Roy De Souza from Zedo

This interview is with Roy De Souza, the CEO of Zedo, the Adserving company. Roy serves almost 1 billion ad impressions every day, so what he has to say is very interesting. Some key points of the interview: Learn how a new form of behavioural targeting is getting 500% - 1000% higher conversion rates. Learn why Google’s traffic is decreasing. Find out why MySpace could become more profitable than Google.

Fast Track Interview

Adrian: I’m interviewing today Roy who is the CEO of Zedo, which is one of the top ad serving companies in the world. Roy why don’t you give us a quick, one-minute summary of who you are and what you’ve achieved and what kind of things you do?

Roy: Sure, yes. My name is Roy De Souza and I’m the CEO of Zedo. We are the largest independent ad serving company overall and we focus on publishing, and publisher ad serving. We serve around 25 billion ad impressions a month. Our customers are primarily Web 2.0 companies, which are large, high-volume, high-growth Internet sites, and direct marketers which are very similar to ad networks. The two are very synergistic since direct marketers buy from the Web 2.0 companies.

We’re also the only ad server based in San Francisco, and know a lot of up and coming companies around here. We are big believers in behavioral targeting and probably lead that industry in terms of volume served. Our whole system is built for behavioral targeting. Every single ad we serve leaves the cookie and constructs the URL, depending on the dates in the cookie. And we’re also big believers in video advertising, which again Web 2.0 companies find very powerful and will generate a lot of revenue in the future.

Adrian: Great. Well first, we have some guys who are advertisers driving a lot of volume through CPA networks and general affiliate marketing but haven’t done any kind of ad service stuff before. How should someone like that get started and why would they come to Zedo?

Roy: Direct marketers often use Google search ads which tend to be a little expensive but are very effective. They also use affiliate networks, which are not so effective but are very low risk because they’re pure; the affiliate publishers take all the risks. So, CPM advertising is most valuable to them if they want to expand the number of conversions they get.

Adrian: Okay. So, what is a typical or what is a good CPM rate to pay ad service; how negotiable are CPM rates for ad serving?

Roy: Typical CPM rates for ad serving are around five cents CPM. If they’re serving five10 billion impressions a month they come closer to one cent CPM but that is a kind of range, I’d say from one to five cents CPM.

Two tools that we find work extremely well in increasing CPMs for a publisher are cleverly sequencing ads and the other is behavioral targeting, which Web 2.0 publishers find great value in as well. For both those products we charge a higher CPM and a higher monthly minimum.

Adrian: One of my clients researched the market pretty extensively and came back really convinced that the Doubleclick solution, was worth it because of the extra revenue it could generate. What kind of stuff would they be doing that this guy felt that there was so much of a difference?

Roy: And was he talking about Doubleclick for Advertisers or Double-click for Publishers?

Adrian: It was from the publisher’s standpoint.

Roy: Okay. For a publisher and for high-volume websites with a lot of users that stay a long time and sites that want to increase their CPM, Zedo is a stronger choice in Doubleclick. We have more tools, more technology, more knowledge really and more time to help customers increase their CPMs.

Our product is very suited to sites trying to increase their CPMs, who are high-volume. If you just sell it as is, then Doubleclick is a sufficient solution. But, if the site is a high-volume site working with many advertisers who want to optimize against them, keep the click-through rates up and to do clever behavioral targeting, then Zedo is definitely a better choice.

Adrian: So would you suggest, that Zedo is a better direct marketer’s solution and maybe the Doubleclick solution is more targeted towards brand advertisers?

Roy: That is part of it, yeah. Doubleclick is more targeted to sites like the Washington Post who face a very different challenge. Their biggest constraint is lack of inventory and they don’t have users staying on their sites a long time. On Washington Post you can just sell ads. Say the guy’s on the travel page, we’ll show them travel ads. But on MySpace you have no such luxury. You need really good technology, to figure out what the user’s interested in. Whether he’s interested in finance or travel or buying a new Ford, that’s where we play primarily.

Adrian: Okay. Acquisitions that have gone on recently with Google, Microsoft and Yahoo, buying ad serving companies, but those companies or ad networks are different than Zedo. How does what you do fit with what they do?

Roy: We’re the largest independent. Doubleclick has been acquired so that Google gets scale and display advertising, but the kind of sites we target is slightly different within the large publishers. We target the high-volume, high-growth sites which have a tricky targeting problem and need good technology. Doubleclick targets brand sites like WashingtonPost which don’t have so much a targeting problem, and are looking more at inventory, forecasting and work flow for large sales teams and integration with financial systems, not ‘how do I make more money out of this site?’

