Company bets on future of behavior advertising

Revenue Science Inc. is trying to grow beyond its roots as a generic data-mining startup.

The Bellevue company, founded in March 2000 as DigiMine, has spent the last six months developing software that helps online publishers and portals target consumers with more relevant advertising based on which sites they visit on the Web.

Stamford, Conn.-based market watcher Gartner Inc. estimates this new segment, called behavior advertising, will grow along with the key-word search-advertising sector to $8 billion by 2007.

Search-engine companies such as Yahoo! Inc. and Google have built lucrative businesses in the search-advertising market, where users who conduct a key-word search are led to a Web page that contains relevant links sponsored by advertisers.

Revenue Science’s new president and CEO, Bill Gossman, thinks the company has the chance to similarly cash in on behavior advertising.

Gossman, who took over the helm from Revenue Science co-founder and CEO Usama Fayyad, says behavior advertising is the next logical step in the evolution of the overall online advertising market. Fayyad remains as chairman.

The former venture capitalist was familiar with 65-employee Revenue Science from his days at Mohr Davidow Ventures, the startup’s largest shareholder. Last April, Gossman started looking at Revenue Science more closely.

In the previous three years, the company had developed a number of applications that helped businesses collect and analyze vast amounts of corporate data.

Although Revenue Science isn’t profitable, it counts 40 large businesses as its customers, including carmakers Daimler Chrysler AG, Ford Motor Co. and financial giant American Express Co.

“Turning data into money seemed like a good business model to me,” said Gossman. “It was clear to me they had technology that enabled them to pull behavioral data out of large chunks of online data in a scalable way.”

About the same time Gossman began exploring the company last April, Revenue Science received an important piece of feedback from one of its biggest customers — The Dow Jones Co.

“We saw some compelling results of what was going on at,” said Bob Rungy, chief strategy officer at Revenue Science. “Using DigiMine’s applications, they were able to learn which subscribers went to the finance section and which ones went to the technology section.”

Dow Jones outlined specific audiences as advertising revenue opportunities to Revenue Science, Rungy said.

“Now, they can place an ad based on a subscriber’s behavior on the Web,” he said.

Not long after Gossman’s arrival in June, the company launched a new application, called Audience Select, to help Dow Jones do just that. So far, Dow Jones is Revenue Science’s only customer to migrate from the older DigiMine software to Audience Select.

But Gossman expects the total number of customers to grow to 60 by the end of the year, and all of those will be Audience Select clients.

Profitability may not be that far off, either. Gossman said the company will break even by the fourth quarter of 2004, at the latest.

Now that the software has been developed and a market identified, at least one of Revenue Science’s investors wants the startup to bring on new customers to prove there’s a market for behavior advertising applications.

“I’d say at this point, it’s pretty crucial to the company’s development,” said Bill Ericson, a partner at Mohr Davidow. “I think the challenge there is that the sales cycle for this stuff is a lot longer than most startups would like it to be.”

Bringing in Gossman, who co-founded Eastside-based wireless startup @mobile Inc. a few years ago and later worked as senior director of global alliances at telecom infrastructure company Openwave, will prove vital to Revenue Science’s ability to enhance its customer base, he said.

“I think we have a team now with Bill and Bob that is very effective with customers and very execution-minded,” Ericson said.

Although behavior advertising is a new segment, Revenue Science is not alone in its pursuit of market share.

Denise Garcia, a media and advertising analyst with Gartner, said there are two other competitors — Takoda Systems Inc. of New York City and aQuantive Inc. of Seattle.

“To an extent, aQuantive operates in this market and there is the potential for content developers to come up with their own in-house solutions,” Garcia said. “But Takota and Revenue Science are the most closely matched. Both have worked out a lot of the kinks in these kinds of applications.”

Gartner has identified 2,500 Web sites in the United States alone that are potential clients for Revenue Science and Takota.

“It’s already a pretty big market,” Garcia said. “Marketers want their advertising and message to consumers to be as personalized as it can be. That’s the name of the game going forward.”

While companies such as Yahoo, Google and InfoSpace Inc. also chase advertising dollars with their search-advertising applications, Garcia sees them as potential customers for Revenue Science, not competition.

“If they wanted to, these search engines could develop their own proprietary analytic software, but why would they do that when they can partner with someone who’s already worked through the major problems?” she said.

Author: Jeff Meisner

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