vince Cacace

Number of Team Members: 16

Specialties: Virtual Reality, Augmented Reality, Advertising, Immersive Media, and 360-Video

Website: www.vertebrae.io

Industry: Information Technology and Services, Virtual/Augmented Reality

Investments: Seed: HTC Vive X Accelerator — Amount Unknown; Series A: $10 Million by Unidentified Investor (Sept. 2016)

Abstract: Vertebrae enables brands to reach consumers through interactive and immersive virtual reality advertising natively integrated across the VR ecosystem. Vertebrae’s advertising platform provides interactivity and distribution tools, along with powerful analytics. Leading publishers and content creators work with Vertebrae to drive effective monetization of interactive VR content and 360-degree video.

Team:

Key Team Info: 15 years of combined virtual reality experience

Key Players:

Vince Cacace (Founder, CEO):

Education: Florida State University

Major: Finance, Accounting

Minor: Computer Science

Accomplishments: Forbes 30 Under 30

Details:

  • Seems to be enthusiastic about the growth potential of Virtual Reality.
  • Understands a lack of integrated advertising media in VR
  • Believes in providing a product that helps to streamline the process of synchronizing immersive experiences with advertising agencies to produce content that does not detract from the initial appeal of VR by including improperly formatted media (optimized 2D display vs fully-integrated 3D renders)

Potential Weaknesses:

  • Low Personal Following on Media Outlets
  • An improvement would give more validity as a leader.
  • Very few original tweets with meaningful content about own product/company.
  • More focused on the growth of the VR market
  • Tends to be interpreted as market-driven instead of product-driven
  • More background information to be circulated

Marc Bennett (COO):

Education: Yale School of Management, MBA

Professional Experience (Most Meaningful):

Activision — Senior Director, 8 years: Understanding the development environment and the mindset of content producers. Helps to integrate Vertebrae into content

Scaleform — COO, 4 years: Running a team as the head of operations in Game UI/UX field

Autodesk — General Manager, Games Technology Group: Creating fundamental software frameworks for people that make things

Oculus — Business Development Consultant: The ability to analyze and improve aspects of virtual reality software/hardware implementation. Direct correlation to improving Vertebrae through efficient strategy and the knowledge of immersive environments. Oculus currently commands the field of Virtual Reality and brought it to a popular reality. Bennett’s connection to Oculus allows for the possibility of quick integration with a large market holder to provide fulfilling experiences in VR.

Kathleen Han (CSO):

Education: Wharton School of Management at the University of Pennsylvania

Professional Experience (Most Meaningful):

Independent — Strategy and Marketing Consultant, 1 yr. 9 months: A plethora of companies that require specialized consulting to improve strategy and business marketing. The range of independent consulting shows the ability to work in different scenarios, adapt to challenges and implement strategies to overcome unforeseen problems. An entrepreneurial drive is shown by working independently.

Market Opportunity & Entrance Strategy:

Currently, virtual reality is in the beginning stages of a multi-track process to develop consumer knowledge and desire for a redefinition in modern media. It aims to enhance any experience of video through immersive and responsive content to create an alternate, or virtual, reality to allow a more fulfilling experience in viewing content.

When Oculus was founded in 2012, the Rift took the internet (through Kickstarter) by storm, proving that the consumer market for a streamlined virtual reality system was present. This initial hype around the Oculus Rift sparked developers and media to begin to think about creating content that would be compatible with the next generation of how consumers would view information. Since then, the Oculus has been released but there has not the same excitement as there was years ago. The Virtual/Augmented Reality market exploded with initial hype and optimistic futurism, however, product delays, lack of content, and skepticism around head-mounted devices have put this market in a slight dormant period. This period has allowed for the re-engineering and creation of new media and technology to better suit virtual reality systems and the preparation to reintroduce a new generation of media and equipment to consumers that already have a familiarization with the product and the desire for it.

The Virtual Reality Market is currently a 3.44 billion dollar market and expected to grow at a compound annual growth rate of 57.8% to reach ~33.7 billion in 2022. However, Vertebrae is not directly in the Virtual Reality market but rather a derivative of this market that can capitalize exponentially on the increased potential market size. The business strategy does not rely solely on units of virtual reality but rather through an indirect relationship through the creation of content for those devices and the implementation of advertisements through the new media streams. It is worth to note that the practical market capitalization will not necessarily be this large due to many applications of the Virtual Reality market being unfeasible for Vertebrae to initially capitalize on. For example, military and manufacturing uses will most likely not be target audiences in Vertebrae’s advertising applications but play a large part in the prediction of market size. Also, this market is not focused towards high-end gamers with extremely expensive VR headsets, but rather towards mobile VR headsets and casual gamers that already are familiar with mobile ads, however, this would implement them in an entirely new way.

Vertebrae is attempting to corner native advertising and through partnerships with NFL, Facebook, Huffington Post, Fox News, and CBS, it must have had a successful first run through. This direct business to business model will help accelerate growth through large advertising deals, allowing for a stronger focus on improving product instead of instead of attempting to grow through small individual content creators and finding sources of revenue. By entering the market with a solid foundation of partners, it can provide a smooth runway for this technology to take off. But expansion beyond these few companies is important. Cacace, CEO of Vertebrae, said they will plan to also develop native advertising for YouTube 360 videos.

