Ad Tech Startup Rocket Fuel’s Revenues Take Off

Display-LUMAscape

Illustration: Luma Partners

From my Forbes.com blog The New Persuaders:

There’s a gazillion little ad tech companies out there, as you can see in the well-traveled chart called the Display Lumascape on the right. Conventional (and probably correct) wisdom is that eventually many of them will get snapped up by bigger fish, whether that’s giants like Google, Oracle, and Facebook or rivals that just did a better job.

Since that process has happened a little more slowly than many people expected, though, a few of those fish are getting pretty big. One of them is Rocket Fuel, a Redwood City (Calif.)-based startup that despite its name has flown under the radar of the general public. While it started out as an ad network, it might be better seen today as a so-called demand-side platform, or DSP. It buys ad space for marketers and uses its rocket-science technology to target ads precisely in real time to the most receptive prospects, a process that goes by the industry shorthand “programmatic buying.”

Today, Rocket Fuel is announcing with unusual candor for a startup that its gross revenues rose 238% last year to $107 million. Notice I said gross revenues; a good chunk of that goes back to publishers from which it bought ad inventory. The company won’t reveal net revenues.

But the growth is real. And that includes growth in customers, nearly a doubling of new advertisers. On their behalf, Rocket Fuel’s system deals with more than 26 billion ad impressions a day. Not least, the company has more than doubled its staff, to 289 employees, including a new chief marketing officer and a couple of VPs.

CEO George John says the company isn’t profitable yet, though he says it’s close. “The playbook is to invest,” he says, so plans are not for near-term profits.

You might wonder, as I did, whether revealing revenues is an indication that the company aims to go public soon. Actually, it has been just as forthcoming previously, and John won’t say what his plans are.

But given that it had made noises back in 2011 about an IPO in 2012, instead raising a huge $50 million round last June, it’s not out of the realm of possibility this year, market gods willing. Or, to mix a metaphor, it might continue to swim around the Lumascape and try to figure out whether to eat or be eaten.

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13 Questions For 2013 In The World Of Online Advertising

questionsCross-posted at my Forbes.com blog The New Persuaders:

For the past few years, I’ve offered predictions here and on The New Persuaders for what’s likely to come in the next year. I viewed them more as an agenda for what to watch for in the next 12 months than as firm predictions.

But it was too easy sometimes to state the obvious so they’d end up right by year-end. So this year, I’m going to shake it up and throw out a few questions instead. I think I know the answers to some of them, but if many won’t be answered definitively by year-end, they remain top of mind for me and probably for many others in online media and advertising.

So in this, the first full week of the new year, here are some questions to which I hope to start finding answers (and if you’ve got ‘em, sound off in the comments below!):

* Will image advertising finally take off online? I have to believe that as people spend more and more time online instead of reading print publications and watching TV, brand marketers will want and need to reach them there with ads that are aimed at creating consideration for later purchases, not just eliciting an immediate sale like Google’s search ads and too many banner ads. We’re already starting to see signs of such advertising with the early success of Facebook’s Sponsored StoriesTwitter’s Promoted Tweets, and YouTube’s TrueView ads–not to mention the explosion of tablets, which provide a lean-back experience more compatible with image advertising. This won’t be a sudden change, since brand marketers and agencies don’t move quickly, but you can’t tell me there aren’t going to be increasingly compelling ways for brands to influence people online.

* Will native ads reach broad scale? Well, perhaps they will on platforms such as Facebook and–well, Facebook–that already reach hundreds of millions of people. Sponsored Stories clearly have gotten some traction, even on mobile devices. But marketers and agencies won’t create multiple versions of campaigns to serve every new ad format that publishers claim work better than banner ads. Which brings up a related question:

* Will any standards emerge around the social gestures that most of these native ads embody? That’s really the only thing that will ensure that marketers can reach scale across many sites. That wouldn’t be in the interest of big companies such as Facebook and Google, which benefit from proprietary ad formats that can reach their huge audiences. But standards, whether it’s banners of a particular size or ad networks, create a more liquid market that helps hundreds of publishers survive as they provide marketers scalable opportunities to reach big audiences. So are there atomic units of social gestures that could carry brand messages across multiple native ad formats without destroying the appeal of native formats? Maybe there’s a technological fix for this, but it’s clear that a lot more needs to be done.

