Advertising: MediaAlpha on Auto Pilot

| FROM THE PRINT EDITION |
 
 

MediaAlpha was the fastest-growing company in the Seattle area during the past three years, recording 2,589 percent growth, according to Inc. magazine. 

Must be a small company, you would think. Well, it is. But not when it comes to revenue. The Redmond business generated $85.2 million in sales in 2014, operating with fewer than two dozen employees. 

Its secret sauce? Finding a better way to connect buyers and sellers of online advertising. 

The story begins when Steve Yi graduated from Harvard Law School in 1999. While he loved the study of law, he wasn’t interested in working as a lawyer. “So I looked for the quickest way to get into the business world,” he says. 

The internet was already where the hot action was, he recalls. “But the internet startups really were not recruiting at law school campuses. So I decided to go work for Goldman Sachs and do investment banking because that was at least one step closer to working in that world.

It took Yi about a year to make his move online, joining an internet startup in Los Angeles. Next, he cofounded in 2009 a travel comparison engine — Fareloop — which was acquired by Oversee.net in January 2011. Yi stayed on at Oversee as a vice president. Then Yi and two colleagues realized a lot of online advertising was being sold in “a really archaic, nontransparent way.” 

Much of online advertising at the time was generally being sold by the “click” — when a user clicked on an ad and was delivered to the advertiser’s site. Alternatively, in cases where a website collected information about its visitors, leads might be sold to companies. 

“That type of media had been sold — and it is still being sold in many parts of the internet — on a contract-by-contract basis,” Yi explains. “Buyers of this type of media really have no control over the pricing, other than to amend the contract with an insertion order saying, ‘Hey, instead of paying you $3 for every click or $10 for every click, I want to pay you $12 for every click.’ And because the sellers of this media are aggregating data sources, it is not in their near-term interest to reveal who these leads are coming from. It is a very crude level of control that the buyer has.”

When they started MediaAlpha in February 2011, Yi and his cofounders set out to change that model. While Yi works primarily from Los Angeles, the team decided to make Redmond their headquarters because, says Yi, “The city’s unique tech ecosystem … is the perfect place to recruit talented people to grow our startup.” 

That growth hinges on transactional transparency. “We built technology to essentially auction off this type of advertising inventory on a user-by-user basis,” says Yi. 

It seems to be catching on. In its first year of operation, and with just three employees, MediaAlpha generated $1.7 million in revenue. The revenue stream has grown tremendously in each subsequent year, rising to $17.5 million in 2012, $38 million in 2013 and $85.2 million in 2014. 

In a nutshell, MediaAlpha provides a platform that connects website publishers with advertisers. The platform also provides advertisers with anonymous data on consumers, which maximizes the efficiencies of advertisers’ marketing dollars. 

The first niche MediaAlpha targeted was auto insurance. Having gained experience in the travel sectors, Yi says, “We looked for other industries where this type of vertical meeting was being sold inefficiently. We essentially stumbled upon auto insurance.  Quite honestly, we knew nothing about it other than the fact that we all had it.” 

When consumers visit a site that employs MediaAlpha’s Direct-to-Quote platform and click on an advertisement for auto insurance, they are prompted to fill out a form seeking 35 to 40 pieces of information — age, location, home ownership, type of automobile owned, etc. — to obtain a quote. 

For consumers, the advantage of the MediaAlpha platform is that they can get quotes from multiple insurers while having to fill in the information only once. For advertisers, Yi says there are several benefits to using MediaAlpha. First, he explains, “We give the advertisers full control over how they want to buy the media.” Geico might decide instead of paying a flat $12 for every lead from, say, California, that it wants to bid $11.50 for every lead who has a Volvo and is a homeowner, and to pay $9.75 if the user is a female who drives a Ford and lives in Fresno. 

“In addition to this granularity, our technology also offers the ability for advertisers to pay different prices for media coming from different sources,” Yi says. An advertiser, for example, might price ads shown to consumers who are on an insurance carrier’s website differently from ads on a third-party insurance-comparison site.

Besides greater transparency and control, advertisers benefit by not having to negotiate a contract with each website publisher, and the insurer’s technical staff doesn’t need to customize scripts for each site. “That’s an unnecessary drain on resources,” Yi notes.  “Our technology enables insurance carriers to do the integration with us once.” When the insurer has set up an account with MediaAlpha, the platform takes care of integration with each publisher. 

