Sramana Mitra: The ratings and the Internet recommendations were free. There were no monetization model around any of that?
Yaron Galai: That’s right.
Sramana Mitra: The first monetization effort was with the paid recommendation of external content into these larger publishers. What was wrong? Why did the first iteration fail?
Yaron Galai: As with many Internet-based companies, we’re a two-sided marketplace. We need to build both sides of the marketplace in order to clear a dollar. We chose to focus on the distribution piece first and lock up as much of that as possible before talking to the paying side. One of the triggers for starting the company was two to three years back.
That was the point where I was starting to get frustrated with our links at Quigo. They were okay and performing well on the business side, but I didn’t find too much value as a consumer of content. At that time, I was reading a lot of blogs. I stumbled onto this one blog post by Fred Wilson. He usually writes about venture capital and entrepreneurship. At that time, he wrote a lot about music as well, which I didn’t care about. My music needs are very basic. I wasn’t in the market for anything about music or audio systems.
Then one day, Fred writes about Sonos. I read this post and he basically said, “I have these ads on my site for Sonos and I didn’t know what it was. I put it here and it changed the way my family uses our home.” I read that post and thought I might be in the market for Sonos. It took me a year or two until a bought it. I said, “I can’t forget that piece of content now.” If we do move into an apartment or consider a home audio system for the next few years, Sonos would be stuck in my head as one of the top options. I ultimately bought one Sonos and then the second. I absolutely love it.
I was thinking that Sonos could have put Super Bowl ads in front of me or Billboards and it would not have mattered a single bit. Any of that would have been an interruption for me. At the same time, I read this blog post where probably only a thousand or two thousand people read at that time. That was so powerful. I was thinking, “How do we tie that into content recommendations and allow brands like Sonos to promote that content for as long as they wanted to and for a much larger audience.” I was convinced that once we have enough distribution looking at our recommendation, then bringing in brands like Sonos would be the easiest thing. We fell on our face when we actually spoke with the first brand. They did not get what we wanted from them.
Sramana Mitra: They did not understand the notion that content is the brand.
Yaron Galai: When we were talking to the media guys, they were saying, “Is it a banner that is horizontal or vertical?” It’s the content that matters. It’s didn’t fall into a format that they knew how to buy. When we spoke with the creative folks, they got it. Immediately after, we had that discussion with some brand folks. They were saying, “We like it but Fred Wilson had a few negative comments because the connection to iTunes didn’t work well. We need to log into the site and start scrubbing that and taking off negative comments.” I said, “The exact value of this is that it’s authentic. I don’t even know Fred. You don’t get to change it.” All these things were just barriers. We kept trying and trying but we could not get any meaningful brand to spend with us. That was an existential moment for us.
Sramana Mitra: When did that flip?
Yaron Galai: It took us another two pivots to get to where we were. The first was after a few months of this and we were not just able to sell any meaningful brand on this. My theory was probably totally wrong about that. I may have been the only one to ever be affected by content in this way. Bloggers usually pay $10 to $15 a month but many of them don’t get any meaningful traffic.
Instead of going after brands, let’s have them pay us and we’ll just make it a $10-subscription. When we can recommend their content and drive people, we’ll do it. If they pay $15 a month for WordPress hosting, they’ll pa $10 a month for OutBrain traffic. We did that. We got about 600 blogs to subscribe and pay us the $10,000 a month. As we were doing that, we started having some newspapers using our service. We told the newspapers that it will be blogs that will show up on our site.
From all my experience in publishing, I knew that publishers would never pay to promote themselves and to buy traffic. They would never do that. We went to five of our publishers who were using us at that time. We told them that it’s not going to be Ford or Sonos or your site. It’s going to be just blogs. They started and they loved it. Within a few weeks, they totally sucked in all the oxygen, in a good way, from our network. They had so much content that they took all the traffic. Some of those bloggers that were paying us said, “We used to get traffic here.” We ended up pivoting again and discontinuing the bloggers, and decided to focus on publishers.