* Will the long-predicted shakeout in ad tech companies finally happen? It didn’t really occur last year despite a few middling-big acquisitions by Oracle, Salesforce.com, and Google. This year, perhaps new Yahoo CEO Marissa Mayer will corral a few to try to recharge the company’s ad business. Google, Adobe, and IBM have built out “stacks” of ad tech, but no doubt they can each fill out their offerings. Then there’s Facebook, whose ad exchange is likely to need fleshing out. But even if they each write checks for a few three-letter acronym startups apiece, don’t call it a shakeout. Given the rapid evolution of advertising technologies, and the reality that using data to refine advertising is still in its infancy, it’s a good bet that more companies will still be created than disappear. That should keep the Lumascape as crowded as ever.

* Can advertisers and publishers make ads more personal without scaring people? That’s the $64 billion question, and it likely won’t get answered in full this year. It’s easy for headline-hungry politicians to make a big deal out of Facebook’s latest privacy gaffe or the Wall Street Journal’s or the New York Times’ latest scare story about an ad that followed somebody all over the Web. That’s especially so since Facebook really does push the privacy envelope too far at times, and too many advertisers idiotically chase one more sales conversion at the cost of scaring off hundreds of others or inviting onerous legislation. But making ads more useful to each individual person is not only crucial to online commerce, it’s potentially better for most consumers as well–seriously, I don’t need to see another ad for a fitness center or a new credit card, but that ad for Camper van Beethoven’s new CD had me in a split-second. The answer lies in these two words, everyone: transparency and choice.

* Will mobile advertising work? Well, some of it already does, to hear Google and Facebook tell it. And while those already devalued digital dimes so far turn to pennies when it comes to ads on smartphones and tablets, this still feels more like growing pains than a crisis in online advertising. Sure, the screens are small and people don’t like to be interrupted in their mobile cocoons. So a different kind of advertising is probably needed–clearly, banners don’t cut it on a four-inch screen. But the value to advertisers of knowing your location and maybe the apps you’re using, coupled with knowledge of what your friends like–all with permission, of course–is huge. That permission may be really tough to earn. But if advertisers can offer tangible value, perhaps in the form of useful services related to what you’re doing or looking for or shopping for–and isn’t that the ultimate native ad?–people may loosen their hold on that information.

* Can Larry Page keep Google relevant in the social media age? So far, the no-longer-new CEO has at least kept Google’s mainstream ad business humming. Page has outlasted a year or so of missteps, missed opportunities, antitrust investigations, and bum vocal chords, and arguably emerged with a company that’s leaner, more focused, and more potent than ever. Not only does the recent antitrust victory appear to leave it free to compete unimpeded, but Android is doing better than ever even vs. a very strong Apple ecosystem and Google is about to emerge as a powerhouse in the other half of online advertising: display ads, whether on the desktop or on mobile devices. Page’s big challenge looms as big as ever, though: Can Google play in the social Web vs. Facebook/Instagram, Twitter, Pinterest, and more? I don’t know, but this may be the year Page has to provide a more definitive answer.

* Will TV and Web video ads finally come together on Connected TVs, tablets, or other devices? Sure, at some point. Video is video no matter where it runs, and while personal computer users bristle at pre-roll video ads, I’m betting viewers are more amenable to various kinds of ads when they view video on Internet-connected TVs or tablets. And even on PCs, YouTube’s TrueView ads, which you can skip after a few seconds, have proven successful to the tune of several billion dollars last year. Traditional TV advertising will continue to thrive thanks to unassailable economics of the cable-content cabal. But given extensive work by Nielsen, comScore, and others to provide metrics that can extend across TV and the Web, the latter may finally get some serious coin from brand marketers–if not this year, pretty soon thereafter. Especially if Apple works its magic on the television.

* Will Facebook really tick us off with a new feature or privacy “improvement”? Is Mark Zuckerberg CEO of Facebook? Nonetheless, Facebook’s well-worn playbook of pushing beyond social comfort levels, then pulling back just a bit, means we’ll probably see privacy norms get stretched once again.

