Yesterday Lotame, a social network advertising platform, announced that they raised $13 million primarily from Emergence Capital Partners. One thing that I like about this company is that they generate revenue! Yes, unlike many companies in the social web economy, Lotame already generates revenue. While they haven’t stated the amount, there’s a good chance that it’s relatively significant.
A couple months ago Lotame announced that they now reached 52 million users with a U.S. reach greater than Facebook. Who are the people that they are reaching exactly? Well, Lotame helps other social networks monetize their inventory. Companies like Flixster, Fotolog, Paltalk, Meez and a few other less-known social networks are using the company for filling their advertisements.
This isn’t always the best strategy for many of these companies as Ted Rheingold, founder of Dogster & Catster, highlighted in the comments yesterday afternoon. Ted states:
The fastest way to turn that new spending into your social sites revenue is to immediately take your ad sales inside, get direct ad buys and cut off the networks and the brokers. Yes, it costs something to build a sales team, but all the money that social sites lose by getting basement inventories when they could be getting 10x CPMs if they managed their own inventory and sales process astounds me. Why are PopSugar, Slide, RockYou all building their own sales teams? Because they’ve realized how much they are giving up letting someone else own their inventory.
Ted makes a great point. By giving inventory to another company, product companies reduce the potential for their total revenue generated by giving away a cut. While hiring your own sales team can be costly, it has become a necessity as I pointed out yesterday morning. While companies can always go and hire their own sales staff, there’s no doubt that advertising networks will continue to stick around.
Some companies simply find it easier to outsource their sales team! Lotame is exactly that: the outsourced sales team for social networks.
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Traditionally these *new* advertising platforms only make a name for themselves of any interest to anyone by offering ridiculously low rates to the advertisers with unusually high payouts -- obviously not a sustainable model; didn't work for Yahoo vs. Google AdSense.
But it is great to hear them raising 13 million -- they will go a long way for that business model; allowing them to continue to operate profitless at a high cost of operation.
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