Right Media's Big Ambitions

Owned in part by Yahoo, the upstart wants to transform the way display ads are bought and sold online. It's a tall order

by Catherine Holahan

Right Media had hardly moved into its new, bigger Park Avenue office in February before Chief Executive Michael Walrath began thinking about sledgehammering down walls to make more space. Sure, the place was bigger than Right Media's old digs. But Walrath expects business to triple in 2007, and if he's right, some office walls won't last the year.

In the six months before the move, Right Media's staff swelled by around 50% as revenue surged 81%. A catalyst for that growth was Yahoo! (YHOO), the Web portal and search engine that in October bought a 20% stake in Right Media for $45 million. Suddenly, analysts, advertisers, and Internet publishers wanted to know about Right Media and the ad-auction platform it launched in 2005. "I think what Yahoo did is it sort of broadly notified the market that this was real," Walrath says.

Walrath got the chance to show how real on Mar. 1, when he held Right Media's first-ever "analyst day," playing host to some 40 analysts from New York's biggest banks and research firms. The question on many minds, Walrath concedes, was how Right Media would affect Yahoo's bottom line. But the point Walrath wanted to make: Right Media is about more than Yahoo. He reckons the startup could one day hold its own alongside not only Yahoo but Google (GOOG) and other Web media giants as well.

Untapped Potential

For now, the company is still trying to explain what it's about. Right Media specializes in display, or graphical, ads that appear at fixed locations on Web pages—in contrast to, say, the text ads that turn up alongside Web search results and have transformed Google into an online media titan. Right Media helps match display advertisers with Web-site publishers, and it hopes to do for display ads what Google has done for search ads. It's an idea Walrath began exploring while working as director of direct marketing and senior vice-president of strategy and development at DoubleClick, the maker of online-advertising and media-management tools.

Yahoo and others tap Right Media to help place ads on the swiftly multiplying number of pages generated by users, as well as any other so-called nonpremium pages, or those that lack content about a specific subject, such as finance (see BusinessWeek.com, 10/17/06, "Yahoo's Project Panama Back on Track"). But there's still a lot of potential that goes untapped, Walrath says. "We hear people say, 'What you're doing, this is reinventing-an-industry-type stuff. You guys are too young to do this,'" says Walrath, 31. "But it doesn't feel that way to us."

Right Media is trying to reinvent the way display ads are bought and sold. Online media companies, publishers, and advertisers aren't getting the best value from deals because they typically negotiate in a closed system without much information about what others are willing to pay and why. For instance, some advertisers may shy away from placing ads on News Corp.'s (NWS) MySpace for lack of information on the user-generated pages where the message may be published.

The Case for Growth

So Right Media runs an open auction system where marketers can learn more about the available space and, through participating ad-targeting companies, the Web surfers who may be viewing their ads—and then bid for that space on the fly. The greater transparency widens the pool of would-be buyers, often resulting in higher prices for the sellers and a more successfully targeted ad for the marketer, Walrath says.

Walrath made his case to a packed room that included analysts from CIBC (CM) World Markets and Forrester Research (FORR). According to CIBC, which began covering online ad services last month, ad networks and exchanges such as Right Media generated $4.3 billion in U.S. sales in 2006. It expects the industry to grow an average of 15% a year for the next four years. Fueling the growth, in part, will be increased demand for auction-based markets, CIBC analyst Paul Keung wrote in a Feb. 13 report.

As robust as that demand may be, Right Media has a long way to go before it can be compared to Google. Currently, Right Media's platform reflects only a fraction of the online display ad market—it would have to encompass a much greater slice before it's in the Google league.