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OpenX, Web ad firm, raises $20 million, expects to be profitable within a year

May 31, 2011 |  5:00 am

Cadogan_openX

Pasadena-based OpenX Technologies Inc., the online advertising firm whose products are built on largely open-source technology, has raised $20 million in additional venture capital, an infusion it believes will be the last one it needs on the way from a tiny start-up to a full-fledged digital ad concern.

Since its founding in 2007, OpenX has raised $50 million over four investment rounds. OpenX makes and distributes software that allows websites to sell the space on their pages to marketers, much like highway billboard owners look to profit by renting their blank signs to whatever advertiser will pay the highest price. The company says its ad software is used by 200,000 websites in more than 100 countries.

"We continue to make a lot of progress," said Tim Cadogan, the company's chief executive. In just the last year, he said, OpenX, has doubled its headcount to 100, and hopes to add another 50 this year. The company's early success, Cadogan said, has "drawn attention from a lot of really interesting big global companies who want to help us grow."

The latest venture round was led by SAP Ventures, the investment arm of German business software giant SAP. The round included new backers AOL Ventures, Japan's Mitsui & Co. Global Investment Inc. and Presidio Ventures, as well as earlier investors Accel Partners, Index Ventures and DAG Ventures. 

OpenX is trying to capitalize on the rapid growth of the display advertising business, which deals the visual ads you see on Web pages rather than the text-based kind alongside search results.

In the U.S. last year, the $12-billion search advertising market, long dominated by Google Inc., was still larger than the market for display ads, according to a recent report from the Internet Advertising Bureau. But the display market grew 24%, to $9.9 billion, nearly double the growth of search advertising.

Unlike the painstaking hand-selling of ads well-known in the print and magazine world, OpenX's systems enable digital blank space to be automatically sold and resold every time a new user visits the page -- potentially thousands of times every minute. Those transactions are taken care of by bidding algorithms that conduct lightning-fast auctions, seeking the best price in milliseconds, then sending the winning ad to be featured on the Web page. OpenX takes a 20% cut of most of those transactions.

The company says revenue from its ad marketplace, called OpenX Market, has increased 600% over the last year and that the firm brings in "many tens of millions" in annual revenue. OpenX expects to be profitable within a year and, Cadogan said, the added cash should help the company go "the whole way" toward going public.  

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-- David Sarno

Photo: Congressman Adam Schiff (D - CA), left, visiting OpenX and CEO Tim Cadogan in August 2010. Credit: Alex J. Berliner

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