Tracking Tastes 4.0
Pasadena’s fast-growing RateSpecial Interactive is making waves in the super-hot online advertising sector.
By Kathleen Kelleher 11/08/2012
Nothing about these people hints at their company’s recent turn in the spotlight. They are not Mad Men chic or Thirtysomething big-kid creatives. They wear jeans, plaid button-down shirts and unremarkable tennis shoes. Their Old Pasadena office is unassuming — a minimalist industrial design with vinegar-stained wood cubicles, all tempered by warm earth tones. The open-floor environment hums as employees talk into headsets and tap computer keyboards. A sizable white screen monitor, corner-mounted high in the room, tracks top sales performers, ad campaign revenue and each executive’s calls.
Inconspicuousness may be a condition of the past, for this online-advertising boutique is shooting upward at an attention-getting rate. RateSpecial Interactive is the 14th-fastest-growing company in the nation, so named in Inc. 500/5000, the magazine’s 2012 rankings. RateSpecial earned its spot for its staggering 8,593-percent growth over three years (earnings for 2011 were $15.5 million, up from $178K in 2008). This year the Los Angeles Business Journal ranked RateSpecial No. 1 in growth among companies in L. A. County, , and Pasadena Weekly (by popular vote) last month named it the 2012 best place to work in Pasadena. But success was neither easy nor swift.
“It has definitely been a challenge,” said Bertrand Seow, co-founder, chief financial officer and chief technology officer. “We did get our start at the beginning of the financial crisis in 2007, and we did have a number of years of not paying ourselves, self-funding and not paying our first employees. We drained all our personal resources. I was living on credit cards. So this has been a really great moment for every member of our team. Our ability to execute, being both flexible and directed, has really contributed to our success.”
If ever the time was right for online advertising, it is now. Internet advertising revenues for the first half of 2012 spiked to an unprecedented high of $17 billion, marking a 14 percent increase year over year, according to an October report from the Internet Advertising Bureau and the professional services firm PricewaterhouseCoopers. By comparison, Internet ad revenue for the first six months of 2011 was $14.9 billion. Mobile advertising almost doubled in growth for the year, increasing 95 percent to $1.2 billion for the first half of 2012, up from $636 million in the comparable period of 2011.
“The growth trend in Internet advertising is here to stay,” said Kirk Snyder, assistant professor of business management communication at USC’s Marshall School of Business. “Global Internet traffic has increased eight-fold over the past five years. The conduit we increasingly prefer to use to connect to each other, to our entertainment and to goods and services is technology. So the increase in online advertising makes sense because we are increasingly living our lives online.”
With the online marketplace seemingly flush with banner ads, interactive video ads, irritating pop-ups and intrusive promotional text messages that seem to stalk us, what makes RateSpecial special?
“Our whole approach is putting relevant products in front of online users based on the context of what they are interested in,” said Thomas McErlane, co-founder and president, adding that a consumer searching for an auto loan would see ads for auto insurance, auto loans and credit reports during their search. “Typically, the consumer is bypassing ads on Yahoo and the web. So what we do is advertise on the article itself where we have the user for a period of time on that page.”
Personalizing ads to reach people based on their expressed interests is considered more profitable and effective, a longtime practice of traditional advertising based on demographics and consumer behavior. Still, despite those tactical placement efforts, some advertising in newspapers, magazines and television has employed the so-called “spray and pray” approach. In the online world, ads can move and follow someone down the rabbit-hole equivalent of an interactive Internet search. Though many of us complain about this transparency (called “see-through marketing” by USC’s Snyder), which allows every move we make online to be tracked and collected in some data pool and exploited by marketers and advertisers, Snyder says it plays on a deep human desire to be understood and cared for.
“We have an increasing demand for it,” says Snyder. “It is like when Amazon suggests readings and purchases based on what you have bought before. Personalization plays into a need to be catered to. Technology is meeting that need in spades.”
The rapid pace of technological change makes staying relevant and adaptable a challenge. The founders agree that their different strengths give the company a robust depth and flexibility to accomplish that. Both McErlane and CEO David Tam, also a co-founder, are seasoned online businessmen with managerial and executive experience. McErlane and Tam actually knew of each other as competitors in the online business world first, then eventually became friends when they shared a tiny office working for an online mortgage loan company. Tam and Seow — the technological master of the three, with a computer science degree and experience working at NASA’s Jet Propulsion Laboratory in the ionosphere department — were college roommates at UCLA. They launched an online mortgage company in early 2007, but it faltered in the stumbling economy. Seeing the promise of online advertising and opting to take another chance, Tam and Seow, now joined by McErlane, pivoted that early failure into a new company, RateSpecial Interactive.
“The model we were using for the mortgage company is the one we are still using today,” said Tam. “We had an understanding of what worked and what didn’t work from our past experiences, but we are still running with that original concept.”
To keep pace, Seow said, RateSpecial expanded upon that original program by developing technology in a “responsive design” to interact with seemingly ubiquitous cellphones and tablets. “Our platform/framework will detect the browser, device and resolution of the consumer and dynamically adjust the ‘look and feel’ of our sites to match accordingly,” Seow explained in an email. “Our platform is also optimized for speed and deliverability, which is essential for the wireless world.”
The three men, all now 34, launched the business in an L.A. office with no employees. Currently housed next to the Paseo Colorado shopping center in a 1925 bank building, the company has 34 employees and 15 clients, including Experian, RealtyStore.com, Lexington Law and KidsLive (which presents cultural events for families), to name a few. RateSpecial also runs a “secondary revenue platform,” which includes an exhaustive array of still more online advertising opportunities, such as email marketing, call centers, direct email, SMS texting, “cross-selling” and something called “exit traffic optimization” — that last-chance opportunity to hit the consumers with one more ad as they exit a search.
The co-founders recently returned from an advertising technology conference in London where they sized up the international online marketplace. “I can’t go into detail as to our next steps in that market,” said Tam, who added that the company goal is to grow 100 percent every year. “But I can say there’s plenty of opportunity for growth there.”
Throughout the explosive growth of RateSpecial, the co-founders’ personal lives also expanded. All three are married now, and both Seow and McErlane have children. Seow was a groomsman at Tam’s wedding last April. Seow’s wife, Stacy Seow, designed the interiors of RateSpecial’s headquarters, even making a modern light fixture that hangs on a wall near the entryway. Three of the original employees, one of whom was not paid for almost a year, are still with the company.
“It is really about taking care of the people who are here in the trenches with us day in and day out,” says Seow. “We have a mutual respect for each other and we know that some of the people we hire are smarter than us. There is definitely a common purpose and ownership here.”