Deal Radar 2009: Hydra

We continue our coverage of online advertising with Beverly Hills-based Hydra. The company was founded by Zac Brandenberg, who while serving as the VP of the Dohring Company became an expert in conducting surveys online using email. This experience proved to him the power of online resources to connect with consumers and get them to respond. Brandenberg felt that the Internet made it possible to apply the same pool of talent and resources to launch and run a number of different, mutually supportive online businesses. At Hydra’s beginning, these included e-commerce, email and email list management, and a performance-based affiliate ad network. However, with the explosive growth of the ad network business, this soon became the company’s focus.

At the time of Hydra’s inception, there were two dominant players in the affiliate marketing space: LinkShare and Commission Junction (CJ). Though they had CPA (cost-per-action) pricing for advertisers, they also charged fees for advertisers to access their proprietary platform for accessing affiliates, and were DIY; that is, advertisers had to manage campaigns on their own. Hydra, however, adopted a different approach and derived income only from the results it delivered, and offered a turnkey, concierge-level service to ensure that results were delivered. Hydra’s price model is simple: They charge only for actions (sales, leads, or ad engagements) generated.

Today, however, there are ad networks of all types. Forrester Interactive Advertising Forecast for April 2009 and IDC in May 2008 estimated that the CPA portion of the online ad spend would be $4 billion in 2009 and is expected to grow to $7 billion by 2012. However, Hydra is unperturbed by the competition. It feels that while most ad networks aggregate display inventory only and sell on CPM, it distributes across all online channels, on a CPA basis. Secondly, while the oldest and biggest CPA networks such as CJ and LinkShare offer a fee-based DIY platform focused on e-commerce, Hydra is conversion-focused and 100% performance-based. Further, the company also building new divisions to distribute ads via email, search, display, and social media internally, offering advertisers greater control over impressions volume and traffic quality. Hydra feels that though advertisers prefer ROI predictability and the lack of risk inherent in the CPA performance model, they are put off by affiliate marketing. The company is attempting to respond to that sentiment by combining internal distribution with a select group of affiliates.

Hydra’s top segments include mass market brands engaged in online DR such as AARP, AT&T, Kraft, DirecTV, and Anthem Blue Cross; major online DR brands such as Travelzoo, Hotwire, True.com, Automotive.com; and DRTV brands and agencies such as Guthy-Renker, Beachbody, and Mercury Media. Hydra brought on its 1,000th advertisers this year and currently distributes media across 13,000 qualified and approved Internet partners.

Hydra was originally financed with $150,000 from Brandenberg. It accepted two rounds of additional funding between 2006 and 2007 from a large Los Angeles-based private equity firm. However, the company declined to give more details on the funding details. The company did say that it was profitable by its third month of operation and has been profitable every year since it was founded. In 2008, Hydra drove 19 million actions and generated over $108 million in revenue. Brandenberg plans to grow Hydra to $300 million to $500 million and it may consider a sale or IPO at that point.

Suggested Reading:
*Deal Radar 2009: Offerpal
*Deal Radar 2008: Local Marketers
*Vertical Ad Networks: A Trend to Watch for 2008

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