* Will Apple ever make a real splash in advertising? Don’t bet your iPad on it. I think even the post-Steve Jobs Apple still views ads the way a lot of Silicon Valley still does (mostly in error): ineffective, inelegant, and crass. Apple itself can make great ads, but selling them is an entirely different matter.

* Will Amazon make a real splash in advertising? Oh yeah. All the pieces are in place, from a huge shopping-focused audience to a nearly bulletproof technology infrastructure. Again, it won’t set the world on fire this year, but we’re likely to see the smoke.

* Will Marissa Mayer turn around Yahoo? Not this year. Still, I wouldn’t be surprised to see signs of a real turn for the first time in about five CEOs. But the real turnaround will take years–if Yahoo’s board has the patience. That’s still an iffy bet worth about as much as a share of Yahoo stock.

* Will I ever figure out the appeal of Reddit and BuzzFeed? Gosh, I hope so. I get that these guys attract massive traffic, but neither site does much for me. Reddit, in particular, seems so random that I guess it must be the channel-surfing of today’s generation, only with somewhat more worthwhile nuggets. But for pete’s sake, there’s so much noise for the signal you get, and even the most popular noise can be many hours, days, or even months old. Go ahead, call me a geezer who doesn’t get it. You wouldn’t be the first, and maybe you’re right. So I will continue to click over to them until I see the light, my brain explodes, or the next phenom looks more worth wasting my remaining years on.

I have a lot more questions, but I’ve got to stop before too much of 2013 is gone.

How Did I Do On My 2012 Predictions?

2012: The Year Ahead

Photo: Mike Licht, NotionsCapital.com

From my Forbes.com blog The New Persuaders:

It’s that time of year: time to reflect on the past year, time to get wasted and watch a glass ball smash into the ground, time for people like me who foolishly offered predictions for the past year to face the music. So here’s how I did on my 2012 predictions:

* Facebook goes public, but won’t start an IPO landslide: Bingo! Indeed, Facebook’s ill-received IPO led to a months-long drought in IPOs as investors realized they were not a sure route to riches. The situation may be improving, but mostly for enterprise more than consumer companies.

* Facebook’s ad business booms–but not at Google’s expense: Bingo! While Facebook’s revenues slowed even before its IPO as it continued to experiment with new ad formats and scrambled to provide mobile ad units, ad revenues have since accelerated, up 36% in the third quarter over last year. At the same time, while Google’s revenue growth disappointed investors in the third quarter, it was mostly thanks to the impact of its Motorola acquisition, not a shortfall in its core ad business.

* Image ads finally find a home on the Web: Half-right. YouTube proved there’s a real market for TV-like video ads if you give viewers the choice to view them or not, as its revenues were expected to hit $3.6 billion in 2012, according to Citibank. But Facebook’s struggles to attract brand advertising despite a TV-scale audience, while partially successful, show that no one has yet come up with brand ad formats that work consistently and at large scale online. Or at least brands, which still spend most of their money on TV ads, don’t believe it yet. And they write the checks.

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Venture Capitalists: We’re Doing Fine! Really!

4444 students from 25 schools in Gwalior

Image: AFP/Getty Images via @daylife

From my Forbes.com blog The New Persuaders:

With so much turmoil in the venture capital business, from the rise of competing super-angel investors to tepid fund returns for the past 10 years to some big IPO duds this year from the likes of Facebook, the future of this economic engine of innovation is pretty murky. But to hear VC investors on the opening panel of the Silicon Valley Venture Summit held annually in the coast-side community of Half Moon Bay by business media network AlwaysOn, there’s not much to worry about.

On the panel addressing the “VC & Investor Outlook for Global Silicon Valley” were host Packy Kelly, partner and co-head of KPMG’s U.S. Venture Capital Practice; Norm Fogelsong, general partner at later-stage VC Institutional Venture Partners; Neal Dempsey, managing general partner at early-stage VC Bay Partners, which has gone through its own travails in the past couple of years; and Gaurav Tewari, director of SAP Ventures. Here’s what they had to say about the state of the VC business:

Q: Where are we in terms of the VC cycles today?