Adrian: So when those acquisitions happened, did you get approached at the same time?

Roy: We’ve been approached many times over the years and especially recently we’ve had lots of people approaching us.

Adrian: The dollar figures on those were quite high. I mean I think the smallest was at least something like 500 million wasn’t it or even higher?

Roy: Yeah, the dollar figures are high. They’re mostly measured on scale, how many impressions you have, so what these people who bought them wanted to do is they want to sell ads on behalf of those sites.

Adrian: So given everything that’s going on in the space you’re potentially a rather wealthy individual?

Roy: We’re not really looking at the acquisition side. You know, this display advertising is very, very powerful and Google has not won it yet. They own the search advertising market and make a lot of money from it but the display ad market is up for grabs.

Adrian: Fair enough.

Roy: Yeah. We’re focused more – Doubleclick has focused the last year or so on building systems to sell the publisher’s ads, they’re building the Doubleclick Exchange. I heard the Exchange is quite good. Google said, “We want to sell those ads instead.” So Google bought Doubleclick.

Adrian: Okay. So they have an actual exchange of ads to sell. Do you have ads to sell like that as well?

Roy: We don’t. I mean we could potentially build an exchange but the key to building an exchange and selling ads is having a technology that makes the ad worth more money.

Adrian: Right, okay. So you haven’t gone and built something like that yet but that could be something you’ll do at a later date?

Roy: It could be something that we do at a later date. I mean if we can make publishers more money they’ll be very happy. You know our technology can make publishers more money for sure.

Adrian: Okay. When I saw you present at Ad Tech and you made some really interesting comments on behavioral targeting, so tell me more?

Roy: Sure. Traditional advertising is done by buying ads around the content and that works really well, but what’s happened is a new kind of Internet site has come along. These new sites, these social networks have grown from nothing to being bigger than Google.com. MySpace.com is now bigger than Google.com. YouTube.com is bigger than Google.com.

Adrian: MySpace and YouTube are both bigger than Google?

Roy: Absolutely, yeah. Initially, when I started Zedo we built the whole platform around self targeting. But today we find a better way to do it rather than asking a user is actually seeing what the user has done.

For example, understanding that the user is male is definitely better when you’re trying to sell electronics. If you can figure out the user is male you’re doing much better than not knowing whether they’re male or female, in fact, you might find you’re doing twice as well. If you make an assumption that women don’t buy electronics and men do, which is clearly not correct, by knowing the user’s gender you’ll double your click-through rates and conversion rates.

Adrian: So you’re able to do this sort of targeting?

Roy: Yeah, our key focus at the moment is the publishers, we sign up the publishers. The advertisers actually love this product, right; they want to sell their stuff. They can see how many people see the ads, how many people click, how many people fill in the forms. They can track it back approximately and they know this works very, very well.

We launched this behavioral targeting technology last year and it’s working phenomenally well and…beyond anything we could’ve expected. So we’ve been working on that, we’ve been perfecting the technology, expanding the technology; now we’re looking to see how we can best serve our publisher customers and what the best way to do that is.

Adrian: Right.

Roy: We do time-of-day targeting, we do bandwidth targeting, broadband verses narrowband, we do all sorts of targeting; we do all sorts of sequencing, we do all sorts of frequencies, all sorts of other things. We can scan the URL and we’ve done some stuff where we index the page, etc. There are three options really, we build an online system, we build a sales force or we partner with a company which has very close advertiser relationships. So the key next step for us is the advertiser relationship.

Adrian: And have you filed for patents around it?

Roy: We have filed for patents, yeah.

All right. I was noticing that your company is located in India and in Russia and in San Francisco and in Portland. How many employees do you have?

Roy: We have about 110 employees with about a third of the company in San Francisco and two-thirds offshore in our two offices.

Adrian: Okay. So final question. What are some important trends you’re seeing at the moment and where are the opportunities today that you see?

Roy: I think the potential opportunities are in building high-volume websites. If you possibly can, I think the best thing to do is build a site which will have 10 million users coming to it on a regular basis with users who like the site, because you can sell the ads, there are many, many buyers.

Adrian: And so over time with all the behavioral targeting we’re seeing where do you think the 20 cent CPMs that a MySpace is getting now, are going to go to for the run in inventory?

