Jumpstart Automotive Case Study: Vertical Ad Network

Jumpstart Automotive Media is a vertical advertising network focused on the automotive market. The company represents automotive web publishers for advertising sales and offers a suite of services for advertisers and publishers around that core business. Vertical advertising networks have received significant attention and investment recently, so Jumpstart’s story is timely. The company was founded in 2000 and acquired in May, 2007 for $110M in cash and earn-outs.

Interview conducted: Mitch Lowe, CEO & co-founder

Key success factors

Became a strategic partner for publishers, not an ad network

When most people hear the term “ad network” they think “blind” ad network – a company that sits between a network of publishers and advertisers and targets ads based on some unknown algorithm. This is why most major publishers will run several ad networks at the same time, dialing the amount of ad inventory that each ad network receives based on performance (effective CPM rates).

Jumpstart never approached the market as an ad network, but rather took the approach of being a strategic partner for their publishers. Jumpstart is really a “rep firm on steroids”, focused on one category – automotive. By consolidating valuable automotive inventory, Jumpstart has substantial strength to negotiate more favorable rates and packages with its advertisers. What Jumpstart brings to publishers includes elements of rep firm, ad agency and ad network. In exchange for investing resources into a publisher relationship, Jumpstart garnered long-term contracts with their publishers. Jumpstart built its relationships slowly, starting with one publisher in 2000, adding one more in both 2001 and 2002, before accelerating publisher acquisition in 2003. Building these deep relationships with publishers enabled Jumpstart to become experts in automotive Internet advertising. They worked with publishers on web site design, advertising products, and marketing initiatives, thereby developing a wealth of expertise on the most successful practices across a range of publishers – making themselves more valuable to both publishers and advertisers.

Picked great market for Internet advertising – large, valuable, and difficult to reach with traditional media

Jumpstart picked a great vertical market. The automotive market is very large ($40B) and has a difficult to solve advertising problem. Although most consumers will be car buyers at some point, identifying which consumers are “in-market” to buy a car is difficult to do with traditional media. Given that buying a car is a major expenditure, most people will do some level of Internet research before making a purchase decision, and that is why Internet advertising has been capturing a larger share of automotive advertiser’s ad budgets over time.

Mitch explained that the company continually evaluated whether to expand from its core focus on new car buyers. Even within the automotive segment there are certainly many other types of consumers to target. The company always decided, however, that its core competence was in aggregating new car buyers for advertisers, and the market was large enough to support such a tight focus. Kendall Fargo told me almost exactly the same thing in regard to StepUp Commerce. I’m not sure if the lesson here is to know the market well before you start, or if Jumpstart and StepUp are merely two companies that found value in tightly focused niches. I suspect that the continual re-evaluation process is as important as the answer for any given business.

Raised no outside capital early in company lifecycle, kept costs low, and grew with a very measured approach

Jumpstart went six years before raising outside capital from a late stage VC firm (Alta Communications). As mentioned above, Jumpstart only added one publisher per year from 2000 to 2002, before adding three publishers in 2003. Mitch explained that this was important because it gave Jumpstart room to iterate and to grow at its own pace, and at the same time kept the team focused on the bottom line. The company did not have an office for its first year and half, and employee compensation was an amazing 80% variable based on performance.

Staffing policies

Jumpstart’s strategy for hiring was to wait for truly exceptional candidates. Although hiring only ideal candidates constrained Jumpstart’s growth in the early years, Mitch felt it was critical to have that foundation because great people only want to work with other great people. Jumpstart looked for three qualities in people: capacity (ability to do the job), drive, and integrity. They were less focused on previous work experience. Mitch stressed that his exceptional team made all the difference in the company’s success.

Launch strategy

When Jumpstart got started, the founders considered whether they should build a destination site or go with an aggregation model. The challenge of a portal is to provide content that draws public interest, while the aggregation model has a chicken-and-egg problem of needing advertisers to attract publishers and vice-versa.

Jumpstart evaluated the online landscape and decided that the network/aggregation model was a better approach given the many already strong existing brands in the automotive information market. Jumpstart addressed the chicken-and-egg problem by signing long-term, exclusive contracts with automotive website publishers. Having access to sought-after ad inventory attracts advertisers, and once Jumpstart was able to aggregate advertisers they had an easier time signing more publishers. Mitch reported that revenue doubled every year (reaching $24M in 2006) and at the same time the company maintained a lean operational structure that allowed it to gradually build expertise and reputation.

Exit analysis

Jumpstart was founded in 2000 and the founders made a conscience decision not to raise any outside capital in the early years. Only after six years of successful growth (doubling revenue every year) did they accept VC investment, when they were a ~$20M per year business. The purchase price of $84M in cash and $26M in earn-out is a very good result. Taking only a late stage investment meant that the lion’s share of the proceeds went to the founders and team.

Jumpstart’s acquirer, Hachette Filipacchi Media is a publisher of properties such as Car and Driver, Road and Track and Cycle World magazines, along with their online counterparts. As a subsidiary of Hachette, Jumpstart also sells advertising for the competitors of these online properties. We asked Mitch whether he worried that the ownership structure would create conflicts for Jumpstart. His response was that it would probably be more difficult to sell advertising without a separate identity (i.e. if Jumpstart had merged into Hachette), but that as a standalone subsidiary Jumpstart is able to leverage Hachette’s size, and hence market power to raise ad rates and add new advertisers – a direct benefit for all publishers represented by Jumpstart. The pairing of Hachette Filipacchi Media and Jumpstart is an interesting one, which we discuss in the “Food for Thought” section.

Food for thought

In the last two years we have seen a substantial rise in the number of vertical-oriented ad networks. Jumpstart, as one of the first and most successful, offers some interesting lessons for entrepreneurs in this area. For one, Mitch believes that to be successful you need to offer a blend of services to publishers and bring real expertise to selling advertising in that industry. Second, not many verticals will support a truly large ($100M+) vertical ad network. There are however good opportunities to create companies with $25-50M in revenue and $5-10M in EBITDA. Entrepreneurs would be best served to limit the amount of outside investment, given that the exit sizes are also likely to be capped. The pairing of Hachette Filipacchi Media and Jumpstart demonstrates the need for large portals/destination/content sites to also have an off-network strategy to spur further growth. We saw AOL to be one of the first to employ this strategy with the purchase of Advertising.com, and we will likely see smaller “portals” (like Hachette Filipacchi in other verticals) pursue this strategy as well.

[thanks to startup review via cc]