We are pleased to announce today that AOL/Time Warner has agreed to buy our portfolio company TACODA. As is always the case with a company you have worked with for years, our excitement for the founders and management team about this great outcome is tempered by knowing that we will no longer have the pleasure of working closely with this great team. Though we have watched other entrepreneurs move on (del.icio.us and Feedburner) we are perhaps slightly more wistful about this because of our special relationship with TACODA.
Fred and I were both investors in TACODA prior to the formation of Union Square Ventures. We became convinced while kicking around ideas about the media and marketing business with Dave Morgan in 2002 and 2003 that we were in the midst of a seismic shift that was going to create great opportunities for new businesses. It was the fun we were having working together on TACODA as individual investors that convinced us that we should form Union Square Ventures to go after those opportunities.
But for me, the relationship with TACODA goes back further. I first met Dave Morgan in an elevator in Dallas, Texas in 1995. And to this day it still the only time I have ever been on the receiving end of an actual elevator pitch. The details paint a picture of Dave. He got on the elevator in running clothes. I was headed down to a cocktail party wearing a name badge. He scanned the elevator saw the badge and immediately introduced himself. By the time, we had ridden 12 floors, I knew that he was working on a business to bridge the gap between the media business and the technology business. To be fair, he did not quite finish the pitch in the elevator. But the fact that he had absolutely no qualms about following me into the cocktail party in his running shorts to secure an invitation to present his ideas in more detail back in my office made a real impression on me. Those ideas were the foundation of Dave’s first company Real Media, one of the first and now as part of 24/7-Real Media still one of the largest ad serving platforms.
So when Dave approached me in April of 2001, it was an easy call to support the development of what became TACODA. Dave’s premise was simple. The internet was real. As it became a more important part of the media mix it was going to be possible for the first time to address advertising to people instead of pages. Dave was convinced that as advertisers began to understand the possibilities of this new medium, they would no longer be satisfied with media properties as a proxy for specific audiences, they would demand that their messages be delivered to that audience regardless of where that audience was at the moment. That insight is the foundation of what is now known as behavioral targeting.
Because our relationship with TACODA predated the formation of Union Square Ventures, it is a little hard to say whether TACODA fits the Union Square Ventures investment strategy of whether the USV investment strategy reflects our experience with TACODA. Either way, TACODA is a poster child for all of the key elements of the UNION Square Ventures investment strategy.
- A technology enabled service business – though it started life as a software company, the business took off when they used their software internally to introduce the first behaviorally targeted advertising network in November of 2004.
- Potential to change the structure of markets – the introduction of paid search fundamentally changed the structure of the advertising market, but it can still only reach people who know what they are looking for. Behavioral targeting has the potential to disrupt the display advertising marketing by making it possible to deliver messages to folks who are receptive, but not necessarily actively looking for something.
- Information technology leverage – TACODA is an information technology driven company. They have built the infrastructure to enable them to track hundreds of data points for millions of uses and to be able to organize those users into targetable segments that can be reached on thousands of web sites. That by itself is a technically daunting task but they had to do it in a way that protected the privacy of consumers by ensuring that they do not comingle personally identifiable information. They also had to do it at huge scale without slowing page loads for their partner media sites.
- Data asset – At Union Square Ventures, we look for companies that have a data asset. We think that the most valuable data assets are created when users interact with services on the web. The anonymous data that TACODA collects as users use the web is critical to TACODA’s ability to show more useful relevant ads to consumers but, it is the data TACODA gathers as users interact with those messages that allows TACODA to continuously improve their targeting ability, sustaining their competitive advantage in the market.
TACODA has another asset we value in a young company – a strong management team. Dave Morgan is a people magnet. When he started TACODA, employees he had worked with and customers he had sold two followed him to TACODA. But Dave did not surround himself with people who made him comfortable. He invited me and Fred into the deal early on specifically to keep him focused on creating equity value. Dave brought in Curt Viebranz, an experienced media executive, first as a board member, then as the President of TACODA and then, as the organization grew, he asked Curt to take over the CEO role. Since, joining the company full time Curt, the people and the systems that Curt has put in place have made it possible for the company to continue its rapid growth with a minimum of fuss.
So how do we feel about AOL Time Warner’s acquisition of TACODA? We are of course a little saddened to see the end of this run. TACODA is in a great market with a differentiated and defensible approach. They have a great team who is executing well. There is no question in our mind that they could continue to grow and prosper as an independent company. That said, the combination of TACODA’s seasoned management, technology, database, and experience with behavioral targeting and AOL Time Warner’s reach as a media company and (through Advertising .com) as an ad network, could become the foundation for creating the dominant display ad network on the internet.
So congratulations to Dave, Curt, Mark, Dan, Matt, Gil, and the rest of the team at TACODA, we are convinced that in partnership with AOL Time Warner, you will finish what you started and that a few years from now, people will only vaguely remember that there was once a time in the media business that you had to target pages as a proxy for people.
Good Luck – We will miss you.