Roy: Google.com gets about $50.00 CPMs for search ads. MySpace gets about 50 cent CPMs, about 100 less. So, I think behavioral targeting is probably at the least a tenth as good as search targeting. With search targeting you typed in–Canon digital camera and they give you ads for Canon digital camera. With behavioral targeting you went to Canon and looked at digital cameras and so we give you ads with Canon digital camera. So I would say you could expect MySpace to get about 10 percent of Google’s revenue for page view at least.

Adrian: So you’re looking at a ten times increase?

Roy: From 50 cents to $5.00, yeah. So if they make 20 cents a page today for roughly three ads per page, they’re effectively making a 50 cent, 60 cent CPM, I think that will go up to at least ten times over time.

Adrian: And so your feeling, this ten times increase of the 50 cents at MySpace is at today up to $5.00, will that come primarily through this cookie-based targeting you’re talking about or will it also be from some of the other inference-type targeting that Blue Lithium and other networks use?

Roy: I think the vast majority will come from this cookie-based targeting, the stuff that really matters.

Adrian: Okay. One other just related question on this topic. One interview I did last year that was a very interesting one. The guy was talking about tracking what users click on and building a profile of what users have clicked on over time and then doing various targeting or brokering of data. Are you involved in any of that kind of stuff?

Roy: Yeah, absolutely. We do cookie users on click, so if they click on a travel ad we can cookie them as interested in travel and that has some merit in the space. The only thing to remember is the average click-through rate on the Internet, more than say .02 percent?

Adrian: Yeah, a low number.

Roy: A low number because so few people click that you don’t want to be spending too much time worrying about it. Over time you can build up more and more data but there. You are better off being like EBay who has huge numbers of users coming to your site and you know what they want rather than waiting until you have cookied a million people who’ve clicked. To have cookied a million people that have clicked you’ll have to have served so many ads and it will take so long that you might find that the returns are not high enough.

So tracking by cookies and clicks is great, it augments a little bit the inventory, it’s definitely higher quality because if he’s seen the ad then clicks on it he’s interested. You’re more sure that he’s interested but the fact that he actually went to the Land Rover site or he went to the EBay site and looked at shoes, out of all the millions on MySpace you’d better show your shoe ads to him, it just makes sense.

Adrian: Right. Okay. Is there anything that you want to tell us about which I haven’t asked you about?

Roy: You know I think overall that the one thing not appreciated so much in the industry is that Google.com is declining in page views relative to the other sites and MySpace and FaceBook are growing and potentially the market for ads on those sites. The display market, the ads on those sites in the non search ads are going to be a big part and Google may not be the winner.

Adrian: But they’d need to be ten to one beyond Google, have ten times the inventory of Google?

Roy: I think they will probably get to ten times the inventory over Google, but when I said that MySpace could increase its revenues by ten times CPMs, I think that that’s the minimum, once they get better and better at this they could increase it further.

Adrian: So Rupert Murdoch really got the deal of the millennium when he bought MySpace?

Roy: I think he did, extremely well, bought it early, very clever. He’s got to make sure it’s good though, keep the site up. Building a site is not a once and forever done thing; you have to keep your site better than all the others.

Adrian: Yeah.

Roy: So I hope he’s doing that.

Adrian: Great. Well thank you very much; it’s been a great interview.

Roy: Yeah, thanks very much.

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BIO: Roy is responsible for ZEDO’s strategy and vision. He founded the company in 1999 and it is now the third largest ad server in the world. Roy is a well known figure in the online advertising industry on the West Coast and a frequent speaker at ad:tech and other industry conferences. He is widely regarded as an expert in the space. Prior to ZEDO, he was in product management at Zip2.com, an Internet city guide company that was acquired by Compaq. Before Zip2 he consulted for The COBA Group, a strategy consulting firm in the UK. There, he gained extensive experience in marketing strategies, consumer goods marketing and advertising, with such companies as Avon, Hewlett Packard, and Schwab. He also evaluated potential investments for venture capitalists. Before COBA, Roy worked for Rover Group Cars and Imperial Chemical Industries. He started his career in the advanced technology division of Ove Arup & Partners Consulting Engineers. Roy received his MBA from the Kellogg School at Northwestern University, where he served as Vice President of Technology. Roy received his Masters in Engineering and Economics from St. Anne’s College, University of Oxford.

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