Wednesday, December 15, 2010
Interview with Tim Cadogan, OpenX
Story by Benjamin F. Kuo
Among one of the fastest growing industries--despite what has been a stagnant economy--is Internet advertising, which has continued to grow strongly over the past two years. One of the firms poised to take advantage of that growth is Pasadena-based OpenX (www.openx.org), which develops one of the most widely used ad serving solutions available. For today's interview, we spoke with Tim Cadogan, CEO of OpenX, to hear more about the firm's growth on the strength of Internet advertising, and what the firm is up to. Tim is the former head of Yahoo's Global Advertising Marketplaces unit, overseeing Display, Search and Video, and was VP of Search at Overture. (Photo credit: Alex J. Berliner, Berliner Photography/BEImages)
Tim, first off, for our readers who haven't heard of OpenX, explain what you provide to the market?
Tim Cadogan: At its root, it's pretty simple. We help web publishers make more money out of advertising. We do that in basically two ways. One, is we give them software--known as an ad server--which helps them manage different ad streams they have. For instance, they might be selling ad space directly. For a big company, that might be through their own sales force, and for a smaller company it might be a small team which is operating the site themselves. The software helps them manage all of that, so that they can target campaigns, optimize ads, and report out in different ways. They can sell those ads on a CPM, CPC, or CPA basis. The software takes care of all of the optimization of that. Part two, is we also help them when they are not selling inventory directly. Typically, this is when they might have sold through about 50 percent of their inventory, and they have the rest to sell. We run it through our exchange, OpenX Market, which is in simple terms a stock market for online media. They can put their inventory in there, and lots of people compete to buy it. We manage that competition through an aucton process.
What we do is kind of interesting, because we provide those two basic services in combination. We both allow them to manage directly sold inventory, and indirectly sold inventory, in a single experience. That's pretty powerful for publishers. What's also important, is that people are using the product. It's pretty broadly distributed, we have a couple hundred thousand users in over a hundred companies serving up 350 billion ads a month. Our products include open source, as well as software-as-a-service, hosted products. What we really provide is revenue management. Most online businesses get their money for advertising, which is their main source of revenue, and we provide the infrastructure to help them manage that.
How are things going with the firm now, and can you talk about that growth?
Tim Cadogan: It's been a hell of a couple of years. We've grown enormously. As you know, we started in Europe, and re-based it here in Pasadena about two and a half years ago. At that point, we only had a single, open source product, and were pre-revenue. We built out our whole team in Pasadena, and now we have about 80 people. Most are here, but we also have some in New York and San Francisco. We've grown enormously, and nearly doubled this year alone. We've also launched a set of new products--when we started, we just had the open source product--and now, we have two software-as-a-service products and enterprise products, in addition to a free version. We do have a software-as-a-service product which goes up to 100 million ads a month for free. We've gone from one product to four, which enables people to use the services in many different ways to suite them. Economically, we've grown from a revenue point of view, too. When we started, our revenues were zero. I can't break out precise numbers, but now, we've got tens of millions in annual run rate. We've grown a ton.
Our customer footprint, as I mentioned, is huge. I think it's fair to say we're the largest independent infrastructure provider in the world. There is noe one else powering as many ad sites, in terms of revenue. We've also struck some big partnerships. What might be interesting for your readership, is we've struck a deal with Orange in Europe, and we're finding that we can rally big regional players to grow our ad exchange globally. We partnered with Orange, which represents our exchange business in the UK and France, and other markets too. They run that under the brand Orange Ad Market. It's still run from the same single auction format, but worldwide. They are driving buyers and sellers into the exchange, which is pretty awesome. More recently, we have entered into partnerships with Dentsu, which is the biggest agency in Japan. They're the 4th or 5th biggest agency in the world. The idea there is to grow our exchange in Japan, which is the second largest advertising market in the world. We're excited to get that launched and up and running later in Q1. It's rare for a company our size, at a relatively early stage, to be able to pull together partnerships with such huge players.
I can imagine that there are lots of ad serving companies by now. How is the competitive landscape is nowadays?