Fogelsong: The industry’s healthy. Things got quite excessive in the bubble, and now we’re back up to $15 billion to $20 billion that’s healthy for the industry.

Dempsey: Companies are going to have major exits, and I’m convinced it’s going to be fine over time.

Tewari: The pace of innovation and entrepreneurship is just accelerating. It’s a very exciting time. The numbers are mixed. The number of folks in the industry has shrunk 30% in recent years.

Q: Is there still ample capital to invest?

Fogelsong: Yes. But we’re still burning off the excess of the bubble.

Q: How have things changed in terms of the choices entrepreneurs have now–angels, seed funds, accelerators?

Dempsey: It’s only better for the industry. The angels provide this huge infrastructure of small investments that we can’t make. We can see what trends or companies are working. When we get involved, [unlike angels who make dozens of investments a year], we’re hands-on.

Fogelsong: But if you’re thinking of getting angel financing, get an experienced angel. Some of the new ones don’t realize their investments are going to need follow-on financing. …

Read the complete post at The New Persuaders.

What Are Those Twitter Founders Up To Now? Still Not So Obvious

Biz Stone and Evan Williams, co-founders of Tw...

Biz Stone and Evan Williams (Photo credit: Wikipedia)

From my Forbes.com blog The New Persuaders:

With Twitter apparently on a path to profits, or at least revenues, two of its cofounders are now on to other things.  Biz Stone’s and Evan Williams’ new company is Obvious, whose motto on its spare website is “We do various things.” A bit more specifically (but not much), Obvious’ goal is to “build systems that help people work together to make the world a better place.” Its first effort, called Medium, might be viewed as Twitter 2.0, seeking to figure out what to do with the firehose of information Twitter has helped create.

In a “fireside chat” with Hunter Walk, a Google director of product management working at YouTube, at the TechCrunch Disrupt conference in San Francisco today, Stone and Williams fleshed out their vision, admitted they didn’t get everything right at Twitter, and offered advice on how to build Internet companies today:

Q: You don’t still work at Twitter, right?

Williams: I’m on the board, but we don’t work at Twitter.

Q: It’s not an incubator, not an investment fund, and you’re building Medium. So what is Obvious?

Stone: It’s an excuse for me and Ev to work together. Really cool, good stuff comes from an organic atmosphere of working on things. We do whatever it takes to help people and projects philosophically aligned with us succeed.

We have marketing capabilities, design and engineering prowess, and money, and we deploy them wherever it makes sense.

A: Now you are older and wiser and wealthier, and parents. How does that change how you run a company?

Williams: I tried to be a ski bum when I left Twitter, but it didn’t work. We’re driven to do interesting things in the world. We decided to let it evolve as the products evolve, figure it out organically as we go. That’s satisfying. It’s a hell of a lot more fun than skiing every day.

Q: The first product you’ve come out with is Medium.

Williams: We came out with a preview, not a real product yet, a few weeks ago. We have a team of engineers working on it every day.

Medium is essentially a publishing platform, along the lines of what we’ve done before, with Xanga and Blogger. We’ve been obsessed with the democratization of media on the Internet. We just thought there’s still more stuff to do.

Q: Only a select few can publish on Medium. Why?

Williams: We want to help high-quality content succeed and get attention. Not everybody can write. It’s not to limit who can publish. It just happens to be we launched in private beta. It’s hard to throw open the doors in closed beta. It’s definitely not the ethos of Medium to be closed in any way.

Stone: We learned a few things about opening up the doors….

Read the complete post at The New Persuaders.

No ‘Pinterest For Cats': Google Ventures’ Kevin Rose Shoos Away Copycat Startups

Worlds Collide Onboard the S.S. Jeremiah O’Bri...

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Few people have seen the ups and downs of startups more up close and personally than Kevin Rose, partner at Google Ventures and cofounder of Digg, the social news site that could have been Reddit but faded and is now trying for a comeback under new owner Betaworks. In an interview at the TechCrunch Disrupt conference this morning in San Francisco, Rose talked about his relatively new role as a venture capitalist.

