Sramana Mitra: Given that was your observation and that was you interest, how did that manifest in the next startup?
Yaron Galai: In 2000, I started a company called Quigo. It was a mix of similar ideas that my co-founder and I had started working on independently. We merged it as one company. The idea was to look at the data of what people are consuming and based on that, provide links to what’s next. What it quickly became is what’s called now as contextual advertising. We started doing that around 2000.
It turned out that there was one other company doing something similar. It was called Applied Semantics. They had a little product called AdSense. Pretty quickly, Google acquired them and made it Google AdSense. We stayed independent for about eight years until we sold the company to AOL.
Sramana Mitra: The AOL acquisition happened in the 2008 timeframe?
Yaron Galai: 2007.
Sramana Mitra: What metrics had you achieved by the time AOL bought this company?
Yaron Galai: We built it to about $100 million in revenue.
Sramana Mitra: That was a substantial company. Did you do that as a venture-funded company?
Yaron Galai: We ended up raising about $45 million.
Sramana Mitra: Did you do that from Israel?
Yaron Galai: We started the company in Israel. We built it up there. It took us four years to raise our A round. I should say we started the company in April of 2000, which is pretty much the worst month in the history of humanity for startups.
Sramana Mitra: I remember.
Yaron Galai: Companies similar to us that started a month or two before just raised venture capital on a PowerPoint. We started a month or two late and we couldn’t just raise any capital for about four years. We funded the company in many different, strange ways. Ultimately, we raised $6 million from a VC firm in Boston called Highland. While negotiating that round, I had my Reserve Navy Service.
In Israel, you have your mandatory service which is usually three years. I spent seven in the Navy. Once a year, you have to do a month of Reserve Service. That happened while we were negotiating our A round with the VC in Boston. They found out I was negotiating from a base in Gaza Strip. We had some shooting around there. We ended that call where they said they’re dropping the process unless my co-founder and I move to the US.
Sramana Mitra: You moved to Boston or New York?
Yaron Galai: New York.
Sramana Mitra: In terms of positioning and differentiation, how did you compete with AdSense? How did you play in that market to build up to $100 million in revenue?
Yaron Galai: Google was a perfect solution for the marketers. Marketers would see what their ROI is from Google and put in bids that always made sense to them. For the marketers, it really made sense. Then if you look at what kind of traffic they were getting from Google, they are getting a mix of traffic. Some of it came from premium publishers. Some of it came from questionable sites which were not necessarily as premium as the good publishers.
The marketers were just placing one bid. They were saying, “The AdSense traffic is worth 20 cents.” If you look at the composition of traffic, we said, “If the marketer knew, they would probably pay someone in there 40 cents. For the less premium sites, the marketer would probably pay less.” In essence, the premium publishers are subsidizing the not very good sites in the network.
Our strategy was to go to the most premium publishers and tell them why subsidize these hundreds of thousands of questionable sites. If we took you out and put a stop light and said to the marketer, “You’re now placing your link on ESPN”, they’ll pay a significant premium. When we sold Quigo in 2007, our average cost per click was over 80 cents per click, which was about two times of what the average was on Google.