Sramana Mitra: In terms of the monetization strategy, it sounds like you needed advertisers through the ad networks who were going after the student demographics.
Neal Taparia: That’s correct.
Sramana Mitra: Were there ad networks specifically focused on that demographic or were you just working with various ad networks and finding the segment match with each of them?
Neal Taparia: There were ad networks that tried to focus on that particular segment.
Sramana Mitra: HotChalk was one of them, right?
Neal Taparia: Exactly. Those companies did not last too long. HotChalk pivoted from that model.
Sramana Mitra: They couldn’t monetize that.
Neal Taparia: They moved more into in-classroom management, which was a good pivot. I think HotChalk had a great success story that way. We ended up working with a bunch of different ad networks. We built processes and technologies to make these ad networks effectively compete against each other. That was what helped us achieve strong ad rates and revenues.
Sramana Mitra: What kind of CPMs were you able to get with this high engagement model?
Neal Taparia: It would range. On average, we were seeing CPMs between $1 to $2.50, which was pretty significant when we looked at similar sites. It ended up being a good model for us. We learned that we should continue to focus on it.
When we understood that we were doing a lot better than our peers, we also tried pursuing the direct advertising route, which means going directly to brands and seeing if they’re interested. One hurdle is that our site was more of a transaction utilitarian site as opposed to a site where you’re going with user intent.
A good example of that is a site where you can compare a car model. Clearly, you have an intent to purchase a car. If you’re coming to our educational site, there is no purchase intent there. Working with the ad networks was really the best thing we can do given the niche that we were in.
Sramana Mitra: How big did you build that business from a revenue point of view?
Neal Taparia: By the time we sold it in 2016, ads were nearing $20 million. Part of the success of that was because we had started acquiring all our competition in the space for six to seven years prior to that. We were able to go to all our competitors and build relationships with them.
We knew in the long term, our goal was to consolidate the space. That was something that I learned at Lehman Brothers. We made our first acquisition in 2011. It was a site called BidMe started by a group of Carnegie-Mellon students. These guys were smart. They figured out how to build some better technology. They started getting some traction. We had reached out to them to build a relationship.
Our philosophy was to build strong relationships because we knew down the road, it could turn into something. Eventually we were able to get the guys to come to the table. We acquired that site for half a million dollars. Having a business with no investment in it, our balance sheet was about $600,000.
It was nerve-racking to make that acquisition and to manage payroll. As an entrepreneur, you’re always paranoid about what can happen that you don’t anticipate.
We had looked at the data on BidMe. We realized that with all the things we had learned around subscription businesses and ad businesses, we could acquire the site and it could potentially be very accretive to us. Modeling out and acquisition is one thing; executing on it is a totally different thing.
We moved forward with it. We were extremely lucky because our models turned out to be correct. We were able to recoup our investment within a year, which was huge for us. It also taught us and gave us conviction that this was a great model for us moving forward.