Building a Generative AI Venture from Portugal: João Aroso, CEO of Leadzai (Part 7)

Sramana Mitra: Well, either it’s going to go there or your product is going to be able to handle this kind of dynamic pricing model check where you can determine at what price point can you still be profitable and can cater and if that’s viable ROI-wise for your customer? If you can do that dynamic negotiation at scale, that could be a dynamic pricing at scale, and that would work as well. 

What are we talking in terms of average deal size? How much does a campaign generate revenue, lead wise.

João Aroso: An average ticket or average spend by my customer in my platform in Europe is roughly two hundred euros a month. In the US, it’s significantly higher because the US spends significantly more on advertising than we do in Europe. Northern Europe is at par with the US level. It’s more because it’s expensive, less because I’m competitive. Northern Europe is very expensive. It’s way lower in LatAm like $50 a month.

Sramana Mitra: Where is the bulk of your customer base in Europe?

João Aroso: The bulk of my customers today is in Western Europe.

Sramana Mitra: Ok, and you’re trying to expand North America, I imagine, because that is the more profitable market.

João Aroso: I don’t know if it’s the more profitable market because at the same time it’s the more mature market. Right?

Sramana Mitra: It is and traffic is expensive, actually.

João Aroso: So, in some cases, it is the more mature market.

Sramana Mitra: Actually, I take back my question. It may not be the most profitable market just because the traffic is so expensive.

João Aroso: Yes, I think that in absolute terms, it will be because the size is so much bigger. In relative terms like margin percentage-wise, it’s probably not profitable.

Sramana Mitra: Yes, especially if you have to arbitrage traffic and make money, traffic being cheap is a good attribute to have. So Latin America, Africa, India, and East Asia, where traffic is cheap, may actually be a better market.

João Aroso: Yes, if we were reselling traffic. You know, the problem that we see is that conversion rates in the US are way higher than everywhere else. Since the traffic is more expensive, people are willing to pay more for traffic because there’s way more money in the US, right? So, search and intent are much closer. In Africa and LatAm, you have probably a very active society in terms of online. Most of them are mobile.

However, transaction value and conversion rates are way lower. If we were purely doing arbitrage on traffic, it’s good for sure. However, if we’re doing a mix of traffic and at the end, we’re not reselling traffic per se, then that kind of gets diluted.

I think our main gain comes from our efficiency in managing media spend.

Sramana Mitra: I think your entire business is going to be valued by how well you can articulate what is your pricing strategy and how do you drive margin. If this company goes public, the analysts are going to go crazy trying to figure out how the hell do we value this business?

You’re not there yet but this problem is going to come if you get that far.

João Aroso: You know that I was having a conversation with a potential investor. One of the things that we were discussing was the IPO route. I was telling him, “Listen, I don’t think this company is IPOable because I don’t think that anyone will ever be interested in supporting our IPO.”

Because it’s such a volatile market. I think today it would be impossible for a company such as ours to IPO. Obviously, we need scale before that. But even if we were at scale today, I think it would be impossible for a company that has such a lack of control on margins, to actually IPO today.

Sramana Mitra: Do you foresee this company gets acquired by somebody like Google or Facebook that is in the advertising business and can add something like this to enhance their capabilities.

João Aroso: I honestly wouldn’t mind. But if you look at, for instance, how public markets have been reacting for quite some time to marketplaces that have similar, less volatile dynamics of supply and demand, I don’t think this company is an obvious IPO candidate. I think it’s more obvious for a sale or something like that.

Sramana Mitra: Very good. Wonderful story. I loved it. It’s a very interesting, intellectually challenging business to understand. And I think it’s fun. Thank you for telling your story, John.

This segment is part 7 in the series : Building a Generative AI Venture from Portugal: João Aroso, CEO of Leadzai
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