Friday, June 16, 2006
Interview with Dave Newmark, Bid4Spots
My interview today is with Dave Newmark, CEO of Bid4Spots (www.bid4spots.com), an Encino-based firm that is using online auctions to allow radio stations to sell unsold advertising space. The space has had a lot of attention recently, since Google purchased dMarc Broadcasting, a provider in the space, for what could be worth up to $1.1B. Dave told me about his firm, how it compares to dMarc, and what the opportunity is for advertisers and radio stations.
Ben Kuo: Explain to me what Bid4Spots is, and what you do for the radio industry?
Dave Newmark: Bid4Spots is a weekly online auction of radio spots, that takes place every Thursday for spots that will run the next broadcast week. It's a very different approach to buying radio airtime, in that it is a reverse auction. That means, the radio stations do the bidding for the advertiser's dollars. The stations that bid at rate at the lowest cost per thousand will win. What it's doing for the radio industry is essentially filling those unsold inventory holes quickly, easily, and most importantly, confidentially.
The confidentiality is a key aspect of this, as the radio stations do not want to undermine the value of their standard inventory.
BK: Why the reverse action format--what makes that appealing as opposed to an auction format, or standard rates?
DN: Actually, I wondered the very same thing when I thought about using an online auction model. In fact, when I first conceived of the idea, I studied the industry and found that during the dot com boom there were several companies with the standard auction model. What struck me most is that none of those companies were alive today. I wondered why, and thought about it a long time, and came to the conclusion after speaking to programmers that it was the wrong party doing the bidding. If you think about it, if you take a standard model like eBay, there is one baseball bat that someone wants, certainly the buyers will bid against each other and the one who wants it most gets it. There's a small supply--only one bat--and lots of demand. That drives the price up. In the case of remnant inventory on thousands of radio stations, there is a ton of supply--and quite frankly, very little demand. The reason there is so little demand, is because the people who do the most buying, the ad agencies, are worried about next year or next month, not next week. Next week in their mind is a done deal, and they're past it. It's too much trouble to deal with it, even at a low rate. Nevertheless, the more motivated party is the radio station, and they would like to convert that inventory into dollars. Some don't--they actually like to convert it into programming to build up their ratings--but most like to convert it into dollars. I decided the reverse auction was better, because the more motivated party, the radio stations, would be doing the bidding. Advertisers win because the auction format creates competition between a set period. The auction is between 8am and noon Pacific time. That competition is what drives the costs down.
BK: Where did the idea for the company come from, and what's your background?
DN: Well, the idea and my background are tied together in that I have owned and run an advertising agency for many years. Our specialty has to do with radio endorsements. The firm is Newmark Advertising. One of our Newmark Advertising clients, The Sharper Image, which I consider to be a Class A direct marketer, had tried to use a different company to do remnant radio buys. While they had a very successful small test, that company was not able to scale that to a national rollout. The reason why is that most radio stations do not want to give that small company a lot of their inventory, because the rates are too low. The Sharper Image came back to us, and asked us what we knew about it, and I said nothing--at the time, I didn't know anything about the remnant radio industry. I was curious about it, so I started asking a lot of questions. The more deeply I investigated the industry, the more perplexed I was why advertisers and radio stations were not able to come together successfully to monetize this unsold inventory.
You have to understand that there are 11,000 commercial radio stations in the United States. Each of which has a 24 hour clock. So when you start getting into markets below market number 20--there are 300 markets--it starts to get fairly open. The opportunity is great, but the solution was on-existent.
BK: How long have you been doing this, and do you have both advertisers and radio stations signed on?
DN: I had been talking with the Sharper Image since the beginning of 2004 about this. By the middle of 2004, they told me: "You've been talking about this idea for awhile now, are you actually going to do it?" and I said, well, I don't know. I spoke with my wife and partner, and we decided to put our money where our mouth is and to build the site. So we spent the next six months building the site, and by January of 2005 were ready for our first auction. That took place January 6th for the broadcast week of January 10th 2005. We've had auctions every Thursday ever since. We were for all practical purposes in beta stage -- a few advertisers we already knew, and a few stations we had known through Newmark Advertising relationships -- for the first nine months or so. By September of 2005 we were ready to officially launch. That was our official launch month. The way we were getting advertisers was we were going online and buying keywords, which is ironic, that we would be using an online tool and online recruitment for customers for a very offline type of media. Nevertheless, the interest was there. We were growing slow but steady -- auctions in the five to ten thousand dollars a week range through 2005. We had people interested and people looking around. Then, on January 17th, Google announced it was buying a company called dMarc. dMarc is really a hardware manufacturer more than anything else. They set up systems to put into radio stations and then trade that hardware for inventory. They have about 500 stations or so that do that. When Google made that purchase, all of the sudden the visibility of our links on all of the search engines went sky high. In short order, our auction activity went up tenfold. So today, a few months after that announcement, we have over 2100 stations enrolled, we have almost 600 advertisers, and our auctions are generally around $100,000 or more per week.
BK: Can you talk a bit about your funding of the company?
DN: Sure! It's the Bank of Dave and Patty Newmark.
BK: So you've bootstrapped the business so far?
DN: Yes, we bootstrapped the whole thing. And someday, I'll be able to take a paycheck out of it. It's a classic bootstrap operation. Fundamentally, we dipped into our savings and into any dollars we could get our hands on at the agency to get it started. Since then, every penny of revenue in excess of payroll goes into improving the site and market. It's by design that we're not taking any money. We're just building it as fast as we can.
BK: Do you compete against dMarc then--and therefore are you competing against Google?
DN: Not really. Since the announcement of the merger of dMarc and Google, there has been no announced change on how dMarc does business. There have been a number of news reports talking about how they are revolutionizing the way that radio and television can be bought, but nothing firm has been announced. I don't know when they will, if they will, or how it would work. But for the time being we're paying no attention to it whatsoever. We're just keeping our heads down, our focus straight, on telling the story of Bid4Spots--which is a very different story. It's a very unusual approach to media buying.
BK: Thanks a lot for the interview, and good luck!