Online advertising network InterCLICK announced its second quarter 2010 earnings on Wednesday. According to the release, "Revenue was $21.7 million in Q2 2010, a 103% year-over-year increase. (...) Gross profit was $9.6 million in Q2 2010, up 102% year-over-year." Read more.
InterCLICK president Michael Katz discussed his company's financial results and industry trends.
AdExchanger.com: Looking at InterCLICK's 100% year-over-year Q2 growth and projected 2010 revenues of $90 million + , are there any observations you can share about how clients are spending?
MK: Delivering the most effective audience-centric campaigns is dependent on our ability to properly value targeting data and solving the operational challenges associated with running data enabled campaigns. We won a record amount of new business this past quarter and client retention reached a new high watermark. This is a hyper competitive space and I believe that our investment in our technology and our team has paid off tremendously, as evident in our results.
What about data? Has using data exchanges and other third-party providers been a key part of your offering? How do you see this playing out for InterCLICK?
The challenges in display advertising require effective supply chain management. The goal is to find the optimal alignment among data, inventory, and creative. Quality inventory has been accessible for quite some time, and through data exchanges like BlueKai, rich targeting data has been made quite accessible. So data exchanges allow for easy access and implementation. The real challenge is in the execution, which is what we have invested significant capital and resources in addressing.
How important is it for an ad network to build its own technology? Or can it license technology from others and stay competitive? Are 40% to 50%+ gross margins still possible for the ad network model?
Depending on your goals, licensing ad serving technology may be fine; however, this is about so much more than just having an ad server. Its about being able to organize data properly, performing the appropriate analysis, and solving the operational challenges that are associated with achieving scale. The reason I have been so skeptical on the self-serve display model is that successful execution requires much more than having access to a nice looking UI. The way that companies manage their information, the tools they build, and the organizational alignment is how success is achieved.
As for gross margins, we have stated that our gross margins will continue to remain consistent over the coming quarters.
On the earnings call with Wall Street analysts, you said revenue growth is outpacing impression growth (bought impressions) for InterCLICK for 6 consecutive quarters. Why do you think that is? How is this playing out for your network publishers?
We continue to invest in technology that allows us to accurately align each ad impression with the right message based on a set of facts that we know about a user. The primary benefit is our ability to deliver more effective results for our advertisers. The ancillary benefit is that it has led to increased monetization of our publishers' under-utilized inventory.
Do you buy and serve more impressions through your network or through exchanges? Where do you see this going?
Our network connects to and consists of publishers, exchanges, and the optimizer platforms as key suppliers of inventory. The idea is to maximize the value of each input to achieve maximum productivity and although the large majority of our inventory is sourced directly from publishers, the model is not reliant on having direct relationships with publishers. Identifying, organizing, and optimizing the raw materials (data and inventory) and transforming them into something consumable (responsive audiences) on behalf of our customers (advertisers) is what we do.
Are you starting to see brand marketers with awareness campaigns or is it mainly DR? How does InterCLICK make the case for brand marketers?
We have a healthy mix of both. All advertisers want to reach an audience, its their objectives that vary campaign to campaign.
We have been heavily investing in a very unique solution for brand marketers leveraging the vast amounts of targeting data that is available. We have a couple clients that we are doing pilots for currently and I will provide further updates as continue to make progress.
Is the online media buying world starting to look like the financial markets? How do you see this playing out?
Comparing digital display advertising to the financial markets is an over-simplified analogy that's factually inappropriate. In the financial markets, while there are many different valuation methods, they are all primarily based on financial performance and an element of time. In digital advertising, an impression is literally worth different amounts to every single buyer, all of whom have different information available about the impression. Second, in the financial markets there is a premium for growth potential while an ad impression is an instantly perishable commodity. Third, there is no notion of the impact of ad server decisioning in the financial markets. Fourth, while stocks get sold at the highest available bid, digital advertising doesn't require an impression to go to the highest bidder. Often times large buyers of inventory such as ad networks will guarantee fill rates, offer accelerated payment cycles, or may offer other compelling commercial terms in exchange for better placement than other buyers who may offer a higher bid.
A much more appropriate analogy is that of supply chain management.
By John Ebbert