SaaS Interviews with CEOs, Startups, Founders
1059 $100m In Audio Ad Spend Goes Through Our Platform
18 Jun 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everybody. My guest today is Mike Doherty.
He is the chief executive officer and co-founder of Jelly, the technology platform for the 40 billion global audio advertising market. He has 20 years of experience with online and mobile services and corporate development.
Under his leadership, the company Jelly has developed a cloud platform that transforms audio advertising, enabling advertisers and publishers to buy and sell audio advertising programmatically through a suite of demand side and supply side services. Mike, are you ready to take us to the top? Yeah. All right. Good. So audio is hot, right?
Google Home, Alexa, audio input devices, audio listening devices, they're all over the place. And it's easier than text based stuff like reading. So it's going to maybe expand faster than even the web did back when Google was indexing search stuff. How are you indexing all this audio data and walk me through the product? How are you enabling it folks to programmatically advertise in it?
Well, actually, Jellywood's built the concept of building the largest audio ad platform, creating innovation for audio so it can compete in this era where you have Google, you have Facebook winning eight out of every 10 new dollar coming into advertising. Audio is this amazing category that people use it globally.
And as you just mentioned, it's going through this sort of very interesting inflection point where voice and the connected home and the connected car and talking to these devices as you just described, shifting digital engagement from your mobile phone or from your desktop to something where voice is the input and audio is the output.
For certain types of services like music, some of us subscribe, but sometimes we consume free music, free audio. And in those cases, monetization, having a business model for free, the free tier, is important. So we build a platform to help audio advertising flourish in this era. So walk me through how it works. And actually, let me just use this show as an example, right?
So the show does about 5 million downloads right now I do between two and 3 million a year and podcast sponsorships. The issues I have is I have all this, you know, I have 800 episodes that are historical, where I've already hit the impression counts that the advertisers paid for, but I have no way to go back and reuse that inventory without me opening them on audacity and putting in new reads.
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Chapter 2: How does Jelli transform audio advertising?
I mean, what have you processed over the past 12 months in terms of spend through the platform? We're processing about a hundred million dollars of spend through the platform right now. Got it. Our business model for the company is software. So we don't sell the ads online. we are the software that allows all the people who are buying and selling from each other to work together.
So you don't take a cut? We do take a cut, but we take a software fee. So it's sort of like a processing fee. Got it. So you have a dual business model. There's a software license fee, like a pure play SaaS model. And there's also a small kind of cut model. Exactly. Interesting.
So on the broadcaster side for radio stations, they typically are part of a stats recurring revenue model with a small percentage on upside. What do they pay on average per month? We have lots of different deals. We generate currently about a million dollars a month from 2,300 radio stations and recurring software. That's okay.
So I mean, this is a healthy, it's a little healthy little business there on that side. And then on the, uh, let's say you want to log in to buy some ads. In that case, you're going to pay anywhere from 5% to 15%, depending on who you are, on a processing fee, essentially, on the basis of how much you're spending.
So if it's $1 million or $100,000 or whatever you're spending on the audio ads, there'll be a processing tech fee that we'll receive for that. I love this model because a lot of people look at a marketplace model and beat the hell out of it and say, you can't make any money until you have both sides and then you have to be matchmaker.
What you've done is said, you know what, let's just give value to both sides and actually make them pay on both sides. And you have a dual business model on both sides. So 2,300 radio stations basically paying you a million bucks a month, right, for you to get access to their inventory.
And then on the other side, for buyers of these placements, they're paying you anywhere between, you said, 5% and 10% of total spend. Right. And, you know, by the way, that didn't happen overnight. So last four years has been going from 100 stations to 300. And then we signed in 2015, about three years ago, a huge deal with iHeartMedia, which is the largest radio group in the U.S.,
And they brought 800, 900 stations to the table. We powered their large scale radio ad exchange with our software. And that really solved that chicken, the egg issue of a marketplace where you're trying to get scale on one side or the other. How do you do it? A lot of entrepreneurs try to figure that out. Sometimes you're given advice, fake the chicken. I love that idea. Fake the chicken. Yeah.
