Controversial ad company Jellycloud shuts down

The deteriorating economy, and cloudy horizon for the advertising industry, has claimed one more victim: Jellycloud, the ad company I wrote last month that was the latest incarnation of team that ran the controversial Gator and Claria.

Last weekend, it threw in the towel, sent home its 36 employees, and assigned assets to a liquidator that will sell them off to the highest bidder. The company had raised $5.75M just a few months ago, and will return unused capital to the investors — US Venture Partners, SoftBank, Sand Hill Capital and Crosslink Capital. (It never drew down on the other tranche of capital it had announced.) Valleywag first reported rumors of the closure.

A company source, who requested anonymity, tells me the company had been thinking about giving up even when I talked with them for my piece three weeks ago (understandably, they didn’t tell me that at the time). The company realized that there were too many ad networks out there, and with the souring outlook for advertising, it made better sense to close shop and sell the company’s extensive set of patents, the source said. The source said the VentureBeat story was just one more thing that frustrated the team — by linking the company to its controversial past (Gator was reviled by many because it would track what people were reading online, and would run pop up ads to target them), even as the team was determined to emerge with a clean slate.

Jellycloud had tried partnering with the ad exchanges of companies like RightMedia and Doubleclick to obtain publisher inventory, but those exchanges proved disappointing, the source said. They were commanding a mere 50 cents per a thousand ads shown (CPM), not enough for Jellycloud to make a business from. There were few click-throughs, with some users on Facebook generating 500 page views or so during a single session, but never clicking on ads. Jellycloud sought to strike relationships directly with publishers, but then found that that strategy required significant scaling to get the volume required to make a significant business from it. Without more data on pricing, it meant Google and other networks had too much of an advantage. With so many competitors already in the market, and signs of consolidation, the team met with investors and agreed it was worth shutting down.

Selling the company’s patents is still expected to yield a return, the source said. It had filed for 186 patents, including 40 in the U.S. Some 14 were granted, and more than half of those are core to behavioral targeting around content and search based on the original controversial strategy of watching what people viewed online via their browsers. Interestingly, Google now is the closest to doing what the original Gator was so hated for: Google is aggressively installing its toolbar on every Dell computer in an effort to target advertising to individual users.