Sramana Mitra: What was the name of your ad network?
Peyman Nilforoush: NetShelter.
Sramana Mitra: What years were these?
Peyman Nilforoush: From late 1999 to 2008. In 2008, we raised $26 million in venture capital. We moved to San Francisco in 2009 and started building out the company and scaling it out. We ended up selling the company in 2013.
Net Shelter became the biggest ad network for technology blogs. Ziff Davis acquired us. By doing so, we became number one in the category. That happened in May of 2013.
Sramana Mitra: I started my blog in 2005. I knew pretty well who were the ad networks at that time. I was tracking the vertical ad network trend quite closely. There were several of them. Adify was one that raised a lot of money. Then there were all these other ones like Glam Media. The vertical ad network trend went on for a little while.
Why do you think it failed?
Peyman Nilforoush: As we bootstrapped the company, we realized two things. One is that advertisers truly care about going deeply in one category and having a significant reach. That was critical. Secondly, our focus ended up being on quality.
We really went at some of the best independent technology publishers. This was the time when these blogs had celebrity status. We were able to go to them and say, “Joining this network, we can go out there and monetize more.” That ended up being true and effective.
Sramana Mitra: How big a company did you build revenue-wise just focusing on the technology blog segment?
Peyman Nilforoush: We were building up to a hundred million dollars. As we were going through that, we were focused on bringing on the quality websites.
Sramana Mitra: All the other entrepreneurs who were running vertical ad networks explained to me exactly the same thesis. They were all following exactly the same thesis. Glam Media imploded very badly.
My analysis of why that collapsed is the TAM on these companies was not enough to support the level of venture capital that they were raising. Do you agree with that statement?
Peyman Nilforoush: The reason was low margin. It was impossible to have a profitable business. The main reason for that was display advertising. We would talk to publishers on a daily basis. We had these amazing publishers that will produce the best content.
CPM on these blogs would continually go down. Our response would always be the same, “You’re doing an amazing job. The banner ad is the problem. It doesn’t work.” That was a huge part of us getting to 2013. There was a massive interest.
The macro is, banner ads have failed consumers. They have failed publishers. The value exchange is not there. When we sold, one of the first things that we focused on is that we’ve been passionate about content. We really didn’t believe that the future is banner ads.
We believed that the future of advertising is going to be non-interruptive forms of advertising. Consumers don’t want to be interrupted. They want to be given something of value.
In our world, we saw that value to content. This was early days of content marketing. We came up with the idea that instead of pushing interruptive ads to consumers, we actually go out and find the right content for every brand and amplify that content.