SpotX: Maxing online revenues in blink of an eye

By: David Wagman Friday December 11, 2015 0 comments Tags: SpotX, Steve Swoboda, Mike Shehan, RTL Group, video advertising, Westminster

 

WESTMINSTER -- When Tonight Show host Jimmy Fallon got together in late November with mega-singer Adele to perform her song “Hello” using classroom instruments, the video was seen nearly 10 million times within a few days.SpotX_logoNEWUSE

But those were YouTube viewers who watched on iPhones, tablets, laptop computers and other devices, not like the viewer of 40 years ago who lay in bed propped up with pillows to watch Johnny Carson on TV.

In fact, says Mike Shehan, CEO of Westminster-based  SpotX,  around 70 percent of Tonight Show viewers do not watch Fallon on TV at all. Instead, they watch on an electronic device. And therein lies the business opportunity for SpotX, named Company of the Year by the Colorado Technology Association and honored at an event in early November. In short, the company seeks to bring together digital content producers and ad sponsors (such as Kraft, American Express and others) in a way that maximizes revenues from ads that pop up on electronic device screens.

“We strive to make it easy” for ad sponsors and content providers, says Shehan. “Our only job is to help them make as much money as possible.”

And do that as quickly as possible using what amounts to an electronic auction house to send some 6 billion messages each day to buyers in 200 countries that detail opportunities to buy ad spots on electronic devices.

To explain how the auction works, Shehan points to gaming company Zynga and its “Words with Friends” game.

When a user plays the game for free, he or she has to watch an ad that opens, say, on every third level as play advances. Zynga may have set up rules that specify that when a user is from Brazil, the price per video may be no lower than $2. But when the user is from Australia, the price can be no lower than, say, $10.Mike_Shehan.mug.FIXED_1

SpotX uses its electronic auction house to make this information available to ad buyers and asks if potential sponsors will accept Zynga’s terms and for how much. Electronic “trading desks” respond with bids from advertisers. SpotX evaluates the responses to decide which bid will generate the most revenue. SpotX then serves up the winning ad to the device, counts the number of impressions or clicks the ad receives, charges the advertiser and pays Zynga. The auction takes around 100 milliseconds to complete, Shehan says.

And the whole transaction is wrapped up in less than one second.

Shehan names Google and Facebook as top competitors, but points to a couple of possible advantages for SpotX. First, the electronic auction house and ad servicing are SpotX’s only business. That allows it to offer what he considers to be better customer service. Second, he says that media companies sometimes are wary of Google and Facebook because of their size. “Do I really want more eggs in their basket?” Shehan says that media executives sometimes ask.

SpotX traces its roots to Booyah Networks, a company formed in 2001 by Shehan and Steve Swoboda, COO and CFO. Together, they launched the company using angel funding from friends and family. One investor signed over the title to his Lamborghini. Shehan sold his house and Swoboda took out a second mortgage.

Shehan once planned to become a veterinarian, but he says his father urged him to become an entrepreneur. Why be a vet, the argument went, when you can own the vet clinic and make more money? Shehan holds a biology degree from Vanderbilt University and says the concept of survival of the fittest is part of the company’s culture. “We constantly innovate and try to kill our original business models,” he says.Steve_Swoboda.FIXED_1

In 2005, Booyah Networks began to look at other online marketing opportunities and focused on video advertising, at the time a potential breakout market that was dogged with problems related to standardization and integration. SpotX was formed in 2007 as one of the first online video advertising marketplaces, launching a tool to help advertisers target their audiences. In 2010, it started a real-time bidding platform to help companies like Zynga tailor their bids on an impression-by-impression basis.

To fuel its growth, in July 2014 SpotX sold a 65% stake to RTL Group for $144 million. Based in Luxembourg, RTL holds interests in 55 television channels and 29 radio stations and produces content worldwide. The deal offers SpotX access to European media markets. Perhaps more strategically, Shehan says the move places SpotX closer to broadcast TV. “If we partner with a broadcaster and content producer, we can achieve more success building that platform,” he says.

Indeed, RTL Group created a digital business unit, which includes SpotX, BroadbandTV, StyleHaul and clypd. The idea is to bridge the gap between broadcast TV, where ad revenues are based on ratings, and digital platforms where clicks are king. The media industry is a “long way” from resolving how best to monetize those different models, Shehan says.

Although he declined to disclose details, Shehan says SpotX experienced 50 percent year-over-year growth through the third quarter. The company employs 275 people, roughly two-thirds of them in Colorado. Others work in New York, San Francisco, London, Amsterdam, Singapore, Sydney and Hamburg, Germany.

“We look at Colorado as our competitive advantage,” Shehan says. Compared with Silicon Valley, high-quality employees can be hired here at a more reasonable cost and retention rates are high.

By 2018, more than 50% of video advertising dollars are forecast to flow through non-TV media such as tablets and laptops, Shehan says. That means the link-up with RTL Group could position SpotX for big growth in North America, Europe and elsewhere.

“All of that,” Shehan says, “is coming our way.”

David Wagman

About the Author: David Wagman

David Wagman is a Denver-based analyst and journalist who has covered most aspects of the electric power and oil-and-gas industries, and has written broadly on topics that range from international trade to commercial real estate to homeland protection in a career that spans more than 20 years.