Why we sold Optimal’s technology to Sovrn
My first company was also called Optimal (after we first called it XA.net, that is). My cofounders and I started THE NEW Optimal with the idea that we would give people a way to block ads while still paying content providers. I’d seen publishers struggle with online ads. I’d seen my brother, an award-winning automotive journalist in South Africa, struggle to make ends meet working for a recently-defunct magazine, before as a freelancer and also working as a partner on a well-known South African car blog. I’ve seen publishers give in to the temptation to work with brand-destroying (but well-paying) ‘native’ ad partners, or worse.
Optimal launched an alpha product and we tested getting consumers to make a voluntary monthly subscription donation and/or “tip” websites small amounts like 1c or 25c for articles they really enjoyed. We’d thought initially that we could work directly with several ad blocking companies, but soon discovered there were three types of ad blockers:
- those that had made a business out of it (only one of any size really, Eyeo GmbH, whose business model has come under fire from many as “extortionary” or a “protection racket”)
- security companies like Symantec, Malwarebytes and others for whom ad blocking forms a subset of smart security practices, but who really don’t have any interest in helping content creators replace revenue, instead focusing on curtailing malware distribution,
- everyone else, mostly small groups or individual developers, many of whom seemed to dislike advertising with a fervor that was impenetrable to seeing the bigger picture of improving advertising and/or continuing to support free content for most everyone.
Along the way, I explained my thinking in a variety of Medium pieces
Those articles got a good deal of traction, and I received many requests to publish these externally like I did on CNBC.com with “The Subprime Ad Crisis is Here”. My goal was never to cut off advertising as a revenue stream for publishers, but rather to reduce the externalities I saw, provide choice to consumers and along the way to improve the ad ecosystem. I hoped we could help marginalize the outright fraudsters but also impact those in the ad industry who are soft on the problems they see (fraud or otherwise) because they in some way profit from it.
We took a small amount of seed money, and felt that we would later be able to raise a larger round of funding for this idea. We had interest from several venture capitalists on the concept of helping build a new ad layer that would let users control and permission their own data. This was an idea that had fascinated me way back in 2006 when I was an advisor to, and then subsequently, joined Root Markets working on deals with firms like the New York Times and the Chicago Board of Trade (they both invested in Root). Root Markets was far too early and failed in spectacular fashion (spending >$10mm at an extremely rapid pace, but encouraging a host of amazing people to start/lead their own companies including Greg Yardley (who sold Pinch Media to Flurry), Josh Reich (Simple), Stu Libby (Zipdrug), Atul Patel (OneScreen), Matt Prohaska (Prohaska Consulting), or help others do so (the incomparable Jerry Neumann, who invested in many of us and has had a hand in the adtech companies that have actually been successful, like The Trade Desk).
It became clear there were two questions I had to ask myself before even considering taking a pile of VC money, however:
a) Can you make this work as a consumer business?
(b) Are you willing to pivot to become an adtech company if you can’t do (a)?
I’ll admit that I had a few things worrying me about (a) — two startups I’d personally invested in as an angel had shut down recently, one of them returned about a quarter of everyone’s money when it became clear their path would be as a B2B SaaS company (not a consumer play) and they weren’t very excited about doing this. Also, discussions with a few very smart VCs and executives whose opinion I trusted one of whom told me: “you’ll be able to raise $5–10mm for this idea but it’s going to be an uphill struggle for 5 years”. The reality is, there are too many subscale zombie tech companies out there who either cling onto their consumer hopes for years (while not admitting to themselves it won’t work) or are pushed unwillingly into a business-facing play. I thought (a) was possible but it would be a long slog with a low chance of winning primarily because consumers weren’t yet feeling the pain and didn’t connect the crappy ad experience to the incentive problems the marketplace was experiencing, and the potential distribution partners (web publishers) are in a very precarious position and might be slow to realize the need for them to adopt the technology we would provide.
An early clue to the latter was a top 50 website where it took several months for them to get our experimental ad blocking detection in place. Slow stuff. Having sold a business-facing adtech company in 2013 (the first Optimal, actually) I wasn’t really excited about going the adtech route and building a sales team, selling to advertisers and agencies and waiting 120 days to get paid (at the first Optimal, we loved working with Twitter and Facebook since we took little to no payment risk as API partners), so we started entertaining discussion with companies that were interested in our technology and team.
I’d had the chance a year ago to first meet Sovrn’s CEO, Walter Knapp, as they are located in Boulder where my family and I had moved in early 2014. Walter and I had an ongoing dialog about the online ad market and ad blocking, and from early on in our interactions it was clear Sovrn was thinking about things differently, had built tools to make publishers more successful (not only in monetization, for example they have a Wordpress plugin for publishers to make easier using new formats like Google’s AMP, Facebook Instant Articles, and Apple News) and were adding assets to their portfolio that could assist with that. I also had several good conversations with Seth Levine at Foundry (one of Sovrn’s investors) and greatly respect their firm and approach. I loved Sovrn’s 100% focus on the needs of the publisher.
Along the way I also had been speaking to Facebook: for them our technology wasn’t necessarily a fit, but my experience/expertise working on these related problems was, and the fact that I’d worked closely with the company as an API partner from 2010–2014 led us into further discussions about how I might be able to help them be proactive against ad fraud. Around the time our discussions with Sovrn had proceeded, I agreed to accept a role at Facebook doing just this: and I wanted to make sure that Optimal was also able to find a partner to continue the journey with the technology we’d spent the last year building.
It really clicked for me, however, when I had the chance to see some of Sovrn’s new products for publishers including the aforementioned Workbench (Wordpress plugin), OnScroll (ads with viewability and engagement time built in) and Meridian (advertising and insights tools) and was impressed at how they’re working to address what publishers need in today’s rapidly changing media environment!
The team and I agreed that we found in Sovrn, an innovative company that shares our values in supporting content creators and helping to offer consumers better alternatives other than the same old banner ads! I’m thus excited to announce that my cofounders, Will Wallis and David Li, are joining the Sovrn team and I look forward to seeing what exciting new directions their work takes!
As always, I look forward to your feedback and discussion.