That's awesome. You know, if you got to get drivers on your Uber platform, just get the driver somehow because you got the consumer started. But in our case, large scale advertisers and ad agencies didn't want to work with us if we didn't have enough scale. And yet the broadcasters didn't want to work with us unless there was money.
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Chapter 3: What challenges does Jelli face in the audio ad market?
And so, uh, it sort of started from there. And then we went from maybe 1200 radio stations to 2,300. Now, um, the scale is huge. You log, you log into jelly, you're looking to buy some ads. You can reach 250 million people a month through our part. What penetration do you have right now? How many total radio stations are there?
There are about 6,000 commercial stations in the U S we have 20, 40%, 50%. Yeah. And we have the big ones too. So if you look at like audience scale, cause not every station's equal. Um, we picked the big ones first. So LA, New York, et cetera, all the big cities.
So if you look at listener share, we're probably at about 65% listener share right now of all listening of radio that you can essentially address if you want to buy an ad, an ad, upload an ad. It gets cashed down on our platform all across the country, the places you want to buy and run the ad. And our software takes over from there. We run it in an automated fashion.
When the ad runs on our platform, you get a log in your dashboard that says, hey, my ad's running right now in Boston. So as a marketer, you can see your ad running and you can listen to it on the air. So for the first time, you have that kind of transparency, that sort of digital access to real time data. And that's really valuable for a lot of people.
So when you add up both sides of your marketplace, I mean, what are you doing somewhere right now around 24-ish, 25 million per year or a little under that? We're doing a little under that, but I would say this year we're expecting to do something like that. Yeah. And I'm just doing the math. If you do a million a month from 23 radio stations, that's obvious. Or sorry, 2300.
That's obviously 12 million there. And then if you process 100 million. It's unbalanced right now. We started with the supply side. They're like more of our revenue. Okay, they are. That 12 million is more than 50%. Correct. The agencies are just now starting to get to parity. I think this year they'll outstrip the broadcaster side or the publisher side from the perspective of customer revenue.
Just to round that out, though, you said $100 million in ad spend through over the past 12 months, minimum 5% up to 15%. So minimum there's $5 million coming from that side, but it's less than $12 million. So call it maybe you're doing $22 million right now, trailing 12 months, and you think you'll break $30 this year? Yeah. You didn't sound confident. No, I was trying to follow your analysis.
By the way, good analysis. Do you like that analysis?
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Chapter 4: How does Jelli's platform enable programmatic advertising?
Am I hired? I think you're doing fine, so I don't think you need to work for us. No, I would be fired in about two seconds if you tried that. What about growth? So last 12 months, you've called about 22 million-ish. What were you at previous 12 months? Um, 400% growth a year over year and revenue. Yeah. Revenue. So, uh, 2016 was sort of a ramp year for us.
Um, it took a while to get the footprint in place, but once the footprint in place, 2017, we really generated a lot of revenue. Uh, 2018, we're going to see less than 400%, but it's still going to be over doubling and our margins are very high. So from a business model perspective, what's high, um, well we did in Q3, 85% gross margins, that was up from 83%.
So we have a software kind of business model related to the revenue. Yep. Yeah, just to be clear, if you have 400% growth, I mean, you're talking December 16, run rate somewhere around 6 million, and you grew that in December 17, run rate to about 22 million. I mean, that's significant growth. Would you would you attribute most that to that I heart deal? Yeah, I think iHeart was a catalyst.
Not only were they a big source of their big customer, but they attracted the rest of the market. So a fear of missing out concept, when you have someone who represents about 30% market share in the U.S. of national advertising, it's hard not to participate in the things they're doing. So let me ask you another question about the space in general, audio.
You know, I think why Google AdWords and Facebook works is you can do direct attribution. So direct marketing advertisers, they know they can spend a dollar and two seconds later make $1.50 and then they just funnel in that channel. A lot of podcast hosts, and I think this is so stupid how they do it, but they're selling super...
