1Mby1M Deal Radar: Pontiflex, Brooklyn, New York

If you have ever clicked on a mobile ad by mistake, you’re not alone. According to a recent survey, almost half of mobile app users say they click or tap on mobile ads more often by mistake than on purpose, meaning that a lot of the effort gone into the ad was wasted. Pontiflex, which powers a new kind of digital advertising called sign-up ads, is trying to change this. With sign-up ads, users opt in to connect with advertisers they like without leaving a publisher’s website or mobile app. Advertisers pay only when someone signs up for their ad, not for wasted clicks or impressions. Users like this approach better, says Pontiflex, and developers and publishers of websites and apps make more money from it.

The Brooklyn, New York–based company was founded by Zephrin Lasker, CEO; Roshan Bangera, CTO; and Geoff Grauer, CIO/COO. Their goal was simple: They wanted to start a technology company that helps marketers connect to people and make the ads served be relevant to users. As I pointed out last month in Top 10 Online Advertising Trends of the Decade, more sophisticated analytics, optimization, and targeting infrastructure that help monetize information to create safe, non-intrusive, yet personalized frameworks through which advertisers deliver ads users want, are in the making and will be a major step forward.

Mobile is quickly becoming a “must buy” for advertisers, but the first mobile ad models were patterned after click-based online display banners. Click-based units don’t create user-friendly experiences on mobile devices, says Pontiflex, especially since mobile users spend most of their time on apps, not browsers. Therefore, banner click-based display ads that force users out of apps are disruptive to a user’s mobile experience.

Pontiflex points out that Apple CEO Steve Jobs recognized this problem when launching Apple’s mobile platform, iAds. “Today when you click on a banner ad, it yanks you out of your app and throws you onto the advertiser’s Web page. So people don’t click on the ads,” Jobs said.

To get people to click, Pontiflex has developed AppLeads, an in-app mobile solution. Advertisers can run ads on top apps on the iPhone and Android platforms. They pay only for new-to-file, qualified sign-ups. Sign-ups are priced on a CPL (cost-per-lead) model, and in 2010 the average CPL/sign-up was $0.88 for basic fields and $1.47 for premium fields. Basic fields include name and e-mail. Premium fields offer more detailed information, such as Twitter handles. The goal is to keep users satisfied by not disrupting them with unwanted ads while increasing the amount of money publishers and developers can make. For example, for every 1,000 views of their app, developers might hope to make 50 cents to a dollar. Pontiflex says that AppLead client Brisk Mobile was able to make an eCPM (cost per impression) of $21 on its iPhone app and that, depending on the type of ad, eCPMs can range from $5 to $60.

According to the Interactive Advertising Bureau (IAB), the online advertising market was $22.7 billion in 2009, and Forrester projects that the digital advertising will be worth $55 billion, or 21% of U.S. ad spending, by 2014. Pontiflex estimates that around 40% of total ad spending focuses on collecting user data, only it is via a banner or search ad driving traffic to a landing page. The company’s conservative estimate of the TAM for sign-up ads is $9 billion, and it believes that growth of social media & advertising and the rise in audience targeting will continue to accelerate the demand for user data.

Pontiflex says that it has been successful in bringing brand advertisers to the performance market for the first time. Ninety-one percent of its advertisers are large brands, such as Kimberly-Clark, Tommy Hilfiger, Chili’s, ING, Target, UNICEF, and the ASPCA. AppLeads clients include Brisk Mobile, Flipside, and Rebisoft.com, among others. Core targets include Fortune 500 brands, national nonprofits, small businesses, online publishers, mobile app developers, customer relationship management (CRM), and e-mail service providers (ESPs). Pontiflex currently works with more than 300 advertisers, 10,000 publishers, and hundreds of app developers. The client renewal rate is in excess of 75%.

For the first two years, Pontiflex was bootstrapped. “Bootstrapping is great because the market really is the best teacher. Thought experiments have their place, but they can be deadly if used as the sole method of product envisioning,” says Lasker. “Especially in an expensive city like New York, if you can survive and start out by bootstrapping, it shows you have business model at least. It also sets your DNA for lean and focused execution.” Later, Pontiflex did take two rounds of venture funding totaling just under $9 million from New Atlantic Ventures, Greenhill SAVP, and RRE Ventures. In 2011, the company expects to generate $25 million to $30 million in revenue and be profitable.

Pontiflex believes it has two categories of competitors. The first and biggest is the status quo: Advertisers spend their budgets on ad networks and search marketing. With such campaigns, they drive consumers to landing pages where they then can then try to collect user data. Pontiflex believes that AppLeads offers a more direct way to ask consumers to opt in to receive information from brands they know, like, and trust.

Sign-up ads are a fairly new idea, but among performance advertising companies, Lasker names ValueClick, QuinStreet, and InfoUSA as competitors. Pontiflex aims to compete by focusing, through its sign-up model, on transparency and what users want, rather than on anonymous traffic.

Pontiflex says that it is still surprised at how big the market opportunity is turning out to be, especially since it launched AppLeads. Once it gets a concrete sense of the upper limit, it will explore M&A, private equity, or an IPO.

In the 1M/1M Deal Radar series, we celebrate entrepreneurs who have reached at least $1 million in annual revenue. It is part of the One Million by One Million (1M/1M) global initiative.

This segment is a part in the series : 1Mby1M Deal Radar