Having originally conceived the idea while at vertical ad network Adify (which he sold to Cox in 2008 for a healthy $300 million), CEO Russ Fradin has not lost any steam in his own personal startup engine - let alone his passion for his latest startup, Dynamic Signal. Fradin explains that brand clients want to find "influencers, amplifiers, or communities" or, as he puts it, "people whose opinions matter to a much larger group of people" – and he believes Dyamic Signal is the answer.
The idea began on the paid media side of things during his time with Adify, but Fradin came to learn it was the earned media world of Facebook and Twitter that mattered in his estimation. He wondered, how can marketers leverage this?
AdExchanger spoke to Fradin last week…
RUSS FRADIN: We realized that ad‑serving tools weren't the way to go after this opportunity, and so we were pushing Cox to invest in it as a standalone business inside of Cox – and, inside of Adify. Ultimately, they're a very big company and an amazing group of folks to work with.
One day when they knew I was going to leave, Cox said, "Hey, listen, we know you love this idea that you've been pushing us to go after. Let us invest."
Look. The reason Adify worked was because Unilever wanted to deal with communities of influencers. In the paid media world, they needed someone in the middle, and they needed it to be through a banner ad. Thanks to Facebook and Twitter and social, now it's much more transparent, much more transactional.
AdExchanger: So, who do you see in your competitive set?
We have a very big vision - and there are too many point solutions in the enterprise tech world, thanks to the funding that's happened. For every platform, there are 97 little companies trying to add value here or there. I believe that CMOs are ultimately only going to buy three pieces of infrastructure - a listening platform, which we are not; a social publishing platform, which we are not; and finally, CMOs are going to have some type of engagement platform, which we are trying to build.
Gamification is also a small part of what we do, but obviously we track what folks do and we can assign points and values to it, and we can make those points and values public. There's probably a way that we're competitive with the Gamification companies, but not in a big way. They're very purpose-built for that world.
We’re competitive with community management software, but we're much more focused on the brand, the user, content and amplifying it on social channels. We're not focused on being a destination where the developers and the Twitter developer community hang out and talk to each other. We're much more focused on how do I pick up amazing content about M&M's and share it with my friends?
There are people that I categorize as "word of mouth ad networks," and what I mean there is you give them money, and they get people to say nice things about you on social media. There's a whole suite of companies there. I don't see them as competitive, but we’re all going for the same budget.
But, we spent 15 months from the middle of '10 to all of '11 building this. This is a big technology challenge.
Let me take the competitive set question from another angle, which is the phrase "social CRM." The two big acquisitions in the space thus far have been Buddy Media/Salesforce.com and Oracle/Vitrue. Is Dynamic Signal in this area?
First, I think of Buddy and Vitrue as very important pieces of social infrastructure, but they're social publishing tools. I don't believe they are CRM [related]. If I'm a brand using Social CRM, I still don't fundamentally know your name and I can't communicate with you directly. So, how is that CRM?
It's "something," but it's not CRM. Basically, the people that write the headlines did a very lazy job calling those tools CRM tools. They are great tools, but they're social publishing tools. Buddy is a phenomenally efficient way to take content, publish it to Facebook, buy ads on Facebook to get likes and drive audience to the page, integrate that content in other places around the Web, and track people's interaction with that content and the virality of that content. Think of it as one part Drupal and one part Omniture, for the social world. Really cool. But it is not the same thing as a CRM database.
Every single one of our customers works with Buddy or Vitrue, and I'll be very clear, I don't have a solution to manage your Facebook page. We are specifically not competitive with them. When we started the company, number one, we thought our idea was better, but number two, we thought those ideas were already really well‑funded.
Looking inside SalesForce, are they going expand their scope and be competitive with us in three years? Maybe, but I don't know. We are about the relationship between Mars and John, they are about the relationship between, say, the candy company Mars and content and its fans at-large on Facebook.
CMOs are going to have three pieces of enterprise tech: listening, CRM, and engagement.
What about paid media for Dynamic Signal?
We are 100 percent not in paid media space, but we work in conjunction, and so at a high level, you might use Buddy's tools to get "likes," then you might use Buddy's tools to engage with your fans, then you're going to use our tools to figure out which of your fans are the most important, and enter into a much deeper level of engagement with them in your own specific community.
Can you give provide a typical use case for your company’s products?
Sure. So, fundamentally, I am a marketer. I have a group of people that are influential. Maybe they're Facebook fans, maybe they're Twitter followers, maybe they're bloggers, maybe they're from my CRM database, maybe they're my employees, maybe they're Olympic athletes that I sponsored. We have clients who are all of those examples.
My goal is to get them to register directly with me so that I can push them content and make it very easy for them to amplify that content across all of their social channels. On top of that, make it very easy for them to submit content to me, either through their own blogging platform, their own RSS feed, iPhone app, Android app, or our platform, that I can then use to moderate, and republish through the community or through my Facebook, or Twitter accounts, or my own website.