For website publishers, the main benefit is that MediaAlpha offers a one-stop place to offer advertising space without having to reach out to individual advertisers. “It allows publishers to auction off their advertising inventory on a programmatic, real-time basis,” says Yi. “Our yield-optimization algorithms determine the best ads or combination of ads to display to a publisher’s user.” 

MediaAlpha also claims that its platform adds efficiencies to transactions by using criteria to direct consumers to the insurer most likely to match their needs. 
Yi says that client insurance carriers share data with MediaAlpha about what consumer profiles tend to be more likely to purchase insurance from that company. MediaAlpha, in turn, uses that information to help match consumers to the insurance company that will most likely be the best fit for them. 

“This type of integration greatly enhances the user experience, generates additional revenue and brings additional efficiency to the advertising ecosystem,” says Yi. 

And, according to Brian Sullivan, editor of the newsletter Risk Information, which covers the property and casualty insurance industry, MediaAlpha’s timing is good. 

“MediaAlpha is part of a broader movement by insurance companies to using experts in fields where they used to build their own capabilities,” Sullivan says. “It would’ve been hard to do this 10 years ago.” But now, he explains, what Media-Alpha offers insurance companies hits “the sweet spot.” 

Sullivan adds that as MediaAlpha takes its model to serve other vertical industries, it should find the going even easier. “The good news is that auto insurance is as complicated an online activity as you can imagine,” Sullivan says. “Anything else they do will be less complex than the insurance business.”     

Yi and his two cofounders — CTO Eugene Nonko and Chief Marketing Officer Ambrose Wang – provided the initial capital for MediaAlpha. About a year and a half ago, White Mountains Insurance Group, a Bermuda-based financial services holding company, purchased a majority stake. 

In the latest Inc. Magazine’s ranking, MediaAlpha was rated the fastest-growing company in Seattle, the fourth-fastest-growing company in Washington state and the 152nd-fastest-growing company in the country. 

“This year,” Yi says, “we’re expecting to build significantly upon our base of revenue from last year.” Since the company already has 15 of the top insurance companies as clients, Yi notes the main focus will be on expanding the number of publishers using the MediaAlpha platform. 

The company also plans to take its advertising platform into other vertical markets.  “Mortgages, education and our old space, travel,” says Yi. “We anticipate that there is a lot of opportunity there to go in and disrupt those areas and fundamentally change how advertising is bought and sold.” 

MediaAlpha’s rapid growth is more in revenue than in personnel. “We are a very lean organization,” observes Yi. “We don’t have any managers. Everyone actually does work.” 
The company, in fact, has only 21 employees, with the largest concentration — eight — based at Redmond headquarters. Staff members use Skype and Google Hangouts to keep in touch. Once a month, there’s a companywide videoconference. 

“We keep it under an hour,” Yi says. “We’re proud of our ability to hire good people and let them do work. We free them up from meetings, let everyone loosely coordinate with each other and then keep an eye on the technology to help create this marketplace.” 

Remote Control Arrives

Remote Control Arrives

The smart home of 'The Jetsons' still isn’t ubiquitous, but the door is opening wider (after being unlocked by a smartphone from miles away).
| FROM THE PRINT EDITION |
 
 
 
When Bill Gates visited the Seattle World’s Fair as a 6-year-old in 1962, he claims to have visited every pavilion. At the General Electric Living pavilion, he would have seen a vision of a digitized residence, with home computers, electronic libraries and television programming projected on the interior walls.
 
Fifty-four years later, most of us are still awaiting the arrival of the “smart home” — a place where audio, video, lighting, temperature, window coverings and other features can be centrally controlled or, even better, remotely controlled through a portable device.  There are signs, however, that the smart home market may finally take off, driven by the ubiquity of enabling technologies like Wi-Fi, voice recognition and smartphones. 
 
According to the Consumer Technology Association, smart home technologies are in place in only 6.4 percent of homes nationwide today but are expected to reach 15.5 percent by 2021. Revenue from smart home technologies is expected to grow by more than 25 percent each year, reaching more than $32 billion in 2021.
 
