The public market has not been too kind to ad tech companies, but French performance marketing company Criteo has seemingly fared far better (it had five straight quarters of revenue growth and a market cap of $2.6 billion).
Numerous industry insiders laud Criteo for its recurring revenue stream, typically associated with a software model. Yet Criteo CEO Jean-Baptiste Rudelle doesn’t characterize it as a platform in the traditional sense of the word.
“The fundamental difference between us and other companies that define themselves as platforms is they sell tools and define themselves by their functionality, whereas our value proposition is driving ROI and incremental sales, things that typically matter to the CMO,” he said.
But Criteo, coming up on two years since it filed its IPO on the NASDAQ, isn’t exactly in the “business of battling for I/Os,” either, according to Ashu Garg, general partner at Foundation Capital, which invests in retargeting platform competitors like AdRoll.
“They’ve tried to replicate the search model of being as ‘always on’ as possible,” Garg said. “They’ve done a good job building an ecosystem that goes beyond their initial product offering, which was retargeting. What’s unclear to us as outsiders is whether they’re [a platform or] just a massive sales machine with incredible execution.”
This didn’t keep French holding company Publicis Groupe from allegedly flirting with an acquisition last summer, given some people’s predictions that it was attracted to Criteo’s algorithms and its stable of about 7,000 advertisers, including Sony and Hotels.com.
“We operate in 40 countries and the Criteo model is the same everywhere,” said Rudelle. “If you have a good product, there is no reason why it shouldn’t work everywhere. In Europe, there is the impact of a culture of differences, but clients are looking for better ROI and all publishers are looking for better CPMs. We’re moving into a world where clients will pick one partner to optimize their buys on all inventory.”
“All inventory” includes thousands of publishers, major exchanges like Facebook and Google AdX, email, mobile in-app and mobile web. Criteo uses this volume to support claims that 84% of its client base now leverages its cross-screen solutions.
But in order to enable cross-platform retargeting, Criteo quietly selected the technologies it would need to own – rather than build – to strengthen its position beyond desktop. Between 2013 and now, Criteo acquired four companies, including AD-X Tracking, Tedemis, AdQuantic and DataPop.
Disrupting Itself
Criteo’s purchase of mobile ad tech company AD-X Tracking in 2013, which provided the foundation for its cross-device matching technology, was perhaps most critical for realizing its vision.
Rather than reinventing the wheel, it knew acquiring the technology would mean faster time to market, despite the sometimes lengthy integration process common in any tech acquisition, Rudelle said.
“One of the top priorities at the CMO level now is understanding how people switch from one device to another,” said Rudelle. “Our cross-device system can be used across any publisher in a very robust and privacy-centric way and we feel we’ll be among only a handful of players in the world who can make this happen because of our scale at the publisher level and we’ll continue to push a lot on mobile and more in-app.”
It’s a tall order for Criteo, whose cross-channel rivals include Google, Amazon, Microsoft, Apple and Facebook. But Criteo says its purchase of Tedemis, a French email-marketing platform, prepared it further by matching mobile devices to email log-ins.
Retail remains a very email-centric medium, said Criteo President and COO Eric Eichmann. “We’ve found that browsing and purchasing data is still most relevant because it comes back to shopping intent data,” he said.
Consequently, Criteo bought Parisian machine-learning platform AdQuantic and DataPop, a company which combines pricing and intent data from product catalogs.
These two companies, Criteo hopes, will improve product recommendations within its predictive personalization system, Criteo Engine. When a consumer clicks through and converts on a display ad, Criteo says it applies that data to future bids based on a user’s propensity to purchase. It claims it can improve performance by as much as 38%.
Under The Criteo Hood
Criteo touts its ability to improve conversions, not just clicks. In fact, Criteo claims it drove $19 billion in post-click sales in a year ending on March 31, and optimizes buys based on cost per click against cost of sale.
Post-click sales attribution is its differentiator, the company claims, since it adds an additional measure of effectiveness.
So how has Criteo been able to establish and maintain success? First, it was early to the game optimizing performance on cost-per-click basis instead of standard CPMs. Second, Criteo has a reputation for going direct-to-advertiser, and bypassing the agency intermediary in many cases.