Fundamentally, it is about having a brand harness its users to basically ask them to amplify messages on their behalf. Maybe they will and maybe they won't. Totally up to any given user, and then how does the brand value what it got from that.
What’s your take on Facebook’s recent move beyond the login with the Facebook Exchange as well as recent publicity around challenges with Facebook ad performance?
First of all, objectively speaking, we know that Facebook ads work phenomenally well. You could argue that Groupon and Zynga were Facebook ad arbitrage businesses. Remember in the early days when Google opened up their ad platform? Remember when banners started? There were all those successful DR firms.
Those were the firms that figured out that they could buy advertising cheap and convert users really well. When Google opened up their ad platform you had guys like Legalzoom buying CPCs at a penny. Now, Google was smart and within 18 months, all those media businesses got squeezed out of existence.
Not because they were doing anything wrong, but because they were "point in time" businesses. They figured out that there was huge value in an ad unit before everybody else. I think Facebook is the exact same thing. Like I said, Zynga and Groupon are worth billions of dollars, and they do a lot of amazing things. But fundamentally, I think of them as Facebook advertising arbitrage businesses.
Zynga realized early on how to spend money on Facebook and turn that into more money. Same thing with Groupon. You look at those guys, and if anything, in the early days their problem was they couldn't spend money fast enough. They were ramping so quickly.
Now today’s issue is big brand marketers, number one, don't have developer hacker cultures [similar to DR firms]. Number two, they don't spend tons and tons of money testing new ad formats and testing new placements. They wait. They need the comScores to be around in order to help them understand how to plan.
And, they need the DARTs to be around and the Salesforce's to be around, to help them figure out how to value, plan and run campaigns. Facebook has delivered a mass audience that has proven that if you talk to them the right way, your ads will perform better than anything else.
I'm personally an investor in a bunch of companies. I'm probably an Angel in 35 companies. I would say I'm an investor in 12 companies where Facebook advertising is working 5x better than Google for those companies. Facebook is a phenomenal place to advertise. The issue is brands have limited incentives to try new things because what they're doing is working - TV still works. One of the reasons digital grew in 2000, was newspapers died. Budgets had to move because newspapers died. It wasn't just that we were so smart online, it's that the old guys died.
Imagine if radio died tomorrow. Well, then a bunch more money would have to move online. It would just have to. My point in all this is I believe that Dynamic Signal along with Buddy, along with a bunch of companies are providing the necessary toolkit to marketers so they can figure out the value of a fan or a like, or a super fan or a super amplifier.
Look, it's funny. GM quote unquote "pulls" their Facebook ads, but Ford triples it. Who's right? The truth is, Facebook is an amazing media company. It's like 30 percent of every web page view. The idea that marketing on it wouldn't work is insane to me. Of course it will work if you do it correctly.
In your interview with Peter Kafka of All Things D, you talked a little bit about revenue momentum saying that you expect to charge your largest customer up to $5 million next year with smallest one paying around $75,000. It sounds like significant revenue momentum. Can you add any color to that?
This is our first year of revenue, and we will do millions of dollars in actual SaaS revenue this year. It's not a services thing, it's not a media thing. We sell software. People buy it, and we will do millions of dollars of SaaS revenue this year. Frankly, that's why we got our series B [investment] done in two weeks.
How big is Dynamic Signal from a headcount perspective? International plans?
We were 10 people a year ago, we are 40 people today. We've accelerated the hiring significantly in the last four months, so that speaks to, obviously, revenue and client momentum. Almost all of the people are in Northern California. We do have five or six remote employees, mostly in a sales, customer facing capacity, in New York, DC, Texas and Chicago. As for International, we don't have any international offices yet, but we do have a lot of international clients including clients from Canada, India, Russia and the UK. The platform is already integrated with all the Russian social networks, and it's available in all the languages. This is a global problem we knew we had to solve for brands.
I don't know when we'll have our first hire outside the US. What we've done to date is partnered with PR or service companies outside the US. But I suspect we will have employees outside the US in 2013.
Looking ahead, what milestones would you like the company to accomplish in the next 18-24 months?
Twenty‑four months from today, I'd like to be in multiple countries and be thinking about an IPO in the 12 months after that. I don't mean we'll be public in two years, I mean I will feel delightfully great if two years from today, we are big enough to continue to control our own destiny.
This a big, independent company - does that mean 400 customers or 4000 customers in the future because we offer some self‑service part? I don't know what the answer to that is. What matters to us mostly is customer service and continued account penetration so that the size of the contracts for us is big where we could have a huge business with a small number of clients. 24 months from today, we will probably have 200 employees, and be in a couple of countries from a services standpoint. And we’ll be growing.
This is my sixth startup company. The best thing about startups is you get to work with great people. If 24 months from today we're still growing, and I still like the people I work with, I will be very happy. The best thing about Adify is we had an awesome idea, and we were building a great company. We were not planning on selling it at all, and frankly, the way most big deals happen in the space is, from guys that are legitimately building cool companies, and then someone comes along and makes you a great offer.
But nobody starts a company hoping they'll flip it and succeed.
By John Ebbert