Among the highlights: He said that he has helped speed up the way Google makes investments, that Google isn’t trying to lowball startups on valuations, and that he’s avoiding copycat startups (um, not to be too impolite, but like those dozens of companies in the conference’s demo hall?). Here’s what else he’s thinking about today, sometimes paraphrased:

Q: How has it been as a full-time venture capitalist?

A: I was doing angel investing for three or so years before joining Google Ventures. It was always a part-time thing, a casual investment every month or so. Now I’m seeing 10 or 15 companies a week. I always like seeing cool new ideas.

Q: Is it hard keeping them all straight?

A: Absolutely. I’m terrible at names.

Q: What’s up with the apparent drama between Y Combinator and Google Ventures, where the former accused the latter of lowballing startups on valuation?

A: We’re absolutely not going out there and trying to lowball companies. Some companies are worth $15 million and others are worth $6 million or $8 million. I’m closing three YC deals, all three we took the terms straight up. Another one, we just saw too much risk, so we didn’t do the deal.

Q: A couple of companies I talked to said the due-diligence process is longer with Google Ventures.

A: I don’t know that we’re more strict about that. I took $200,000 from GV for my last startup, Milk. The diligence process was a little longer. But I’ve been working personally on streamlining that. We do $5 million to $10 million that absolutely take good due diligence, when you’re investing that much. I think we’re in a great place now.

I have nothing bad to say about Y Combinator. I’m investing in several of their companies. Nobody’s mad at anyone.

Q: What YC companies have you invested in?

A: We just closed on BufferBox, kiosks for people to get packages at, like Wal-Mart stores.

Q: Are there certain kinds of companies you like?

A: I’d be lying if I said I have this grand vision. When I see a company that’s really doing something disruptive, that gets my interest. I don’t want to do a Pinterest for cats. I’m more of a surgical investor. The only way to do that is to pare down the total number of deals you do. I may do 10-12 deals a year, but they’re companies I really believe in. …

Read the complete post at The New Persuaders.

Reid Hoffman: Social Networking Isn’t Over Yet–And Neither Is Facebook

Reid Hoffman

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Reid Hoffman is one of the most prolific angel investors in tech startups from Facebook and Zynga to Airbnb and Zipcar. It’s a talent he transferred to more traditional venture capital in 2009 when he joined Greylock Partners. He’s also a cofounder and executive chairman of LinkedIn.

In a “fireside chat” at the TechCrunch Disrupt conference in San Francisco today with TechCrunch founder Mike Arrington, who has since joined the VC world as well with his own CrunchFund, Hoffman proffered comments on everything from Facebook’s struggles to Twitter’s battles with developers. Here, paraphrased at times, is what he had to say:

Q: You are exceptionally wealthy. What changes?

A: There is a bunch of weird things. I had had a long-term plan to be affiliated with universities, like teaching. Overnight all those changed to donor relationships. Also, I would never have imagined I would fly in a private plane by myself, and now I have. It has its advantages.

Q: You wrote a book [The Startup of You]. How’s it doing?

A: It’s sold 120,000. In the consumer Internet space, we’re used to much higher numbers. I don’t think we’ve created a movement yet.

Q: You were one of the very first investors in Facebook.

A: $37,500 at a $5 million valuation. [That means he made 3,000 times his investment, or $111 million.)

Q: So you did very well. What do you think of Facebook’s stock now?

A: I’m a big believer in Facebook’s long-term position. The real question is how it plays out over the next year or so. People’s hand-wringing about not making money on mobile is an innovation problem that is not that hard to solve.

Q: Did Facebook screw up its IPO or was it inevitable it played out that way?

A: In some ways, it was inevitable. You had unprecedented demand, and you couldn’t know NASDAQ servers would go down. We at LinkedIn were criticized for leaving too much money on the table. …

Read the complete post at The New Persuaders.

Next-Generation Venture Capitalist Ben Horowitz On How To Build A Company Today

PandoMonthly - June 2012 - Sarah Lacy intervie...

