Thus far, Rocket Fuel has had success building relationships with international agencies and independent North American agencies, said CEO Randy Wootton during the company’s Q1 2016 earnings call Tuesday. But it has “not yet turned the tide with key holding companies in North America.”
Rocket Fuel’s penetration into international agencies – often owned by the very North American companies Rocket Fuel is struggling to work with – drove a lot of the 6% non-GAAP Q1 growth to net revenue of $62.2 million. (Rocket Fuel is moving to a net revenue model because, Wootton said, it better reflects its move to a software-focused company. GAAP revenue was $104.7 million, flat compared to $104.3 million during the same period last year.)
Wootton speculated that international agency buy-in is happening because they’re farther away from North American headquarters. “They spend where the results are being delivered,” Wootton told AdExchanger before the earnings call. “We have proof points that our stuff is working.”
Rocket Fuel’s relationships with independent North American agencies are strong as well, Wootton said. Because of their size and limited resources, these agencies go all-in with one provider. “The ones we’ve won, it’s about implementation, adoption, supporting their media plan and coaching them,” he said.
However, Rocket Fuel’s ability to penetrate US holding companies is a bit of a sticking point – and was the reason for Rocket Fuel’s gross revenue stagnation. Specifically, Wootton noted during the earnings call a decline in its I/O-driven media services business, due to those holding company headwinds.
“With the holding companies, there’s a strong shift from managed services to self-serve as they try to build their own business,” Wootton told AdExchanger. Consequently, Rocket Fuel’s North American holding company business was down 4% YoY and 17% quarter over quarter.
Later, during the earnings call, Wootton said Rocket Fuel has seen major holding companies shift spend from I/Os to their own trading desks – “where they’ve white labeled our competitors’ technology.”
Rocket Fuel’s hope is to find a way to show enough value to strike a deal. The company targeted six holding companies last year; right now, it’s working with three, where Rocket Fuel is in phase three of ongoing trials.
“Phase one is you have to prove you’re better,” Wootton explained. “Phase two is you do it at a trial. Phase three is you’re engaged and you start building capabilities that are consistent or better than [the holding company’s] current providers.”
Those differentiating functions include dynamic creative, programmatic TV (still an experimental function, but it’s in anticipation of a take-off in 2019) and margin control.
“I don’t think the holding company trading desks will ever have just one DSP,” Wootton told AdExchanger. “Our role is to be No. 1 and No. 2. With some holding companies, they’ve taken stakes in specific DSPs, so it’ll be hard to be No. 1. But we’d certainly like to be No. 2."