Published on Jul 01, 2021
Recently, Taboola (TBLA) said in an SEC filing that the company and the ad-tech industry were the subject of a DOJ criminal labor antitrust investigation. On Tuesday, Outbrain—Taboola’s closest rival, which is planning to go public—said in an SEC filing the department’s antitrust division notified it on April 29 that it, too, was the subject of a criminal investigation into hiring practices.
“We are cooperating with the Antitrust Division,” Outbrain said in the filing. “While there can be no assurance regarding the ultimate resolution of this matter, we do not believe that our conduct violated applicable law.”
Although a DOJ “subpoena indicated a May 27, 2021 production date, Outbrain’s attorneys Wilson Sonsini have had several meetings with the DOJ and are mutually agreeing on the timing and priority of document production to facilitate the DOJ’s investigation,” said the filing. “The Company is unable at this time to express any opinion as to the outcome of this matter or as to the possible range of loss, if any.”
DOJ and Taboola declined to comment. Outbrain and a Wilson Sonsini official didn’t respond to requests for comment.
“Competition for highly skilled personnel in our industry is intense across all our locations, particularly in New York City, where our headquarters is located, and in Israel and Slovenia, where we conduct the majority of our research and development activities,” Outbrain noted in the filing.
Ex-employee views. The Capitol Forum recently interviewed nine former employees at both companies to better understand the competitive environment and what DOJ might be looking into, which antitrust attorneys think is a possible no-poaching agreement. Taboola and Outbrain are both headquartered in New York but were founded in Israel and maintain important offices in the country. Taboola and Outbrain tried to merge in 2019 but abandoned the merger in 2020.
Former workers from both companies said generally there is very little personnel movement between the two rivals.
Former Taboola and Outbrain employees described the ad-tech labor market as very competitive, but said that Taboola employees generally wouldn’t make more money at Outbrain, and vice versa, although some said Taboola could pay a little more. Employees would typically look to switch to Google, Facebook and others.
While not an exhaustive piece of evidence, a LinkedIn search revealed only eight people who have worked at both Taboola and Outbrain.
The lack of employee movement between two close rivals does appear to be unusual. A head-to-head competitive environment would typically lead to an arms race on important employees. Even with non-compete agreements lasting six to 12 months, which the former workers said were common, making switching more difficult, there would typically be more movement between the companies.
One former Taboola employee who left the company a few years ago cited not being able to work for “native advertising” competitors (critics call them “clickbait factories”) for at least 18 months after leaving Taboola, which is an unusually long time for a noncompete agreement.
Attempted merger. A former Outbrain employee described some seemingly unusual human resources activity at the company ahead of its announced planned sale to Taboola in October 2019. “I was laid off as ongoing discussions preparing for the attempted merger continued,” the ex-worker said, noting a severance agreement that barred working for a competitor for 12 months, including Taboola.
Outbrain laid off workers from various departments leading up to the merger announcement, said the ex-employee. “I know of at least double-digit cuts from the New York office.”
Mass layoffs with lengthy noncompete agreements in a potential or pending merger could raise red flags for antitrust officials. Recently, in a consent agreement allowing 7-Eleven’s acquisition of the Speedway Retail Fuel Chain, the FTC prohibited the buyer from enforcing noncompete provisions for franchisees or employees working at or doing business with divested assets. Such a prohibition shows a heightened focused on noncompetes around merger activity.
That the Taboola merger with Outbrain fell through in September 2020, despite having received DOJ antitrust clearance, does raise some additional questions as to what the executives discussed regarding personnel during the merger discussions and how the executives handled communications around workforce decisions following the merger.
The risk-taking culture at Taboola could also be a red flag for the DOJ. One former Taboola employee described the company culture as “a lot like ‘Wolf of Wall Street’ craziness” and “very aggressive.”
Various factors cited. Former employees did not say they knew of any direct evidence of a no-poach agreement. But speculation by the former employees as to why there was so little movement between companies wasn’t entirely persuasive, including that the companies were too hostile to each other.
