Winning in Online Advertising in a Down Economy

In late 1997, I had founded Bluestreak with a few friends. Bluestreak started out among the first-generation rich media advertising technology companies, such as Narrative (later called Enliven), Unicast, and Thinking Media. By 2001 Bluestreak was considered the market leader in rich media — we possessed the greatest market share, and drove much of the technical innovation in the rich media market from 1997 through 2001. But as the dot-com bubble began to burst, it became clear that there was trouble on the horizon for rich media.

Sensing that as the market economics of online ads changed, we may need to diversify our customer base, we undertook a significant effort in the summer of 2000 to extend our rich media ad serving platform to become a full-service buy-side ad server (third-party ad server.) Our plan was to extend into that market, then go back and recreate our first-generation rich media advertising solution (built as client-side Java Applets) in Flash.

We raised our third round of funding, $19 million in December 2000 (good timing by anyone’s reckoning) and released our V1.0 ad serving platform in April 2001. As the market imploded that summer many existing companies began coming up for sale. We acquired AdKnowledge from CMGI/Engage that fall, closing on the ill-fated date of September 11, 2001. We moved all of AdKnowledge’s customers onto our platform over the course of a few months and became one of the significant ad serving companies for the buy-side of the market.

Also in 2001 a serial entrepreneur named Jules Gardner founded a company called PointRoll. PointRoll was one of the second generation of online advertising companies focused on rich media advertising — and I had watched its startup with fascination.

At the very moment that PointRoll, Eyeblaster, EyeWonder, and others were beginning extensive marketing campaigns to try to challenge Bluestreak’s market dominance — we were refocusing our efforts to expand into third-party (buy-side) ad serving. What the new startups hadn’t realized is that the bottom was dropping out of the rich media market. This is one of the things that drove us to expand into ad serving. We needed to diversify our market offerings as the market started coming apart.

To understand why the bottom was dropping out — you need to understand some of the economic history. When average CPMs (define) for inventory were above $5, rich media was charged as a “tacked on” CPM billed directly to the advertiser or agency — usually an additional $2 to $3 by the rich media vendor. As advertising budgets began to drop and the price of inventory plummeted, it began to be less cost effective for the advertiser to pay our additional fees to run the rich media. The idea that an advertiser would pay $2 for rich media on inventory that cost less than $1 was rather absurd. To some it looked like the end of rich media advertising. The economics simply didn’t work — advertisers and agencies were unwilling to pay more for the rich media than for the media itself.

But Jules Gardner was a scrappy street-wise Philly based entrepreneur. All the other rich media companies were helmed either by agency folks or technology industry veterans. Not Jules. Bluestreak retrenched and moved in another direction, and many others in the rich media space simply went out of business. Jules forced his way into meetings at all the top publishers in the market — and virtually rammed his agenda down their throats. His style turned off a few of the major publishers of the day, but the economics of what he was selling made real sense.

Jules convinced Yahoo and then numerous other major publishers to become his sales force. He would let them bake the cost of the rich media into the baseline price of their media sales. In the end, they couldn’t really mark up any of their premium inventory to cover the additional costs of rich media — but they were able to hold to rate card. And this turned out to be the golden formula for selling rich media. The publisher “gave it away for free,” but actually got great margins in return, even with the payout to PointRoll.

This type of scrappiness is exactly what tough times call for. What PointRoll figured out was that rich media wasn’t particularly about formats, nor about technology. It was about supporting conservation of margins for publishers by supporting them with the right sales model, and providing service to the advertiser. Ultimately this mechanism was repeated by all the second-generation rich media folks to great success, and rich media as we know it today still follows that same model. But if Jules hadn’t been there — most of them would have failed. It took the scrappy guy from Philly to break through and figure it out. And the rest of the market followed.

Finding ways to succeed in tough economic times is always hard, but not impossible. Providing means to preserve revenue and margins, increase efficiency, or reduce costs always has a place — especially when times are tough.