One investor, speaking on condition of anonymity, said Criteo’s CPC model undercut the price of one of its early competitors, the CPM-focused Dotomi (which sold to ValueClick, which became Conversant, which was acquired by Alliance Data Services). Criteo’s model also provided more value to clients interested in actually driving more customers and boosting conversions.
“There would be these bake-offs with prospective clients between Criteo and Dotomi, and Criteo would always win,” the investor said. “They did things that made inventory more valuable, such as determining that ‘this person shopped on this site previously.’”
Retail and footwear apparel brand Steve Madden has used Criteo to retarget shoppers across its networks and through the Facebook Exchange for just over two years, along with various other point solutions from Adobe (content management system) and IBM (web analytics).
Once a customer hits the Steve Madden site, they’re dropped into Criteo’s cookie pool, which helps the brand determine how to win back the shopper who browsed but didn’t buy.
“We work directly with them and we have good conversations with them, but the dialogue usually goes, ‘What’s the ROI you’re shooting for and here’s the volume Criteo can provide,’” said Mark Friedman, president of ecommerce for Steve Madden. “Their optimizations are based upon us saying we want tighter or looser ROI, but we don’t really have much visibility into what’s going on under the hood.”
Despite the fact, Friedman said Criteo brings a good service to the retailer and its market share is impressive. He would simply like to see more of a cost-per-acquisition-based model and revenue share, rather than a proxy for revenue targets.
And while Steve Madden has a good idea whether a banner ad helped drive a conversion, “to the degree that they can help us understand cross-channel and whether a banner drove someone into a store” is equally important, as well as understanding cross-device behavior, said Friedman.
The Publisher Treatment
Criteo also works with upward of 9,000 publishers, including lifestyle media publisher Scripps Networks Interactive, the overarching brand for properties HGTV, DIY, Food Network, Cooking Channel, Travel Channel and Great American Country.
Bill Murray, VP of sales strategy and planning for Scripps Networks, is responsible for internal revenue operations and pricing and planning at Scripps, particularly supporting its national direct and programmatic sales initiatives.
Murray said Criteo is “essential” to its monetization strategy, but he’s often asked if it cannibalizes Scripps’ direct business with advertisers.
“We actually think it complements it fairly well because they have access to budgets and demand a brand like Scripps, frankly, wouldn’t have access to typically,” he said. “The kind of yield they’re able to drive is a nice addition to the work we’re doing directly or with other exchanges.”
Programmatic constitutes roughly 10% to 20% of the publisher’s revenue. There are certain periods where the sell-through rate is much higher, particularly Q4 for the Food Network, since holidays “are sort of our Super Bowl,” said Murray. “It’s a no-brainer because everyone wants access to it.”
Criteo helps Scripps drive incremental dollars, in addition to other factors Murray finds attractive, like sourcing more performance demand and the consultative nature of the relationship.
“[Criteo will] give us a sense of how much inventory they’re interested in getting access to and obviously outline the kind of ROI goals they’d like to achieve and we’ll give them a price-volume guidance and they reply with whether or not they can meet those targets,” Murray said.
“They understand we have a larger monetization strategy outside of Criteo and they work with us on figuring out how they can maximize the value for their advertisers while obtaining as much inventory as possible, with an understanding that they’re not our only partner.”
One publisher, who asked to remain anonymous, said if publisher clients provide pre-bid insight into inventory, Criteo eliminates tech fees. But in turn, there may be limitations in price discovery and sometimes bid densities wane, according to the source.
Another source said part of Criteo’s sales pitch to publishers includes a significant “upfront guarantee,” beyond what an ad network would typically pay out to, which is attractive. Thus, Criteo shores up lower-cost supply, while simultaneously promising to send more relevant, high-quality demand to that publisher.
“Their Yahoo Japan deal was exactly that,” said the source. “Their focus on tapping into the ‘unlimited budget’ is so smart because it’s all direct-response. They haven’t needed to get into the brand game yet, but at some point you can see them taking a lot of the technology they’ve built and applying it to more brand campaigns, which could be really powerful.”
