Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi (Part 6)

Sramana Mitra: In terms of your operating expenses, how many people were involved and what kind of a P&L did you have to support within that operating margin?

Steve Yi: There was three of us. One person was working with us as a contractor who eventually became our VP of Sales.

Sramana Mitra: How many customers were you dealing with? Were these a small number of large customers?

Steve Yi: Within about three months, we were working with probably 8 to 10 auto insurance carriers and three advertising networks to monetize the traffic that we were acquiring.

Sramana Mitra: How did this work? You get a lead qualified and you would give that to all your customers?

Steve Yi: No, we would have an auction. Depending on what the advertisers were willing to pay, that’s how we would order the advertisements that were shown to that user. If Progressive wanted to pay the most to target a given user, then they would show up at the top of the page. The other insurance carriers would show up below them. It’s very similar to Google ad results.

Sramana Mitra: So you have a proxy of the Google advertising system or any ad network system that handle these bids.

Steve Yi: Exactly. The optimization platform then orders those ads.

Sramana Mitra: The first year of business was 2009?

Steve Yi: 2011.

Sramana Mitra: In 2011, you did this $17 million lead arbitrage. What happens in 2012? I imagine you’re still doing the same business?

Steve Yi: Yes and no because we’re not really doing arbitrage anymore.

Sramana Mitra: What happens in 2012?

Steve Yi: In 2012, we continued to do well, but with these types of affiliate businesses or arbitrage businesses, you tend to hit a ceiling when you want to make sure that the clicks and leads that you’re selling to your advertisers are of the highest quality. We only acquired traffic from Google. As one advertiser on Google, you just can’t get bigger than we got. We, in effect, became the 13th largest insurance advertiser on Google. We were spending far more than most insurance carriers were on Google.

We were essentially running out of ways to grow and yet keep the quality of our traffic very high. We were looking for different ways to pivot our business in order to capture a larger market opportunity. By this time, we had met our basic need of paying ourselves a fair salary. Once we satisfied those basic needs, we were then ready to see what we could do to expand this business. Based on what we knew of the business and the knowledge that we gained from having been one year in the business, we started to work with other publishers – companies that had this type of highly-qualified insurance inventory.

We created an advertising exchange where advertisers like GEICO could buy through our platform. It became a true transparent advertising exchange. That’s the business model that we started in 2012. It actually started with a very fortuitous meeting and conversation with a company called Esurance. Esurance is a large insurance company. They were actually a very active buyer of our traffic on our website. They loved our bidding platform. They actually have the same type of advertising inventory on esurance.com. They are very metrics-driven.

When someone comes to their site and gets a quote from them, they make a real-time determination as to whether or not that consumer is someone who is likely to buy a policy from them or not. Depending on their analysis of various variables, they will oftentimes make the decision to show cost-per-click ads underneath their own quote from other insurance companies. They do this for a couple of reasons. One is because they understand that consumers of auto insurance and other product, particularly online consumers, want to compare.

This segment is part 6 in the series : Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi
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