Adchemy, the Foster City, Calif., adtech startup, sold its lead generation business to XL Marketing earlier this month. So we thought it was a good time to check in with Murthy Nukala, the company's founder and CEO, to see where Adchemy is going now.
Business Insider named Adchemy one of our hottest adtech startups recently in part because the company has taken a huge amount of venture capital funding — $119 million over eight years. Its backers include Accenture and Microsoft. (For contrast, Rocket Fuel, which staged an IPO this year, had taken only $77 million before it went public.) Nukala is also a prominent brain in the adtech world: He attended both MIT and Harvard Business School.
The company has had a complicated history. Nukala told us it started with six different products but killed five of them over the years.
Lead generation — placing banner ads that direct consumers to fill in online forms if they're interested in certain products — had been one of Adchemy's core businesses. Five years ago, mortgage companies would pay $10 per lead, a source close to Adchemy told us. The University of Phoenix was another former Adchemy client.
Before that, Adchemy experimented with real-time web page optimization: trying to build an algorithm that would optimize ads on a page to get the highest yield in çlicks.
But now the company is changing direction again, this time with a view to reorganizing the way online retailers conduct their search engine marketing.
"We had a phase of the company where we just experimented a lot. We threw things against the wall and saw what stuck," Nukala says. "We had to drown some puppies to make sure the strongest one survived. At the end of it, you can't do more than one thing really, really well."
"It's less a notion of pivots and more about having multiple business units and then deciding to focus," Nukala says.
As the company was figuring out that focus, Nukala suffered a personal setback: Rajeev Motwani, a professor of computer science at Stanford University who was an advisor to the company, died in 2009.
The sale of the lead-generation business will allow Adchemy to focus on its latest direction — "semantic" or "entity" search, as Nukala calls it.
Until now, most shopping-related search marketing has revolved around optimizing web sites and ads for keywords typed in to Google by consumers. But Nukala believes that Adchemy's dashboard can divine a latent level of meaning beneath those search words that clever retailers can take advantage of.
For instance, if someone searches for "discount lightweight laptop," Google will match results — and serve ads — for those keywords. But those words don't meaningfully reflect what the consumer is searching for: "'Laptop" is important but it is third in the string. "Discount" means price. And "lightweight" is a quality. So retailers might want to only show ads for machines that are less than $300 in price and less than 4 pounds in weight, Nukala tells us.
Adchemy's new product is intended to structure a retailer's online catalog so that it responds with product listing ads in Google by extracting that meaning, rather than by simply matching keywords.
"The future of algorithmic search is to be entity driven," Nukala says. "Underpinning the back-end is an entity graph. You recognize what the user is talking about so you can interpret the question and return an answer. ... it's just better to manage entities than keywords."
Whether Adchemy can actually achieve this is an open question, of course. Building "semantic" or "latent" search algorithms is unbelievably complicated. Facebook and Google are both trying it. They're two of the only companies big enough for the task: The former is starting with a database of more than 1 trillion posts.
Nukala says this time Adchemy is going to stick to the task rather than pivot again. "One of the nice things is that selling the Adchemy Actions [lead generation] business — all that went back into the company. None of it went to cash out any investors." Nukala declined to say how much cash the sale made.
The company has about 30 clients using the new search product, Nukala says, naming Macy's and Modcloth as two of them. When asked about their search budgets, Nukala initially said that a "typical" monthly search budget would be about $200,000. That would imply annual billings of around $72 million ($200K x 30 clients x 12 months), of which Adchemy would retain only a portion in fees or commissions.
But when pressed on the issue, Nukala said $200,000 would be more of a "minimum" spend per client. "We have several customers who spend several million dollars a month," he says. He declined further comment on his clients' budgets.
He also declined to say how much revenue Adchemy is currently generating, but admitted the company is not yet in the black. "We are not profitable but we're not far off."
Adchemy is on track to double its revenue next year and increase it employee headcount (currently about 100 people) by 50%, Nukala says. "Our plan is to be self supporting."
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