Pattern Recognition, by Ian Sigalow

Going Direct



Ian Sigalow

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.


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Going Direct

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Last month ValueClick acquired an ad network called Dotomi for $295MM.  Dotomi was not a familiar name in many circles, but they had quietly built up over 160 employees, $80MM in revenue, and major retailer accounts within the “IR 100” (the list of the largest Internet Retailers).  Their largest customers were spending north of $10MM/year with the company.

I am seeing the same trend repeated with Criteo, which is reportedly going to recognize $225MM in revenue this year.  Following on the heels of Criteo are Struq and Steelhouse, each with their own product differentiation.  GSI Commerce acquired a company called Fetchback last year, which offered a basic retargeting service for small and medium-sized retailers.

This is a niche in adtech where growth is booming and companies are getting acquired quickly.  There is one simple reason: every company I mentioned above operates a direct-to-client business.  There is no agency sitting between these companies and their marketers.

Direct-to-client revenue has a large number of benefits, including predictable cash flows and a low risk of disintermediation.  These companies also scale faster because the budgets are not hindered by politics, kickbacks, and agency placement fees.  If something works and demonstrates an ROI, the budget is immediately increased.  I have seen instances where a single marketer spends $15MM/year with one vendor.

The companies I mentioned above have been able to maintain this prime position because they operate in a slice of the market where performance is easy to measure.  Internet retailers spend a lot of money online because they measure everything from ads, to clicks, to purchases.  Sectors with this dynamic are a gold mine for start up companies.

In my opinion this bodes well for the future of digital advertising.  Retail is becoming more trackable every day, with new payment systems collecting level 3 purchase data at point of sale.  At the same time media is becoming more digital, with more time spent watching video on IP-enabled devices.  Eventually we will see the two ends connect and there will be direct-to-client deals in every category.

When I look across the ad tech universe I see the world dividing into two camps.  There are those companies that are selling products into agencies – these are the DSPs and other tools that bring agency systems in line with ad network technology.  On the other side I see a group of companies doing proprietary media buying, using unique data and algorithms.  This second group is slowly making its way to marketers and exposing them to new concepts.  The gap today is in measurement, but as performance becomes more transparent a shift to direct-to-client is inevitable.


Ian Sigalow

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.

  • user

    AUTHOR davidweinfeld

    Posted on 8:44 am October 3, 2011.

    Hi Ian,

    I definitely agree that the direct-to-client model can often lead to an easier and more fruitful path to revenue. But, would you agree that such a model requires a much more experienced, and thus more expensive, sales force? Could a young startup succeed with such a model without a large six-figure sales team?

  • user

    AUTHOR IanSigalow

    Posted on 11:53 pm October 6, 2011.

    @davidweinfeld most young start-ups I know have a 6 figure sales team. If you don’t pay your sales people 6 figures chances are they aren’t great sales people…

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