Market Competition:

Because there is huge upside potential in creating the perfect algorithm to seamlessly integrate advertisements into virtual and augmented reality, market competition could rapidly grow. First off, companies such as Google and Facebook have the greatest advertising methods and resources to possibly break into 360-degree ads if they believe it to be profitable enough. Currently, due to the lack of hardware and user demand, it’s unlikely to see one of these big players enter this market soon.

However, Vertebrae is not the only startup that intends to bring a native platform for advertisers in virtual reality. OmniVirt, who has received seed funding from Andreessen Horowitz, General Catalyst, SV Angel and Y Combinator, is also attempting to do what Vertebrae is doing. However, they are less focused on headset virtual reality and rather are developing mobile-integrated 360-degree interactive environments.

OmniVert, a current competitor, seems to focus more on the distribution and publication of virtual reality content where Vertebrae aims to work directly with businesses to provide integrated solutions. Business models are different and I could see both companies growing in their own niche until a dominant player stands out.

Although there is competition in this emerging field, it proves that there is a strong need for preparing for the next revolution in media consumption and how to monetarily capitalize this growth. There is not one dominant player as of right now, however, through detailed analysis of Vertebrae’s team and mission, I believe that we can see a promising future for this LA-based startup.

I have reached out to Vertebrae to hear on how they believe they will differentiate themselves in this market. As of May 1st, Vertebrae has not responded to how they believe they will differentiate themselves.

Product:

Many say product is the most important part of any company (especially startups), however, in this stage, the team, strategy, and opportunity matter more than the specifications of the product. Technology should be exponentially better than what currently exists and although there is no quantifiable way to determine exactly how much better a new innovation is, an estimated value of ten times better than the current consumer product is considered the right metric for a new product to be successful.

Vertebrae’s native advertising platform does not disrupt a well-established current product because the current methods used are primitive, giving a huge opportunity for Vertebrae to excel and dominate through advanced technology. Creating VR content is expensive, hence the need for creators to implement ads, however, so much time is spent creating high-quality content that revenue streams are an afterthought. This leads to the current application of 2D passive banner ads that degrade the entire user experience. Vertebrae tools allow for the easy implementation of customized, scalable inventory that works not only in VR environments but non-virtual reality environments as well. Furthermore, a new range of opportunities for consumers to actually engage with a product, in 1:1 scale, could create a whole new disruption to brick-and-mortar retail stores where consumers still feel the need to experience a potential purchase before buying it. These ad formats work in a variety of places but the most common application of these ad formats in VR experiences and 360 degree video are branded image backgrounds, virtual brand rooms, custom VR minigames, and content sponsorships.

Google is one of the kings of electronic advertising not because of the sheer number of users but because of efficient, individualized advertising experiences. Advertising metrics can easily be understood through their Google Analytics platform. In order for Vertebrae to be successful as a new player in the advertising game, they must succeed in being able to effectively gather data and analyze this data per user. This then would allow for advertising publishers to understand the metrics behind the full user experience, while defining engagement and tracking performance. It is imperative to understand how a user interacts with an ad and defining what it means for an ad to have had an impact on that user in order to maximize a publisher’s ROI (return on investment) and in turn allow Vertebrae to bring in revenue.

Final Thoughts:

The small yet growing Virtual Reality market provides a perfect incubator for the introduction of Vertebrae’s technology. As consumer awareness grows, more content will be created and will prompt the quick need for monetizing that content. Vertebrae’s team seems to have a strong background in game development, business strategy, and virtual reality, all which are important to creating a platform that really integrates well with created content. Strong additions to Vertebrae’s team could be experienced Google Analytics employees that would be able to guide the company to better collect metrics on users and have a strong advertising platform that is able to capitalize on the uniqueness of this immersive experience.

It would be interesting to see the split on advertising revenue between game/content creator and Vertebrae. Because creating this type of content is more expensive, the market would expect that the percentage that Vertebrae receives in advertising revenue to be lower than the current market rate. This could prove a problem if the company needs money and early-stage investments are not able to sustain the level of growth this company needs. Back in September 2016, Vertebrae secured a $10 million investment from an unknown investor which is very promising for a startup that was around for about a year at the time of investment.

There needs to be a strong focus on creating good publisher relationships and proving this concept. If Vertebrae cannot prove to its advertisers that the extra expense of immersive and native ads drives more traffic, it will be difficult to achieve profitability. Ultimately, this company is striving for profitability, unlike many startups of this age that focus on user growth and retention. Vertebrae does not rely on a huge user base but rather the cash flow of advertisements.

Vertebrae’s team should focus on brand recognition and product demonstrations. Currently, to the average visitor, their website is slightly ambiguous on exactly the company’s mission and what they do besides the buzzword of “native advertising”. This can be solved through more online publications about the company to give consumers a sense of validity. Vertebrae’s website is not secured with an SSL Certificate, which is worrisome due to the probability cyber attacks on companies that gather information through advertising because of their storage of valuable information. A team member that is strong in cyber security could also be a great addition to the company.

Vertebrae is a promising startup based out of Santa Monica and could be the harbinger that bridges the gap between advertising and virtual reality.

Pierson currently studies Computer Science at the University of California, Los Angeles while he pursues his passion in Entrepreneurship and Startup Research.

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