Photo: thekenyeung

From my Forbes.com blog The New Persuaders:

Few venture capital firms have been more aggressive in recent years than Andreessen Horowitz, which has invested in dozens of the hottest companies from Facebook to Groupon to Pinterest. It has become one of the largest VC firms in just the three years since it was formed by onetime Netscape cofounder Marc Andreessen and his longtime partner Ben Horowitz, former CEO of Andreessen’s company’s LoudCloud, later sold as Opsware to Hewlett-Packard for $1.6 billion.

Today at the TechCrunch Disrupt conference in San Francisco, one of the year’s largest conferences for tech entrepreneurs (streaming live here), Horowitz was interviewed by legendary Silicon Valley VC and adviser Bill Campbell, known in these parts at “Coach.” Here, paraphrased at times, is what Horowitz had to say about how best to build a company today:

Q: What do you mean by “Software eats the world” as your basic investment thesis?

A: Weak form: Software is eating the technology industry. The stronger form of the hypothesis is that software will eat every industry eventually. Retail, movies, radio and music. We see software eating every industry from agriculture to finance.

Historically, the technology industry has been sized at a certain size. Only so much new technology could be absorbed. But as software eats other industries, technology will actually expand.

Q: Apple defies some part of that with software and hardware integration. How do they do that?

A: Increasingly, such as with Amazon, it’s software, hardware, and content.

Q: Why did you go over to the dark side–venture capital?

A: I’m considered a much better CEO now that I was when I was a CEO. Venture capital had become too abstract when it came to building a business–it was about business models. When you’re building a business, it’s about the struggle and the horror. I thought it would be good to have a firm that knew how to actually build a company. …

Read the complete post at The New Persuaders.

Move Over, PayPal Mafia. Meet The Google Mafia

From my Forbes.com blog The New Persuaders:

PayPal, the online payments company that eBay bought in 2002, is legendary in Silicon Valley for spawning an incredibly talented group of founders, investors, and executives at startups that read like a Who’s Who of Web success stories. The so-called PayPal Mafia includes Tesla and SpaceX founder Elon Musk, LinkedIn cofounder, angel investor and Greylock VC partner Reid Hoffman, hedge fund and early-stage investor Peter Thiel, Yelp cofounder and CEO Jeremy Stoppelman, YouTube cofounders Chad Hurley and Steve Chen, and many more.

Now, it looks like a new corporate organization is moving in: the Google Mafia. With the surprise appointment today of longtime Google executive Marissa Mayer as CEO of Yahoo, it now appears that the Google Mafia could prove almost as powerful, though in a different way: It’s more of an executive mafia than a startup mafia. But these former Googlers are now in high-profile positions around the Valley and the larger tech industry, in very influential companies. …

Read the complete post at The New Persuaders.

Is The Tech IPO Deep Freeze Finally Thawing?

Courtesy 20th Century Fox

From my Forbes.com blog The New Persuaders:

Facebook’s initial public offering in May was supposed to be the bellwether for an expected pile of IPOs this year, but the subsequent dive in the social network’s shares appeared to put new offerings into a deep freeze. Now, it looks like the mini-Ice Age for IPOs is starting to thaw.

Today, two companies that were widely expected to file for an IPO before Facebook’s IPO faceplant, said they plan to go public this month. Internet security firm Palo Alto Networks aims to raise up to $175 million with an offering at $34 to $37 a share.  Kayak, which had put off an IPO expected late last year, also priced its offering, hoping to raise $87.5 million at $22 to $25 a share.

Given that Facebook’s IPO was supposed to be a sure thing–and most assuredly wasn’t–there’s certainly no guarantee that these two companies will help bring back the IPO market. Investors will be cautious about every new IPO, not only because of Facebook, but because of the poor subsequent performances of tech IPOs such as Groupon and Zynga. What’s more, the economy is simply too uncertain to bet on a momentum-driven market like IPOs.

Nonetheless, successful IPOs by Palo Alto Networks and Kayak–on top of another recent IPO success by ServiceNow in June–would inject new life into the technology investment cycle. Indeed, investors such as YCombinator’s Paul Graham have warned that Facebook’s face plant has already cooled early-stage tech investment. So any revival would be positive for the innovation and growth that comes out of that cycle. …

Read the complete post on The New Persuaders.

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