Advertising: MediaAlpha on Auto Pilot

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.”