Meet System1, The Billion-Dollar Ad Tech Biz IPOing Later This Year

Are you tired of SPACs already?

Too bad! There are more SPACs.

Another market entrant is the performance advertising company System1, which will list on the Nasdaq later this year, likely by November, after completing a merger with one such “special purpose acquisition company,” said CEO and co-founder Michael Blend.

System1’s SPAC arrangement isn’t analogous to other media tech SPACs right now, Blend said. The company partially acquired the web security and privacy company in 2018, and is fully merging this year, backed by the investor Bill Foley (who owns real estate and financial services companies, plus the Las Vegas Golden Knights National Hockey League franchise).

System1 is an online advertising bounty hunter. It spends its own money to pursue commissions on certain online marketing conversions: someone signs up for an auto dealership visit, requests more information on a mortgage, downloads an ad blocker, etc.

The company is forecasting $120 million in billings in 2021, and its SPAC deal values the business at $1.4 billion.

AdExchanger caught up with Blend about his plans for System1 as a public company.

AdExchanger:  How did you end up with the owned-and-operated web services business?

MICHAEL BLEND: Our largest and our fastest-growing businesses, actually, come from us marketing our own products.

When we go public via SPAC, we’ll be acquiring, which creates digital subscription services. We invested in the company in 2018, so have been in the business for years. But we’ll be fully acquiring it by virtue of going public.

Our largest subscription product is an antivirus security suite that competes with the likes of Avast and Norton. We’ve also launched an ad blocker, which is a subscription service. And we have Total WebShield, which monitors websites for potential malicious code. And we use our marketing platform to drive customers for that. So, in that case, we’re our own advertisers, and instead of sending customers to another company, we’re sending them to our own products.

We built this great customer acquisition platform, which we call Ramp. And if you’re creating customers for advertisers, it’s a pretty natural move to create your own products and generate customers for your own products. You’ll start seeing that more and more, with companies like AppLovin, that have a big app download network building their own apps. So we made a push into privacy and security. We didn’t have definite plans to go public at that point. We just knew that it was a natural evolution for the business.

Where does your traffic come from typically?

We buy ads on Google, Facebook or Snapchat, to name a few. A customer will click on an ad and link to a network of websites that we own. We own the mapping company MapQuest. We own, a large search engine, as well as HowStuffWorks, a knowledge-based resource site. We have category sites like CarsGenius, which is a search engine for new and used cars.

A user typically clicks on an ad on a social network or platform, and that indicates to us they’re interested in something. Then they do something else on our network that shows intent. And then we send that traffic on to a customer or to our own products.

We believe that customer acquisition will be going heavily in this direction. The companies that are able to operate their own network of intent-driven websites have a large advantage with third-party cookies going away.

Do you do sell any ecommerce products or do affiliate marketing?

All of our products are digital subscription services. We don’t sell any hard goods. It’s something that we’ve looked into, but our runway right now is rolling out more privacy and security software products. Within our network, that’s where we see consumers going. Users are speaking loudly, in terms of calling for a more private and secure internet. And it’s also an area where we’ve got unique assets assembled.

We’re not big on the ecommerce segment right now. Most of our products are services like insurance packages, financial products, dating services and digital subscriptions. It would be a major expansion for us to move into ecommerce. And today we’re not working with the kind of companies that pack and ship products.

In our investor deck, the two areas we flagged as major expansion opportunities is that ecommerce segment, as well as mobile app installs. Mobile gaming is a huge market we could do well in.

What are the typical performance metrics or commissions you collect, if not installs or affiliate sales?

It really depends. For one thing, we see seasonal trends.

We have 60 advertiser verticals, so as the economy shifts or reopens, we spot those shifts. One obvious example is travel: We’ve seen consumer demand die down and light back up. Or things like interest rates and mortgage deals. We see the trends in the consumer market and our advertising shifts to the vertical that’s going up, and the travel brands are willing to pay more during those times when demand is ticking up.

COVID obviously was a dramatic change, but there are seasonal peaks for car sales, for instance, and other shifts during the year that affect consumer demand by vertical.

In terms of metrics for specific campaigns, we might be sending someone to a landing page, so a click on that ad or some action on the page. It could be a conversion, like a booking or new customer.

What is your process for entering a new vertical?

Food delivery is a good example of a market we’ve moved into.

We’ll reach out to the major advertisers in the vertical to establish performance-based relationships. Then we start running our Ramp platform to get more data. Maybe Facebook or Snapchat or some other platform is better for certain verticals.

In that stage, we’re typically not going to be profitable. We’ll be investing in that vertical. And then, as we get bigger and have more experience identifying those customers, our Ramp platform will switch to profitability.

If you work with many grocery delivery advertisers, how do you decide which to send that potential customer?

To dig into grocery delivery a little, a service like GoPuff is heavy towards millennials and current students. Instacart is a more general audience and has a relationship with the grocery store that person probably goes to. It’s a different customer base. So that’s an example of how we might identify certain customers for certain advertisers. If GoPuff is spending heavily to reach students in a particular market, they’re going to drive up their conversion rates. The same way that aggressive advertising can move a company’s Google rankings.

Can an advertiser buy exclusivity in a category?

We do get that question all the time. But we take a consumer-first perspective. And a particular advertiser is not necessarily the right advertiser for every consumer in a vertical. We’re reluctant to enter into exclusive advertiser relationships, because we don’t actually think that’s the best thing on the consumer side.

Remember, we own these sites. We want people to come back. We don’t want to match a consumer with an advertiser who’s not right for them. But we get asked for exclusivity arrangements on a weekly if not daily basis.  

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