It does make sense that more money could be made at Google or Facebook, given that those are larger, more profitable companies. But the former employees also noted that the expertise for certain jobs could be very technically specific to the niche industry, which typically would lead to both Taboola and Outbrain being willing to pay a premium for those employees and more switching between the companies, as well.
Some former employees said that the Israeli tech industry was a very small community where companies usually don’t hire from direct competitors. Such a description could be another red flag for the DOJ as a close-knit ad-tech community in Israel might make that market more conducive to no-poach agreements.
One HR professional in Israel said, “It is not uncommon to mutually refrain from actively poaching employees from certain companies as the Israeli eco-system is very small and many entrepreneurs are good friends.” However, the same HR professional added, “I certainly haven’t heard such a thing about Taboola.”
Besides Taboola and Outbrain, it’s unclear if any other ad-tech companies are subject to the DOJ criminal antitrust labor investigation. Taboola listed 12 competitors by name in the prospectus for its initial offering of stock, which started trading Wednesday.
Revcontent, a rival, said in a comment to The Capitol Forum that it isn’t under DOJ investigation and doesn’t have no-poaching agreements. Amazon, AT&T’s Xandr and Magnite declined to comment. Google, Facebook, Verizon Media, The Trade Desk, Pubmatic, Plista and TripleLift haven’t responded to requests for comment.
Highlights From Interviews with Former Taboola and Outbrain Employees, and Industry Professionals
Former Taboola product employee. “I generally see tons of movement between ad-tech companies, which are continuously gaining and losing employees,” said the ex-employee. “But I haven’t seen a whole lot of movement between Outbrain and Taboola. I know one person who worked at both.”
“I always chalked it up to the company cultural differences rather than some sort of deal behind the scenes,” said the ex-employee, who left Taboola in 2015. “There’s a massive amount of animosity between these two companies. They’re cut-throat competitors. And I haven’t seen a change in movement between these two companies that indicates something weird going on between them.”
“I can’t see why a no-poaching agreement would work; there’s so many ways to get around it,” said the ex-employee. “There’s a helluva lot more movement to and from Google and Facebook. Typically the way to keep people is to incentivize them well. For Taboola workers, it’s not about going to Outbrain; it’s about going to Google, Facebook and Amazon. They’ll pay more.”
Asked to speculate about what the DOJ might be investigating, the ex-employee said, “I really don’t know. A lot of product and engineering staff is in Israel – that would be my first guess. Taboola and competitors have to constantly be looking for new product managers. … Maybe there was something that pertained to the merger attempt.”
The ex-employee’s Taboola contract contained noncompete provisions lasting 12 months.
Former Taboola sales employee 1. “I’m not aware of any specifics, but it wouldn’t surprise me if there’s something about the hiring relationship between Taboola and Outbrain that caught DOJ’s no-poaching concern, given the fact that they’ve competed for the same homogenous talent pool,” said the ex-sales employee, who worked at the company several years ago and is still active in ad-tech. “The core of their technical teams are centered in Israel. It’s a pretty small world. That would be the most obvious area where I could see the opportunity for collusive labor behavior.”
“If you go to either Taboola or Outbrain, and asked top management, who the most valuable employees are, excluding C-suite level executives, I’d be surprised if less than 90% of the names on the list are Israeli, and they’re going to be engineers, data scientists, or product people. The supply of people who know this space and who have these specialized skills are going to be in the highest demand.”
“Taboola and Outbrain are also competing for technical talent with Facebook, Google and other tech companies, and some people who want to start their own company,” the ex-employee said. “Salespeople aren’t as uniquely valuable, in general. Unless there’s a situation where their salaries are going up, and the companies want to put a stop to it. In the short run, it would be painful for a Taboola or Outbrain to lose half their sales team, but they can train people.”
“Everyone realizes the labor market is hot, so you need to be proactive in keeping all your A players, or you’ll be left with just B players. Typically, when there is a massive acceleration in the talent arms race, it almost always revolves around technical talent because it’s scarce, expensive, and there’s a massive danger to letting somebody like that go. It’s not only the cost of replacing such people, but it’s risky to let them out into the ether of the competitive marketplace, given their specialized knowledge of a company’s secret product sauce.”
