Seeing ‘mad cash’ in online advertising
Step into the Westside offices of the Rubicon Project and you might feel as if you’ve been transported to Silicon Valley, circa 1999. Dozens of twentysomethings in jeans crowd around tables in one big room, hunched over laptops, typing away. A few play a Nintendo Wii game in the corner. One sips a beer.
Investors may be jittery about the current economy, but Rubicon -- a start-up online advertising company -- isn’t worried. It hired most of its 37 employees in the last few months, and today it plans to announce it has received a new round of funding, bringing its total to $21 million in eight months.
“Right now, companies are understanding that digital media is a viable business,” said Daniel Taylor, an analyst with the research firm Yankee Group. “It’s like it is 1950 and someone just realized you can sell advertising on television.”
Yankee Group predicts that the amount spent on online advertising in the U.S. will jump from $21.7 billion in 2007 to $50.3 billion in 2011. But the market isn’t very effective right now, says Frank Addante, Rubicon’s 31-year-old founder and CEO. There are more companies spending money online, but many of their ads end up on websites that aren’t relevant to the product they’re selling. Moreover, Addante says, websites “are not making as much money as they could be” from ads.
That’s because on average, websites can sell only about 20% of their ad space directly to advertisers. They turn to ad networks -- companies providing them with ads from partner companies -- to fill the rest. But those networks don’t always do a great job matching the spots to interested eyeballs.
Cue the Rubicon Project. Through a lot of complicated math, its service assesses in real time which ad networks will provide a given website with the most relevant ads, and sends ads from those networks. Websites use this service to receive the ads that pay the best and those that are the most relevant to their readers, which are more likely to be clicked on.
That allows websites to “make mad cash” from advertising, as Addante likes to put it. The 3,000 websites that have signed up so far have seen revenue increases ranging from 33% to 300%, he says.
Rubicon makes online advertising more efficient and transparent, which will help attract even more dollars online, said Raj Kapoor, managing director of the Silicon Valley venture capital firm Mayfield Fund, one of Rubicon’s investors.
The success of advertising on mediums such as television, newspapers and radio is difficult to measure, Kapoor said, whereas online, everything can be tracked. Logically, he says, when advertisers have less money to spend, they’ll want to put it where they can track it.
In a recession, Kapoor predicts, “overall, the budgets will go down, and the shift of what’s left will go more toward the Internet.”
Rubicon’s team may be young, but it has a wealth of Internet experience. Before he was 30, Addante had started five companies: He took one public, sold two and moved one up to Silicon Valley. The other, he calls a “learning experience.”
He founded Rubicon eight months ago. Also on the Rubicon team: Duc Chau, vice president of technology, who, as the lead developer of the initial MySpace community, had that site’s first profile.
Kapoor says Rubicon is part of the growing tech community in Los Angeles, which has seen a lot more investment of late from Silicon Valley firms. That’s especially true in the online advertising realm.
“The online advertising marketing is kicking off, and we think there’s a lot of opportunities for disruptive start-ups to make their mark,” Kapoor said.
Addante is himself a cheerleader for the Los Angeles tech scene. He moved here from Chicago nine years ago to work on a start-up and, impressed by the weather and the technology talent, never left.
He stars in a video currently on YouTube, talking up Los Angeles as an alternative market to Silicon Valley for start-ups. He created the video to showcase opportunities in Los Angeles at the Lobby, a conference that brought together movers and shakers in the tech community, many of whom are based in Silicon Valley.
Addante praises Los Angeles as a place to start companies and find good talent, telling the camera, “I’m here to tell you firsthand that we’re just as driven and just as serious.”
