The greatest problem software manufacturers face with the private surfer market is that surfers dislike paying to download material from the Internet. It's a pity. Many surfers are 14-17 years old, and could not pay even if they wanted to.
In 1998, while waiting for a ZIP file to unzip, Meir Zohar had an inspiration: People could make money by placing advertising banners on the software.
That year he founded Cydoor Technologies, and began looking for – and finding – business partners who were willing to append his banners to their software.
To grab your attention – Cydoor now supplies 3 billion banners a month. "We had astonishing growth this year. According to the numbers, we're the largest Israeli media company in the world today," says Zohar, who considers ICQ to be a US company.
"We first had to study the subject, and discovered that the task we had taken upon ourselves was to teach the market. This took several years, especially during times of crisis," reminisces Zohar. "We set out to teach the market, and gradually focused on small and medium-sized software. We're now among the ten largest Internet entities."
Although Winzip inspired Zohar's venture, Winzip users are well aware that the company does not bother them with ads and banners, as it is not a business partner of Cydoor. Programs using Cydoor’s technology for advertising are Babylon, iMASH, KaZaA, Limewire, Lingware, and Opera.
Each of Cydoor’s partners generate revenue of $500,000 per month for the company. Zohar says Cydoor will achieve profitability by the second quarter of 2002, and expects revenue of $10 million next year.
The company began its sales push in September 2000, and, as mentioned above, now supplies customers with 3 billion banners a month. The company began 2001 with revenue of $25,000 a month.
“We're now limited by the media, not infrastructure development for the service we provide,” says Zohar. “For example, a customer like ICQ would increase our revenue five-fold.”
The wisdom of cheap delivery
In his sales pitch, Zohar emphasizes the cheaper delivery costs of establishing and maintaining an operation that can deliver advertisements in real time. The CPM (cost per thousand impressions) is the cost to advertise 1,000 online banners (the cost of establishing the infrastructure, maintenance, servers, etc.) The CPM has plunged worldwide. What once cost many dollars, now costs only pennies, while delivery costs have remained unchanged.
Zohar says, “The revenue of software providers plummeted by two orders of magnitude during this period, approaching production costs. Our technology can therefore triple someone’s profits by cutting costs.”
There are two Internet advertising models: either a company takes upon itself the entire process of linking up with advertisers; or it contracts an outside company, such as Cydoor, to do the work. “Because delivery costs are now greater or equal to advertising revenue, technology that offers cheap delivery has immense importance,” says Zohar.
“It can be said that we're the Akamai Technologies (Nasdaq: AKAM) of Internet advertising,” Zohar adds. “Just as Akamai has technologies that can transmit software cheaply, we transmit advertisements cheaply using infrastructure technology. Our next milestone is to present our technology to companies that want to handle their own advertising. We'll offer to license our technology.”
American managerial wisdom
In 1998, Cydoor raised over $7 million. The last round in May 2000 raised $6 million, on the eve of the market collapse.
Zohar says Cydoor has sufficient cash to reach profitability in the second quarter of 2002, but he nevertheless does not rule out a financing round of a few million dollars to speed things up. The company’s cash burn rate was slashed early this year, when Cydoor laid off half of its 45 employees. The company now has 22 employees, of whom seven are in the US.
Cydoor Technologies recruited its US COO Robert Regular from its competitor Conducent, which has been troubled since May, and transferred its assets to Cydoor. “Bob had an immediate positive affect on the company’s revenue. It's always a good idea to have an American handle US operations,” Zohar recommends to his start-up counterparts.
| Name: Cydoor Technologies Founded: 1998 Founder: Meir Zohar Product: Software advertising banner technology Financing rounds: $7 million Ownership: Inventec Industrial Ventures, Etgar, Orama, Corex Industries Management, Safra group, Doron Nevo, Meir Laiser Employees: 22, of whom seven are in the US. Website: www.cydoor.com |
Published by Israel's Business Arena on 17 December 2001