They're selling CPMs that are just never going to work because they don't know how to move their audio audience to actual buyers. And so if they can't figure that out, which is really a creative problem, it's hard to solve it with technology, I think, maybe have an answer. But if they can't solve that, spend is never going to get into the hundreds of billions, right?
How do you see that playing out? Do you agree with me or do you disagree? I agree with you partially. I think that if you look at audio as a full category in the US today, it's about 18 billion. Okay. Okay. And the reason why it's 18 billion is that there's about an hour and a half of time spent with audio every day on average. Okay. Okay.
So if you're Facebook or Google, you're someone who's big, you look at the concept of how much mindshare do I have of each person? Because that's my growth. And so they started with mobile and digital and they look at that and they say, that's about, I don't know, three hours a day at a time. The average person spends with me, Google or Facebook, right there. Now they're jumping to TV.
TV is about a five to six hour time of day. And that's the big battleground right now. It's about $80 billion ad market. The next big chunk of time that no one's tapped is audio. It's about an hour and a half, two hours a day. And it's, for example, driving home. When you're driving home in your car, audio is a type of media you consume a lot of the time.
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Chapter 5: What is Jelli's business model and revenue structure?
Quick, because we're out of time here, but quick last questions. Funding, have you raised or bootstrapped? Oh, we raised. So series A and B, we've raised $46 million to date. Okay. 46 million total. And then economics wise, what's your churn look like? We have very low churn, very low churn. Like under what? Like under, under, under 5%. Okay. And that's logo churn annually or revenue churn?
Both. Both. OK, cool. I mean, yeah, that's obviously really healthy. What is the in terms of acquiring these radio stations? It seems like you're doing this really on a kind of bulk deal basis. So me asking you a question wouldn't be relevant, but maybe on the other side, bring a new buyer of these ads to your platform. What does it cost you to get one of those people?
Well, some of the things we're working on right now are big deals, bulk buyers on that side too. So a holding company, an ad agency, feels like a similar type of deal cycle and investment you have to make from sales and marketing to acquire them.
So we typically look at an acquisition cost of a big deal of, let's say, anywhere from $50,000 to $100,000 of just time and travel and all this other work you have to do to make sure that they get comfortable flipping over and using this platform as opposed to the old way they did it. But once you end up doing that, the deal that you receive is worth sometimes, you know, seven figures a year.
And so it pays off. And a lot of times the contracts are multi-year. So you get that return. Is your payback almost always like under six or five or four months? I mean, what do you try? Do you try and optimize around payback period? And what is it? We don't, we should, um, frankly, because it's been a big deal type, uh, business model so far, we haven't had those sort of traditional sass.
And you don't have to, cause you have 46 million bucks in funding. Yeah, that's true. Yeah. Although, you know, as we start to move into the next tier, I call it tier two or like the longer tail, you want to start to measure that to make sure you're efficient. Yeah.
But I think generally you just told me if you're spending a hundred grand and most deals are, can be low seven figures, you're getting paid back in less than a year. Pretty reliably. Right. Yeah. Team size today. Where are you at? We have 45. 45. And where's home? Where's home base? San Mateo. We also have an office in New York and we have an office in Boise, Idaho for scaling up. That's smart.
And year one was which year? 2012. Okay. Last few questions here. We're going to wrap up with the famous five. Number one, what's your favorite business book? The Hard Things About Hard Things by Ben Horowitz. And number two, is there a CEO you follow or study right now? Yes. A big fan of Mike McHugh from Flipboard. From which, Flipboard? Flipboard. Yep.
Number three, is there a favorite online tool you have for scaling your business? Absolutely. We've been huge fans of 15-5. 15-5. Number four, how many hours of sleep do you get every night? Not enough, like six. And what's your situation, Mike? Married, single, you have kids? Married with kids. How many? Two. Good, not wives, kids. What's that? I said, not wives, kids, two kids. All right.
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