Tim Cadogan: I'd like to make the comment that there's actually not that many ad serving business. It's really less than half a dozen who are really in the game at this point. Compared to other sectors, that's not a lot of players, considering how foundation ad serving is to the way digital businesses operate. It's not like the buy side, where there are nearly a dozen players, or the data side, where there are twenty players. It's really less than five. In terms of how we are differentiated, there are a few things. One, is our users like the way we handle workflow and control data. The second, is coming from the open source world, we've long been regarded as a very flexible solution.
That means that publishers can integrate our technology with other components in the enterprise stack, for example, their financial system or sales force management system, or CRM system. That is really important, because your ad revenue stream is so critical for your business, you need to play nice with the other parts of your technology infrastructure. That also means that people can innovate--so if they need a targeting service, they can just integrate that into our product, or if the need to deploy a new ad format they have created.
I also think, qualitatively, that we're an independent player is very appealing. Obviously, there are some providers out there who are much bigger companies. That's sometimes a good thing, and sometimes not a good thing. Publishers feel that to some degree, they like to have some vendor variety, and even though they want to work with the big companies in this or that capacity, they don't want to use them for everything. They'd like to have some heterogeneity on their partner basis. That helps us in many cases. So, we have a good product, we're flexible, we do things you can't do with others, and we're independent--and we help publishers make money.
A bit off topic, but what's your opinion on the whole Microsoft/Yahoo advertising deal, and what does it mean for the industry--given that you used to run that business?
Tim Cadogan: I left before that deal was struck, but I think the bottom line is pretty simple. Yahoo made the decision that they could not, or would not be able to make the level of investment required to keep up with Google. At that point, your options are limited. I can't overstate how much it takes to compete in search, just from the people point of view and technology infrastructure. Google has an amazing position, and is deeply entrenched, because of consumer embedded behavior and business network effects. The analogy is it's like invading Russia--it might be possible, like the Mongols did, but for everyone after that they didn't do so well. The fun part, is that while search is concentrated, display is still up for grabs. There's one basic reason--while supply is concentrated in search -- depending on the country, Google has 65 to 90 percent of the market share --- in display, no one has more than 12 to 13 percent of the supply. Fundamentally, that sector will remain a little more fragmented. If you look at the technology side, there are lots of different players on the supply side, even more on the data, and even more on the demand size. I think you are seeing a rapid cycle of innovation, with mid-size companies making lots of progress and bringing new products and ideas to market. We see lots of sizzle in display, compared to search. That's part of the reason I made the shift, because I could see the writing on the wall in search, while I saw display was ripe with opportunities. Lots was going wrong in display, which is great for entrepreneurs, because there are lots of opportunities to create new products to help display and create economic value. I think it's a great time to be in it, and I think we're in the middle of a bit of a renaissance in the midst of display, in video, and mobile.
Can you talk about what specifically has been driving growth at OpenX?
Tim Cadogan: It's two things. We're seeing good growth on our enterprise, software-as-a-service ad server. Obviously, we've also seen growth but don't make money off the free products. We've also seen the market just really, really grow quickly. Part of that is a strong, underlying trend of more and more buyers and agencies buying on the spot market, and using real time bidding. We were an early adopter of real time bidding, and have been a beneficiary of that. Advertisers know it makes lots of sense to buy audiences at scale. From the business point of view, we've been building good underlying technology, and we have an experience and gifted team which has been around the block. Most people here have been in online advertising for eight to ten years, some at Google, some at Overture or Yahoo, and some at FAN or Microsoft. They know what they're doing, and know how to build a business to scale.
Finally, what's next for OpenX?
Tim Cadogan: We have some pretty interesting, new class of products we're going to be bringing to market pretty soon. That, I think, will hopefully take things to the next level in our broad vision of helping publishers with revenue. From the strategy side, we're basically cranking along the same path and want to take it to the next level with new products and new customers. We also want to grow our team, and accelerate on the global side. We're more focused on global growth than most companies of our size, because of our global footprint we've gained through open source.