xAd CEO: Small Businesses Still a ‘Huge, Huge Market’ for Ad Tech | Street Fight

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xAd CEO: Small Businesses Still a ‘Huge, Huge Market’ for Ad Tech

0 Comments 21 April 2014 by

xAd CityscapeAmid the primordial chaos of the advertising technology industry, New York-based xAd has carved out a healthy business. The location marketing company, which started as a search advertising firm five years ago, generated $65 million in run-rate revenue by the end of last year, half of which came from small and medium-sized businesses.

However, capital continues to consolidate in the ad tech industry, leaving some to wonder whether the sector may start to consolidate soon. For mobile-local advertising firms like xAd, ThinkNear, PlaceIQ, and Verve Mobile, the question of what’s next remains less clear.

Street Fight recently caught up with xAd chief executive Dipanshu Sharma to discuss the challenges in finding recurring revenue in mobile, how location can solve that problem, and where the money would come from to build a lasting local advertising company in mobile.

Amid the rush of new ad tech IPOs, there’s still some concern that the already-public mobile firms have struggled to sustain momentum. Outside of product, talk a bit about what makes a “good company” in the advertising technology business.
There’s been a lot of mobile companies that have been acquired, went out of business, or went public and quickly saw their market value readjusted dramatically. It was because they were unable to reproduce success month over month, quarter over quarter. That lack of being able to reproduce success repeatedly is a consequence of not having products that delivered core value to their customers.

Who can do that? Google can obviously do that. They keep increasing revenue because search produces measurable returns. But who else can do that? Well, Facebook is doing a pretty decent job at that as well. But if you think of location, I think location has the right signals to do an equally good job as search of repeatable, measurable outcomes.

Some folks see location as an incremental layer in the existing technology stack, fighting with others over an increasingly small piece of the digital ad pie. Where does the money come from to support a big location media company?
Consider how much money is being spent locally today already, not in mobile but in other media. Print is all local, radio is all local. TV is quite a bit local and billboards are always all local. Over 41 billion dollars is being spent locally already. Who’s spending that? The same advertisers that are spending nationally as well local businesses like SMBs or franchisees or mid-tier segments that may have only coverage on a page or something. So there’s billions of dollars being spent locally.

If a CMO wants to spend a billion dollars, they’re going to take a very small portion of that billion into digital and an even smaller portion of that spending will go to mobile. But if you look at their print, radio and other analog budgets, a lot of that budget should be moving to mobile. That’s what we’re focused on and that’s a business that’s independent and a multibillion-dollar public company. What is not a big business is trying to get location budgets out of the digital budgets the agencies have.

Last week, I spoke with Tom MacIsaac, chief executive at Verve, and he told me that he did not expect to see consolidation quite yet in the mobile-local sector. As serious (e.g. publically-traded) capital comes into the market, how do you see the next two years playing out for the lot of mobile-local ad tech companies?
In the end, consolidation is likely inevitable, but the factors are not customer-driven — they’re finance-driven. A lot of these ad tech companies have raised a lot of money many years ago and their investors are looking for a return or their funds are done. So they need to do something. We’re talking to several companies to acquire them right now because they’re financially in a situation where they can’t sustain themselves over the long period of time and then they don’t produce long-term value for shareholders.

I would say consolidation is not driven because of customers. Customers are actually early to mobile and they’re relatively even earlier to location. There’s a pretty decent runway to create a business and build a business. But the challenge is [that many companies are] either over-funded or losing money. If you don’t have that then you’re at the mercy of your financiers, which is what is driving consolidation right now.

Within the startup world, there’s been a quiet emigration away from small business market, with companies — mainly those in ad tech — pivoting to sunnier (read: brand-funded) pastures. And yet, a big part of xAd’s comes from SMBs. Talk a bit about the market and whether it’s still the golden city that the tech industry has fawned over for years.
So last year, the majority of our revenue, more than 50 percent of our revenue was from small or medium-sized businesses. A lot of people don’t realize that there is a huge, huge market. Also, last year we generated 14 million phone calls to small and medium-sized businesses. Google generated 60 million, so we’re almost a quarter of the total volume.

The key here is that you solve a problem. What I hear from ad tech companies for the most part and what’s certainly in the press for the most part is not the solution but the pieces to the problem. Then people talk about what’s the role of a DSP or a DMP? All of these things together made the solution but if you’re not measuring you don’t even know what you’ve got at the end of the day. You may have gotten nothing at the end of the day. You paid the DMPs and DSPs and everybody else in the middle. Why? If you can solve problem of a customer then how you get there is all black box. There’s no need to show how the sausage gets made. That’s not important.

Steven Jacobs is Street Fight’s deputy editor.

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