IoT Analytics, a market analysis firm, identifies four primary drivers behind the growing smart- home market.
 
• Energy savings: more efficient use of lighting, heating and cooling through scheduling and sensing the presence of occupants.
• Convenience: centralized control of disparate services.
• Safety and security: Smart door locks, integrated video and motion detectors.
• Social status: Increasing adoption of the latest technologies by Generation Y as they purchase homes.  
 
Silicon Valley is the acknowledged hotbed for smart home device development, but the Seattle region is quickly positioning itself as a leader in smart home technologies, especially for the development of operating systems that control the devices.  
 
Microsoft and Amazon are clearly intent on becoming leaders in the sector.
 
Amazon has been integrating its voice-controlled Echo and Echo Dot devices with a growing array of smart home products to control lighting, thermostats and other home systems. In September, South Korea’s LG Electronics announced that it was partnering with Amazon to integrate its SmartThinQ hub, a device used to connect home appliances over the internet, to work with Echo. Ford Motor Co. said in early October that Echo will be integrated into three of its models — the Focus Electric, Fusion Energi and C-Max Energi — by the end of the year, allowing owners to do such things as adjust the heat in their homes from their cars.  
 
Microsoft is reportedly positioning Windows 10 and Cortana, its voice-activated digital assistant, to be a controller of smart home devices. At a developer’s conference last April, the company announced that it would release protocols in 2017 to allow Windows 10 to work with a wide range of devices and applications allowing users to automate tasks using a PC, a mobile device or an Xbox console. According to the announcement, users will be able to control lights, air conditioning and door locks.  
 
Other companies see opportunities here, too. The Los Angeles-based computer peripherals company Belkin recently moved its R&D office to Seattle, specifically to develop smart home technologies. Belkin’s move, not coincidentally, took place after the company bought Seattle-based Zensi in 2010. Zensi, which was founded by University of Washington Professor Shwetak Patel, focused on energy and water monitoring in the home. At the same time, Patel become Belkin’s chief scientist.
 
“We moved all of R&D to Seattle so it is convenient to the University of Washington,” says Patel, pointing out that the resources of the university and tech companies such as Microsoft and Amazon give the region a huge pool of talent for developing hardware, software and machine learning. “It’s just a better fit.”
 
Derek Richardson, cofounder and CEO of Deako, a Seattle-based manufacturer of smart lighting systems, also established his company in Seattle to gain access to that talent pool. “It’s a tech city,” he says, adding that the mountains and beautiful lakes are a draw, too. “The venture community is growing here, and there are so many successful companies — Amazon, Starbucks, Boeing, and the list goes on and on. It’s a great way to attract talent.”
 
Still, for all the media coverage of smart home technologies during the past half century, the pace of actually integrating those technologies into homes has been slower than some expected. For one thing, while the early generations of smart home technologies were fine for tech-savvy early adopters, they were not user-friendly enough for the average consumer. “How do you get the technology to the average person’s home, and how do you reduce the installation barrier?” asks Patel. “That is one of the big challenges the industry is facing right now.” 
 
Aaron Crandall, associate professor of electrical engineering and computer science at Washington State University, says that for all the advances in technology, expectations have always outpaced reality. About a year and half ago, Crandall and a student licensed technology they had developed for a “smart home in a box” — a system of sensors that detect movement, temperature, doors opening and closing — designed to help caregivers for the elderly, and launched a company to develop and market it.  “We did about a year of pushing the boulder up the hill trying to get it funded,” says Crandall. “It didn’t come together in the soup that needs to make a startup go.”
 
Crandall says the market was not yet ripe for the technology. “The technologies are still there.  It will happen,” he says. “It’s just a question of who is going to make it happen.”
 
Aaron Crandall, associate professor of electircal engineering and computer science at Washington State University, holds a small computer WSU researchers use as the "local brains" in their smart homes. The device collects sensor data and sends the information to WSU's main database for full processing later. Crandall and his team see a future in such devices for the elderly and their caregivers.
 
The market is being primed by specialized businesses taking on the tough and often costly job of integrating technologies to easily control lights, alarms and doorbells. Consumers and builders looking to integrate smart home technologies are turning to specialized system integrators.
 
