Converting Eyeballs into Customers
Finding customers throughout the vast landscape of the Web can be as difficult as prospecting for gold. New customers with high lifetime values are the scarce resource to be found. The more customers a company wants to acquire, the higher the marginal unit cost per acquisition. Hence, most companies need to pay more to acquire a greater number of customers, not less. Try explaining that to your CEO!
Until now. Adchemy, a Redwood City, Calif. startup founded in 2004, offers a powerful platform to transform Web marketing from a cost center to a revenue engine. Adchemy has developed predictive algorithms that can anticipate the kind of advertisements that will lure Web surfers and, more importantly, impel them to take action. By taking a fundamentally scientific approach, it is changing the face of online customer acquisition.
Improvements in infrastructure technology are transforming the Web into a marketing medium far more sophisticated than radio, television and print. “Ten years ago, eyeballs were the sole measure of success for Web publishers. It was a metric borrowed straight from television,” said Adchemy founder and Chief Executive Officer Murthy Nukala. “No one worried whether these eyeballs were good customer prospects, or whether the dollars spent ever translated into revenue.”
Recently, the Mayfield Fund led a $19 million round of investment that included August Capital. “We are active in the online advertising industry and had been tracking Adchemy for a while. They have strong relationships with their customers, and a solid reputation for being a highly innovative company with groundbreaking technology,” said Yogen Dalal, Mayfield managing director. “We believe the company has a talented founder and management team who have a unique vision of how their technology and algorithms will transform the online advertising landscape.”
With Adchemy’s software, companies can learn how changing a seemingly minor feature on a Web advertisement can be the difference between success – a customer willing to navigate to the company’s Web site and better yet, to sign up for a particular product or service – and failure. “We’ve found that there are no general rules regarding which ads will be successful and which will not be,” Nukala says. “Often what works is counter-intuitive.”
Adchemy’s system becomes “smarter” as new data is incorporated. To date, it has collected three years of data using active learning techniques, creating a rich database for current and prospective customers.
As pricing models change from price-per-impression to price-per-action, the risk of advertising on the Web is reduced. As a result, analysts believe more dollars will be devoted to Web advertising at a time when budgets for traditional media are beginning to shrink. According to International Data Corp., online advertising grew 27 percent in 2007, and it projects that spending on Web ads will be unaffected even in the face of a recession. Forrester Research says online advertising accounted for $27 billion in 2007 and will nearly double in the next three years.
Among Adchemy’s customers are leading mortgage lenders including Nationwide and Charter One, as well as top online universities like Capella University and The Art Institute of Pittsburgh – Online division. On average, Adchemy’s customers are seeing a two- to five-times return on their marketing investments. Nukala expects to expand beyond those markets in the coming year, as well as introduce a new product into the marketplace that optimizes Web marketing to an even greater extent.
