Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi (Part 7)

Sramana Mitra: People do comparison shopping all the time.

Steve Yi: Exactly. Amazon does the same thing. When you look for a product on Amazon, they will actually have listings for competitive retailers. It’s a combination of insurance revenue and understanding that there is media revenue from your property that you can extract. In turn, it makes them a much more efficient marketer. If you’re spending $100 to get someone to come to your site and fill out a quote request, you can recoup 25% to 30% of that cost by having an advertising program. That’s money that you can then pour back into marketing and getting more consumers to your site.

It was a very effective strategy for Esurance. It was one of the key things that enabled them to grow so rapidly in late 2000 to really go toe-to-toe with the larger, more established carriers like GEICO and Progressive. The problem they ran into though was that they’re not an advertising company. The system that they had setup to allow other insurance carriers to buy placement on Esurance was rudimentary. It was spreadsheet-based. They approached us and said that all of the advertisers that they worked with wanted to use a platform like ours in a dynamic way for insurance inventory. They asked us whether a partnership was possible.

We, by this time, had already started to think about building an advertising exchange. It was a very fortuitous conversation. They became one of the anchor tenants around which we built our advertising exchange. They became our first outside publisher in effect. Then we started to build that business model. Having been in the industry, we understood a few things. One is that advertisers simply didn’t have enough control. They didn’t have control in their ability to bid differently for different sources of traffic because there was no transparency.

Typically what advertisers would do was there are 300 publishers in the auto insurance space. They were being aggregated by these ad networks. The advertisers who were buying traffic from the ad networks had no visibility into who any given publisher was. Through our transparent exchange and a very sophisticated programmatic real-time bidding tools, we gave them complete control as to what to pay for different consumer segments and what to pay on top of that for different consumer segments coming through different publishers of different sources.

We were the first ones to do that in the space. Advertisers loved the solution and started to spend more with us. That enabled us to attract more publishers. Transparency begets high-quality publishers because high-quality publishers are the ones who want transparency and want advertisers to know exactly who they are. High-quality publishers were the ones who were naturally the first ones to migrate to our exchange. Then the business started to take off after that. Now we have close to 200 publishers in various exchanges. We have about 130 advertisers. We’ve branched out beyond insurance and are in travel, mortgage, and education. We’re looking at expanding into other categories.

Sramana Mitra: What percentage of your business is still auto insurance?

Steve Yi: That we don’t disclose but it is more than half.

Sramana Mitra: So your roots in auto insurance still carry through in your current business model.

Steve Yi: Yes, they do. We have a big focus right now on building the same type of various transparent programmatic ecosystem that we built on auto insurance. Our focus is on building that in health insurance marketing and life insurance advertising. To build that type of an open ecosystem where publishers and advertisers can connect directly and transparently in a very efficient, technology-driven way and not through a black box ad network, it takes time for the players to get used to that new paradigm. We’re at various stages of transforming the ecosystem in the other verticals. In the auto insurance, it’s well advanced.

Sramana Mitra: What else is significant in your journey that we should cover? Your company is built entirely organically?

Steve Yi: Yes.

Sramana Mitra: No financing?

Steve Yi: Two years ago, we sold a majority stake in the company to White Mountains.

Sramana Mitra: White Mountains is a private equity firm?

Steve Yi: It’s a publicly-traded holding company. The companies that they have minority or majority stake in are almost always insurance-related.

Sramana Mitra: What revenue level did you reach before you made that decision to part with a significant portion of your equity?

Steve Yi: I don’t remember exactly what our run rate was when we did that. It was probably in the $40 million to $50 million range.

Sramana Mitra: The reason that you sold that stake was to give yourselves liquidity right?

Steve Yi: That’s right.

Sramana Mitra: Then what do you want to do? You want to keep going with this and keep building? Do you want to take it public?

Steve Yi: We just want to keep growing it. We’re being very honest in that we’re agonistic to whatever the long term exit scenario is whether it’s an IPO, strategic sale, or continue to run it. We just want to grow the company. I’m a believer that all of that takes care of itself.

Sramana Mitra: Yes.

Steve Yi: We’re not dogmatic about saying we have to IPO. Last year, we have continued to grow since the White Mountains investment. Last year, we did $105 million in revenue. This year, we’re tracking obviously well above that. We’re seeing strong growth for this year as well.

Sramana Mitra: Great. It was a pleasure talking to you.

This segment is part 7 in the series : Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi
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