Digital Home Northwest was launched by Jeffrey Thoren and his wife, Heather, in 2006 after they went through the experience of retrofitting their new home with smart lighting. “We honed a technique after doing a couple of remodels on our own house,” he says. 
 
Most of Digital Home Northwest’s work is retrofitting existing buildings. The consensus among builders has been that they don’t want to spend the money wiring houses for smart devices without knowing if the buyer will want them. But Thoren is trying to push builders to add wires that will later make it easier to install smart home systems. 
 
“If you’re going to build something for a client in a high-tech city, you should be thinking about pre-wiring,” he says. “Adding a couple thousand dollars of wiring and just leaving it in the walls so it can be used really makes sense.”
 
While Wi-Fi capability has become standard in the home, video cameras and motion detectors for security can easily eat up the bandwidth available.
“It’s a bucket,” Thoren says of the basic wireless router, “and the more devices that drink out of the bucket, the less water you have.”
 
Craig Abplanalp, president of Definitive Audio in Bellevue, says he sees increasing demand for smart home technologies. His company has broadened its expertise from audio and video to include systems for controlling operations such as lighting, motorized window coverings, air conditioning and heating. Abplanalp says the company’s work is split between new construction and retrofits.
 
“Right now, there is a lot of new construction,” he observes, “but Seattle is somewhat landlocked [in terms of available land for new construction], so there is also a lot of retrofitting. A lot of the residential work is in a home that in many cases is being torn down to the studs. It’s really a rebuild.”
 
Abplanalp senses a big shift from the early days of the movement toward smart homes.
 
“All of the pioneers in new technology use their early adopters as beta testers,” he says. “A lot of the products were really not ready for mass consumption.”
 
He says that dynamic is changing. Where Definitive Audio’s specialists used to have to do a lot of custom programming to get systems to play nicely together, there are now free vendor apps that handle the tasks. “What the average person will pay for programming is an ever-declining amount,” Abplanalp asserts.
 
Digital Home Northwest's system for a connected home incorporates smartphone linkage (1) to a door station keypad (2), a 10-inch touch screen (3) controlling audio, video, climate and security camera (4). The screen also monitors musical entertainment (5).
 
Industry insiders say that two emerging trends — standardization and modular design — are going to push smart home technologies to adoption by broader markets.  
 
Deako, for example, designed its lighting system to work on standard house wiring, with communications between switches and the user control — a smartphone — taking place via Bluetooth. “Our technology can work in any home as long as it has modern wiring,” says Richardson.  
 
What’s more, the Deako switches are modular, with all the “smartness” contained in the switch. A builder can install either dumb switches or smart switches in the Deako receptacle. This allows the builder, with minimal investment, to give the homebuyer the choice of upgrading to smart lighting.
Just as important, says Patel, is the move toward standardization, which makes it easier for consumers to get devices to work with each other. “There are so many systems out there now and it’s hard to know which one to start with, and they don’t all interoperate,” says Patel. “Consumers are overwhelmed.”
 
Patel expects “a lot more cooperation among companies in the industry to make their stuff more compatible.” He points to a recent collaboration between Amazon and Sonos, a maker of high-end wireless speakers, as an example.
 
Patel says that one more thing is needed: “a killer user experience.” He says devices that let parents know when their kids get home or that remotely lock and unlock doors are the kinds of emerging technologies that will open broader consumer markets.
 
“You have to get people hooked and get them thinking about what the real convenience factor is,” Patel asserts. “I think we’re just getting to that point.” 
 
Heather and Jeff Thoren own Digital Home Northwest in Federal Way.
 
Crandall believes one killer application may already have been created. It’s just that consumers aren’t quite ready for it. Internet-connected smart home sensors and smartphone apps are ideal, he says, for monitoring the health of elderly people and helping them stay in their homes longer, rather than having to move into assisted living or nursing facilities.
 
“But those people who are 70-plus right now own almost no smartphones,” Crandall says, adding that they also often don’t have internet connections in their homes.
 
The demographics, however, are changing. “The largest age group in the United States by about 2030 will be 65-plus,” Crandall says. “We do not have the nurses and physicians to do classic senior care, so we need tools to keep people in their homes longer.”
 
Since the next generation of seniors is more familiar with smartphones, Crandall expects smart home technology, especially as applied to elder care, to finally come into its own.