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With $4.75 million from Greylock Partners and several angel investors, TellApart is launching a technology that could make waves in e-commerce by nailing down which ads actually bring customers through online stores’ virtual doors.
The company helps e-commerce sites analyze their customers’ behavior and then place ads on other websites those users visit as they surf the Web, a technique known as “retargeting” that’s gaining traction in online advertising. As the e-commerce sector heats up, the Silicon Valley startup believes it is providing a more effective solution for acquiring and retaining customers.
TellApart initially came to Greylock’s attention after the firm approached TellApart cofounder and CEO Josh McFarland about a job at the firm, according to James Slavet, a partner at the firm. Instead, McFarland went to work with cofounder and CTO Mark Ayzenshtat, whom he met at Google while working together on AdSense, Google’s money-minting tool for placing ads on other websites. Both were entrepreneurs in residence at Greylock.
McFarland credits his work integrating DoubleClick, a Google acquisition, with opening his eyes to opportunities and inefficiencies in the display and retargeting space, specifically the problem of view-throughs — display ads that a user saw but didn’t click on.
Retargeting is accomplished by placing cookies on a user’s computer when they visit a site. Ad networks retarget these users with display ads and place additional cookies on the user’s computer each time they view an ad. When the user eventually makes a purchase, e-commerce sites don’t just pay for the ad a user clicked on before making a purchase. They also pay for view-throughs, or previously viewed ads.
E-commerce clients are getting the raw end of the deal, according to McFarland.
“Some of these other networks are dropping tens of dozens of cookies per user because they’re trying to make sure that they’ll get some credit for view-throughs,” he said.
McFarland claims that many of these view-throughs have little to no value to e-commerce sites. TellApart solves this problem by only charging for click-throughs that lead to purchases.
TellApart analyzes its e-commerce clients’ user data, assigning a quality score based on a user’s likelihood to actually buy something and the value of their projected purchases. The company then uses this score to target only the highest quality users, leading to click-through rates around 1 percent. The company charges clients between 10 and 30 percent of additional sales and currently is projecting a seven-figure revenue run rate. McFarland claims that TellApart’s retargeting technology can double a customer’s original value.
Ash ElDifrawi, another Google alum and chief marketing officer of TellApart client Hayneedle.com, said he was surprised by the product’s effectiveness: “I put into my budget how much I’d be paying monthly and I burnt through that in a week.”
ElDifrawi claims he spends three to five times less per customer than other retargeting offerings from competitors like Google and Yahoo. TellApart’s CPA model allowed HayNeedle to try the product out with nothing to lose.
“Josh put me in a low risk situation,” El Difrawi said. He claimed TellApart drives hundreds of thousands of dollars in sales every month.
TellApart’s business model is part of an emerging trend in online advertising according to Greylock’s Slavet.
“You’re seeing a shift from expensive upfront software to on-demand and subscription models,” he said. “It’s allowed retailers to focus on what they do best and partner with outside vendors.”
While TellApart is currently working exclusively with ecommerce clients, Slavit believes the company will eventually expand to other areas of the online ecosystem. “Over time I think TellApart can drive subscriptions and the sale of virtual goods.”