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Part II: Optimized for Profitability

June 15th, 2010   |   by Frank Addante

Two years ago, I wrote a blog post that garnered a lot of (friendly) flack from our investors here at the Rubicon Project. Titled Optimized for Speed = 30% Waste, in the post I talked about how different companies operate in various gears at different stages of their development. I noted that it’s really important to define and set the “gear” for the company and make sure everyone is aware of what it means.

the Rubicon Project has reached the point in our development where it’s become time to switch gears. It’s still all about optimization, but now it’s about optimizing for profitability, not speed. Why?  It’s time to go from the “find out” stage (building) to the “roll out” stage (making it work).  Now that we’ve figured out the business model, proven scale, achieved critical mass, successfully executed multiple acquisitions and have deployed globally – now’s the time for us to focus on scaling profitability.
When optimized for speed, you should expect that 30% of all of your efforts will be wasted:

  • - 30% your decisions will be wrong;
  • - 30% of your money will be wasted;
  • - 30% of your time will be wasted.

The goal of “Optimized for Speed” is to generate market share quickly and figure out the business model as fast as possible.  The 30% waste is generated by making fast decisions – on hiring, advertising, product development, operating infrastructure and strategy. But, when right, optimizing for speed will put you leaps ahead. We’ve been optimized for speed for the first 3 years of our life as a company. We’ve been focused exclusively on driving market share, customer growth and product development. And happily, the results speak for themselves.

Today, we are the #1 Yield Optimization platform in the world and this platform powers the largest open marketplace for display advertising on the Internet.   We are doing for display advertising what Google did for search advertising.  Our technology processes over 50,000,000,000 ad transactions monthly for over 300 of the web’s largest publishers, and reaches over 550 million Internet users globally.

But the truth is that there was waste. We raised a lot of capital – $42 million, to be exact – and with that kind of capital we were able to make some investments in areas we never expected to do as quickly as we have. For example:

·      Our plan had us opening only one international office in 2009-2010. Instead, we have built strong presences in 5 countries: the U.S, U.K., Australia, Germany and France;
·      Last year, as we saw the market moving toward buying by audience, we successfully acquired an audience data company called OthersOnline.  With the 50 billion ad transactions, 550+ million users, 9 billion page views, 135 million daily search results and 500 billion keywords we process monthly – we were able to turn this data into dollars for our customers with this acquisition.
·      Acquiring a malware security company was something we neither anticipated, nor would have been able to do without strong capital and revenue. But as it became clear that malware was a large and growing problem for publishers, we made a strategic move, and in May we acquired SiteScout for their proprietary, advanced security platform and their brilliant team of security experts joined our Rubicon Project family.
·      New product launches outside of our original plan: Audience Data Platform, Brand Protection Platform, Permission Controls and Protected RTB (private beta)
Some of the decisions and investments we made in those first three years for the sake of speed don’t make sense any longer.

We hired a large number of people – especially on the demand side of our business – to quickly develop and then manage our relationships and transactions with ad networks and exchanges as we simultaneously developed the technology that would automate that part of our business. Now that we’ve launched REVV for demand, our automated buying platform for demand sources, we don’t need so many people to do this work. That said, we couldn’t have reached this point in the market without those team members who were committed in helping build our organization.  Nonetheless, our market development efforts here are complete – we now have all of the relevant ad networks and exchanges plugged into our platform (more than 550 globally.)  The addition of Protected RTB, with which we’re meeting great success in private beta, will make that side of the business even more efficient. The commitment of resources to these areas that drive our technology (and with that technology, increased automation & efficiency for us and our customers) have led to less need for as many people to do that work.

Now that we’ve got great traction in the marketplace as well as the technology and products in place to automate more of the business both internally and externally, we’ve moved into a strong position to achieve the ultimate test of success for any startup company and its stakeholders: profitability. We are on track to do $100M+ in revenue this year, and with discipline, will reach profitability in Q4 of 2010. All of this in just over two years of launching our product into the market…  What does optimizing for profitability mean to us day-to-day as an organization?

  • Discipline
  • Focus
  • Performance
Discipline: there are many examples of maintaining good discipline – around spending, product development and growth as a business. In addition, there must be discipline around ensuring that all the team members who are with us are at the top of their game – and completely focused on the right things. To truly be optimized for profitability, you have to make decisions about people who aren’t hitting their performance targets with greater discipline than you might have during an optimized-for-speed phase.

In a recent internal company newsletter, I wrote a note to the team that I titled “Free Throws and Defense” (I will post it later.)  It basically talked about focusing on fundamentals, because that’s what wins games.  I believe very strongly in setting the tempo and pace for the game and making others play your game, especially when you’re in the lead.  To do this, it requires extreme discipline.  You need to establish your core offering and markets that you want to focus on and you should fight hard to win 100% of the deals in your core, anything outside of that you need to be OK losing (and hopefully pick them back up later) – that’s what discipline is about.

Focus: it’s essential to success, as we all know. Focus doesn’t just mean working hard. It means working smart: prioritizing projects, opportunities and goals. To this end, we’ve decided to focus on three core product areas going forward – we call it our Go Forward List. We’re making some changes to the way we do business to ensure those areas, which will drive us to both reach our profitability goal and service our customers, premium Web publishers, most effectively, will get the most time, attention and resources.  Along with this, we have also put together a Not Right Now List, this is equally important for companies to establish.  In a sea of opportunity, it is often times easy to drown yourself in chasing too many of them at a time.

It’s important to align your organization around no more than 3 overall goals.  We set our goals to establish brand-franchise in these three areas:

-       #1 Yield Optimization (maintain current position)
-       Top 5 Source for Audience
-       Top 2 Source for RTB

This is all in the spirit of maintaining our position as the innovation leader for publishers.

Performance: In this case, I’m talking about customers, not employees. We’re more committed than ever to achieving the publisher-centric goals we set out in our manifesto in February: to innovate digital advertising technology for publishers to keep digital media free for consumers and to help content flourish. To do this, we have to be sure that our technology platform, REVV for publishers, is the best possible choice for accelerating ad revenue – essentially that it continues to outperform the alternatives in all the areas we’re focused on. So we’re adding people and other resources in the areas that drive our technology; including 5-8 people on our product and engineering teams to help us achieve the technology vision we laid out in our manifesto.

Our decision to optimize for profitability is driven not only by the stage of growth and market share we’ve achieved. It’s also driven by opportunity – the need for a yield optimization platform to drive revenue for publishers across the $71 billion in digital advertising spend has never been greater, nor has the market ever felt more poised for dramatic growth as more and more brands follow consumers online. Sellers and buyers, both large and small, are reporting rising media sales compared to a year ago. Moreover, tremendous innovation in the space promises to accelerate change and growth still further this year.  Shifting gears requires extreme discipline, but it’s important to do it at the right time.