Deal Radar 2009: Rocket Fuel

However much marketing professionals may cite advertising’s importance in creating “buzz” or awareness of a company’s “unique selling proposition”, the fact remains that in most cases, the main goal of advertising is to get people to open their wallets. Ad agencies, marketers, and psychologists have spent countless dollars and hours trying to figure out which ads, directed at which people, will result in the maximum number of sales. One of the latest companies to enter the fray is Rocket Fuel.

Rocket Fuel claims that it has two advantages going for it in the quest to find out what ads people want to see: the experience of its founders and a technology-based hybrid approach. Rocket Fuel’s ad-serving technology platform, with its automated ad system, combines social, behavioral, search and other data sources to understand consumer interest and intent, with the goal of helping Fortune 500 companies and their advertising agencies target and reach consumers via online display advertising. Rocket Fuel claims that unlike other ad networks, it combines demographic, lifestyle and other data and uses its technology to run a hybrid ad network for premium brands.

All the members of the executive team of Rocket Fuel are former employees of Yahoo!, where they helped build Yahoo!’s behavioral targeting technology to a quarter-billion dollar business. Their roles included identifying and performing due diligence on ad network technology companies that were proposed acquisition targets. This process made them realize that the vast majority of networks were primarily content aggregators without true technology platforms that could help make predictive and more informed targeting decisions.

Rocket Fuel was the brainchild of CEO George John and president Richard Frankel. John built a successful career through generating profits for marketers by analyzing huge amounts of historical data to predict response rates and target messages. Prior to co-founding Rocket Fuel, he led teams building high-tech systems to optimize marketing at Yahoo!, Salesforce.com, Epiphany and IBM in roles spanning engineering, marketing, sales and executive management. At Yahoo!, his teams delivered systems to optimize marketing spend and helped advertisers see up to 400% increases in click-through and conversion rates, turning Yahoo!’s behavioral targeting experiment into a $280-million business.

Frankel has over 15 years of Internet advertising experience with Internet pioneers like NetGravity, DoubleClick and Yahoo!. Earlier, he was a general manager at DoubleClick and used a customer-centric approach to a publisher business. Prior to DoubleClick, he was with NetGravity, where he helped build NetGravity’s customer service organization into a profitable business. The third co-founder, Abhinav Gupta, CTO, built a career focused on delivering value for massive-scale systems. Prior to co-founding Rocket Fuel, he was an engineering director at Yahoo!, where he led the development of their next generation behavior targeting platform.

Headquartered in Redwood Shores, CA, with an office in New York, Rocket Fuel has approximately 30 employees. In May 2008, the company raised a $6.8 million Series A led by Mohr Davidow Ventures, Labrador Ventures, Wilson Sonsini Goodrich & Rosati, and DLA Piper, along with angel investors. Rocket Fuel plans to raise a Series B round in the fourth quarter of 2009.

The current ad network market has over 400 players, most of which are small niche buyers and vertical content aggregators, with a few inventory aggregators that sell pre-defined profiles they call customer ‘segments’. There are few companies with true technology platforms and intelligent systems to make sophisticated targeting decisions in real time.

Rocket Fuel has built a data-agnostic technology platform to be able to use all data in order to give customers a better idea of how to predict consumer behavior. Instead of taking a silo-based approach, such as behavioral targeting or retargeting technology, they have opted for a hybrid approach that integrates with every type of available internal and external data. The company also uses a mix of machine learning, artificial intelligence, blended analytics and analysis to interpret the data and automate the processes. The company believes that such a platform provides a more granular and transparent picture of consumers, building a customized audience profile for every campaign to be able to deliver a more focused result. Their automated testing can help to boost campaign performance in hours instead of the weeks or even months needed had it been done manually.

According to industry data, the total interactive advertising market in the US is roughly $20 billion this year, with about half going to display. Of that half, the company sees 20% to 40% of spending being allocated to ad networks, making their total available market about $2 billion to $4 billion. Rocket Fuel’s business model is straightforward: a CPM-based ad network. The company will penetrate the market through existing relationships and selling to agencies and advertisers.

Rocket Fuel started running a few very small test campaigns in the final quarter of 2008, and has significantly ramped up the business in Q2 2009. As it is still new, Rocket Fuel is not yet profitable but expects to get there by the end of 2010.

Thus far, the company has created campaigns for over 140 advertisers, analyzed more than 50 billion impressions and seen over 37 million unique users. Rocket Fuel has been the number one ad network for an advertiser’s media buy, ramping overall CTR by five times for a consumer electronics brand, and has delivered a 72.5% increase in an advertiser’s overall campaign ROI goal for a women’s fitness apparel brand.

Rocket Fuel focuses on major brand advertisers such as Fortune 500 companies in the retail, finance, travel and telecom space. Rocket Fuel has a few competitors such TURN and [x+1] in the technology-driven ad network space, but for other types of media buys, the company shares space with a long line of all the more traditional ad networks.

At present, Rocket Fuel’s key focus is on rapid growth, which will be funded primarily through media margins. For the long term, the company is be interested in acquisitions that allow their technology to scale faster and allow for more rapid adoption by customers.

Related Readings:
Deal Radar 2009: The Rubicon Project
Deal Radar 2008: PubMatic
Deal Radar 2008: BlogHer

This segment is a part in the series : Deal Radar 2009