Retailers Starting To Understand Value Of Their Customer Data Says TellApart CEO McFarland

TellApartJosh McFarland is CEO of TellApart, an online media buying and data management platform, discussed recent events at his company and his view on digital ads.

The company recently raised a $13 million round of funding through Greylock and Bain Capital (read more). Since we last spoke a year ago, are there any new trends you can share regarding the digital marketing strategies you’re seeing from e-commerce retailers?

JM: The biggest and most telling trend is that retailers who have an online presence – both pure-play and multi-channel — are starting to really understand and appreciate the valuable asset they have in their own customer data and what it can do for them. We’re starting to field much more thoughtful questions from retailers who want to build customer data systems to support their display ad efforts.

The second trend is that these retailers continue to get smarter about their online marketing strategies. They know their ROI metrics down to the penny, and they’re seeing that customer data-driven retargeting makes display ads finally work. I’d say retargeting in general is on the cusp of being a must-buy for most retailers.

Any adjustments in your company’s strategy in the past year?

We are not making any major adjustments; rather, we are doubling down what’s working. Paid search marketing, comparison shopping engines and email marketing continue to show diminishing returns as the channels get more saturated, but this isn’t the case with display advertising. We are proving to e-commerce marketers that they can use their own customer data and make targeted display advertising a hugely profitable and meaningful contributor to their bottom line. We are consistently driving 3-5% of our client’s revenue through our display retargeting application, so we’re full steam ahead on our original strategy.

What do you see as some of the critical differentiators for TellApart within its personalized retargeting competitive set, if you will?

Our biggest differentiators are our team & technology and the metrics & business model they make possible. Our team is comprised of incredible technical talent and deep experience in the online ad business, e-commerce, big data and enterprise software. This team has reinvented the technology behind how e-commerce data is stored, managed and used in display ads to drive substantial incremental revenue growth for our clients.

This ultimately allows us to offer a risk-free business model to large online retailers that is unmatched in the retargeting space; we get paid a slice of revenue only after a potential shopper clicks on a TellApart-served ad and returns to the retailer’s site and makes a purchase. We don’t charge for view-through conversions (most of which are a scam in our opinion) and we don’t get paid for raw clicks (most of which won’t ever convert.) We only make money when an online retailer makes money; our incentives are totally aligned with theirs.

You’ve discussed “incrementality” as a linchpin to TellApart’s strategy. How is incrementality playing out these days in literal terms? Any examples?

Let’s face it, conversion attribution is still a mess, and there’s no silver bullet. There are now dozens of measurement vendors, all claiming the ability to more fairly allocate responsibility for a conversion between overlapping marketing channels. And yet, all a retailer cares about is that their revenue this month is higher than last. Enter incrementality: the ability to prove that a particular marketing effort has driven brand new sales that wouldn’t have otherwise occurred.

TellApart’s Transactional Retargeting – because it’s done at the level of an individual visitor — is in the unique position to have its incrementality actually measured. This is done through our A:B testing framework, where one group of users is not shown ads so that a baseline conversion rate can be established (try getting your SEM or affiliate provider to agree to that!)

To every new client we work with, we commit to scientifically prove that we can drive new sales, and in these studies, we’ve seen incremental conversions rise by 25-60% thanks to our retargeting. And because view through conversions (to the extent a portion are actually incremental) are free with TellApart, we can always show our clients that we are driving even more value than they expected.

Is TellApart profitable? How have revenues progressed?

As a private company, we don’t disclose our financials.

What are you seeing in real-time bidded marketplaces today? Any themes or concerns?

The RTB exchanges have significantly improved over the last year – both in terms of volume and results. We’re seeing higher reach, more impressions, increasing click-through rates and solid conversion rates… if at rising clearing prices.

What’s interesting about this developing market is that the days of easy arbitrage were over before they began. If a vendor wants to support a business model as aggressive as ours, they have to have serious technology and unique data to make it work. For direct response, at least, there’s no simple buy-low/sell-high CPM or CPC arbitrage that’s left from the ad network days. Smart buyers have taken out most of the inefficiencies.

This is a hot button for publishers… does TellApart ever use “context” as an attribute when targeting and optimizing display ad campaigns? Does “context” matter to a retargeter?

We’ve measured this, and honestly, it’s mostly about the visitor. The data our retailers have on their shoppers matters 10x more than a page’s context when deciding where to retarget an ad. But yes, we use hundreds of data inputs to optimize our approach, and context is one of them. Even then, the quality of the publisher’s placement (ad size, above-the-fold, etc.) tends to matter a lot more than do the contextual signals on the page.

Are you feeling any more risk in terms of proposed online privacy legislation today?

I wouldn’t say we’re feeling more risk, but it’s something we continue to watch and take very seriously. One difference that gives us confidence is that we are not a data middleman. Our client’s first party data is 100%, unequivocally theirs — full stop. We help them manage and understand their own data, but it lives in a partitioned, encrypted, secure place in our cloud, individual to each merchant.

TellApart also takes each visitor’s privacy very seriously, and we are dedicated to providing transparency and choice to the consumers we interact with. Each one of our ads features a prominent “X” in the corner, allowing consumers to one-click opt-out of TellApart retargeting.

Will TellApart move beyond PC-based display retargeting? If so, what makes sense in terms of the next digital channels?

Yes, we will definitely move past PC-based display retargeting. Our company is built on the premise that a retailer’s own customer data is their most valuable asset – and that data can be scored/used across marketing channels. We aren’t yet publicly discussing future applications, but the key to our entire platform is that the Customer Quality Score we create is portable and can be used whenever there is the chance to address the individual – onsite, offsite, via email, in-store, etc.

How is TellApart integrating its online services with a client’s offline business?

As our first multi-channel clients begin using our platform, we’re learning a lot about conversion behaviors across channels. Our DNA (and business model) are built around using data and marketing channels to drive new sales, and being able to complete the picture with in-store sales data is an important part of that. At the same time, we firmly believe that no retailer should overlook the 3-5% online revenue growth we can drive for them today.

You recently announced a healthy new round of funding ($13 million). Can you be specific on its use? And why did you choose Bain Capital to lead the latest round?

To borrow a phrase from our Google-roots, it’s time for to us to pour gas on the hockey stick, and our metrics supported an ultra-high quality, fast and painless fundraising. Specifically, we’re using the funds immediately to continue massive hiring across all positions and to speed up our R&D around additional applications on our platform.

We were fortunate to have tremendous interest in this round and were really selective in our conversations. We chose Bain Capital Ventures because of the firm’s track record, their strong relationships in retail, and because their new Silicon Valley office is going to be an investing powerhouse. But really, the decision was led by the chance to work with Ajay Agarwal, who knows both the enterprise software and ecommerce technology spaces cold, and who has a great portfolio of related companies, including BloomReach and Kiva Systems.

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