The ex-employee said nothing stuck out about Taboola’s noncompete provisions, which are “standard” industry practice. “I never joined a company without signing one. They’re particularly difficult to enforce in California and New York.”
Former Taboola sales employee 2. Taboola and Outbrain workers rarely switched to the other company, said another ex-sales employee who left more recently. The former employee added, “I’m not familiar with anyone who has worked for both companies.”
“Most people who worked at Taboola were in the early stages of their career, and either they stayed at the company, went to other ad-tech companies besides Outbrain, or left the ad-tech industry,” said the former employee. “Plenty of people went to big guys like Facebook, Google and Oracle.”
“I helped on some hiring efforts,” added the ex-employee. “It’s not like we were restricted from going after Outbrain people, but it wouldn’t make sense for them to leave for Taboola to do the same job for the same money.”
The former employee, who left Taboola before the attempted takeover of Outbrain was announced in October 2019, wasn’t aware of any acquisition-related firings or hiring policy changes at Taboola, or of any noncompete provisions. “Nobody cared about noncompetes because nobody takes them seriously. They’re mainly used to scare young people.”
Former Taboola account employee. “We weren’t recruiting from Outbrain, to the best of my knowledge,” said the ex-manager, who wasn’t aware of any no-poaching or non-solicitation agreements between the two companies. “I wasn’t suspicious of anything along those lines. While I was there, we were very competitive with Outbrain. When Outbrain came up in discussions, we had to rip their guts out.”
“A lot of ad-tech people don’t stay at their companies for very long, and it’s hard to move around in the industry and not run into noncompete provisions,” which often lasted for six to 12 months, said the former employee.
“There were noncompetes to not leave Taboola and go to Outbrain or other similar companies,” added the ex-employee. “This was very common, though people didn’t always comply with those, and lower-to-mid-level employees wouldn’t get dinged as much by noncompetes as senior salespersons or maybe engineers would.”
Former Outbrain manager. “I was involved in many hiring decisions at Outbrain, and I never saw somebody from Taboola interviewing there,” said the Israeli ex-manager, who left Outbrain a few years ago. “I only know one person who was at both Outbrain and Taboola.”
“I’m not aware of any agreement or understanding between the companies to not hire or recruit each other’s employees,” the former manager said. “The Taboola culture seems more aggressive than Outbrain’s in customer acquisition and business development.”
In addition, the Israeli market is different from the U.S. market, where more people will switch to a direct competitor, the ex-manager said. “In Israel, it’s such a close-knit community; it’s kind of cultural not to switch to a direct competitor, and if you’re an Israeli engineer at Outbrain, you have better options at companies that pay more than Taboola. So the bigger problem for Outbrain and Taboola is how to keep workers from going to Google, Facebook and others.”
Former Outbrain tech employee. Despite their attempted merger, Outbrain and Taboola have a big rivalry, said the Israeli ex-employee. A worker “moving from one company to the other would be seen as a betrayal.”
“I have heard from companies in Israel who say they can’t poach valuable workers from other companies,” which generally are the computer scientists and other tech specialists, the former employee said. “But I haven’t heard about any no-poaching agreements involving either Outbrain or Taboola. I would be very surprised if something fishy is going on at Outbrain, given its culture. I can’t really comment on Taboola.”
Israeli human resource industry professional. “It is not uncommon to mutually refrain from actively poaching employees from certain companies as the Israeli eco-system is very small and many entrepreneurs are good friends,” said the executive. “This does not mean people can’t move from one company to another on their own.”
“I certainly haven’t heard such a thing about Taboola,” the executive added, “and what I said is not an understanding between companies, it might be how some companies act on their own discretion.”
Jack Marshall, digital media consultant. “The online-advertising competition between Taboola and Outbrain has been fierce, and they have been beating each other up in the market for years,” he said. “So they have tried to figure out how to combine their companies. They were competing for talent, as well, which is probably another reason their merger attempt made sense to them.’
“But I know of nothing specific about any type of no-poaching agreement or understanding between those two companies or any other ad-tech companies. It’s particularly hard for me to imagine big guys like Google would stick their necks out – much less on anything that could be found illegal – for what in their eyes are relatively small fry like Taboola.”