IgnitionOne CEO Will Margiloff.
- Adtech company IgnitionOne sold off in a fire sale to Zeta Global to Publicis Media in November after the company couldn't renew a line of credit.
- According to interviews with 12 former employees and eight other people close to the company, IgnitionOne's problems stemmed from management's personal investments into the company and challenges in diversifying revenue, despite pivoting a number of times.
- As the problems mounted so did the bills. Investment firm Progress Partners, adtech company PubMatic, and Amazon's AWS have alleged that IgnitionOne owes them hundreds of thousands of dollars in services.
- Sources also said the company relied too much on one client, Publicis Media. An internal monthly report showed that in the second quarter Publicis was forecast to account for the vast majority of IgnitionOne's media business.
- IgnitionOne management said the firm faced big challenges competing with advertising and marketing giants like Adobe and Google but that it found new jobs for employees and would pay back creditors.
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Started in 2013, advertising and marketing tech company IgnitionOne had big dreams of competing with giants like Google, Adobe, and The Trade Desk, and becoming a one-stop shop for Fortune 500 companies' adtech and martech needs.
But this fall, IgnitionOne came crashing down when it couldn't renew a line of credit from an existing lender at the end of 2018 and ended up selling in a fire sale to companies including tech firm Zeta Global and agency giant Publicis Media.
Creditors from investment firm Progress Partners, Amazon, and adtech company PubMatic allege that IgnitionOne owes them hundreds of thousands of dollars in services.
In a note to shareholders on November 20, CEO Will Margiloff said investors would likely see no return. IgnitionOne's assets were assigned to an independent trustee to complete Zeta Global's acquisition and Publicis Media's acquihire in November and is working to pay back creditors.
Business Insider spoke with 12 former IgnitionOne employees - most of whom are senior execs - and eight other people close to the company, including advisers, shareholders, and other adtech executives. Most of the former IgnitionOne employees spoke on background because they either are still close to the company or work in the industry.
The picture that emerges is that IgnitionOne struggled to diversify its revenue and sell advertisers new products as the ad industry's demands changed and firms fought to keep up.
According to Margiloff, IgnitionOne was forecast to make more than $150 million this year, which would've made it the company's best in percentage growth, revenue, and EBITDA (earnings before interest, tax, depreciation, and amortization). In terms of net revenue, IgnitionOne expected to hit $80 million in 2019 with $55 million coming from its media business and $25 million coming from its subscription-based business.
Employees referred to IgnitionOne as "the largest adtech company that nobody's ever heard of," a former staffer said.
IgnitionOne was one of a handful of early tech companies to pitch marketers on search advertising, programmatic ad buying, and buying ads on platforms such as Google and Facebook. The initial idea was to sell brands a platform that could handle everything from managing social and web campaigns, crunching measurement reports, and running email campaigns. More recently, IgnitionOne shifted further into marketing tech with products that store and manage data for personalization.
Sources also said that management was deeply financially invested in the company, resulting in mismanagement, clashes over strategy and cash-flow problems.
"They all had very strong opinions about what was right for the business, and they didn't always agree upon it," one former sales exec said. "It was a slow demise. They were burning cash, and there were always layoffs."
Scott Levine, IgnitionOne's longtime chief financial officer and now CFO of human-resource company CultureIQ, pushed back on the idea that his and other management's investment hampered IgnitionOne from keeping up with advertisers' demands. His view on IgnitionOne's demise is that it became increasingly difficult to compete with bigger marketing firms, particularly when a key lender pulled a line of credit at the end of 2018.
"We evolved ourselves multiple times - it's what we had to do," he said. "At the end of the day, you're walking in a land of giants."
IgnitionOne had ambitious plans to change advertising
IgnitionOne's founders were industry veterans. Margiloff is a longtime internet and advertising exec who previously worked in sales roles at 24/7 Media and social-networking site TheGlobe.com. At TheGlobe.com, he worked with Bryan Wiener - who would later go on to CEO roles at the agency 360i and Comscore - before they both joined Net2Phone, an early dot-com that let people make phone calls using an internet connection.
Under the name Innovation Interactive, they started building an internet company in the early 2000s as part of a spinoff from Net2Phone.
The duo saw themselves as miles ahead of the advertising industry. Big marketers were just starting to put money into search advertising, but agencies didn't have the resources or time to buy ads on search platforms such as Google, Bing, or Ask.com. Innovation Interactive would get paid by the agencies to handle the buys for them. The company competed with Marin Software and Kenshoo and others.
Innovation Interactive soon started to snap up advertising and marketing companies such as 360i, SearchIgnite, and Netmining, and eventually sold the business to agency holding company Dentsu for $275 million in 2009. Under Dentsu's ownership, 360i saw "explosive growth," one source close to the deal said. SearchIgnite and Netmining combined to form a new company called IgnitionOne.
"The idea of having agency capabilities, network-buying capabilities, and technology was the formula that we used to sell the business to Dentsu," Margiloff said.
In 2013, Dentsu acquired Aegis Group for $5 billion and spun out IgnitionOne in a management buyout led by Margiloff, about 60 other IgnitionOne employees and a small amount of private-equity funding. According to former CFO Levine, close to half the money came from employees, and most of it went back to Dentsu.
"It felt like another opportunity to give this another shot," Levine said of the decision to spinoff IgnitionOne. "In order for the business to survive and thrive, we had to take it out of Dentsu."
'We weren't in it for salary'
In 2014, IgnitionOne raised a small amount of external funding, $20 million, in a Series B round from SoftBank Capital, ABS Capital Partners, and Brown Savano; but most of its funding came from employees who bought into the company, including top management Margiloff, Levine, chief operating officer Chris Hansen, chief technology officer Craig Pohan, and SVP of hospitality Eric Bamberger.
The team had worked together for years and made money from the sale to Dentsu. Some of them also made money from a sale to Japanese internet company LiveDoor, which acquired Innovation Interactive in 2005 before management bought it back in 2007.
Margiloff is the third-largest cash shareholder in the company, behind two private-equity firms, and he said he took only a small salary that covered his health insurance for the past five years to cut costs.
It's not unusual for founders and top execs to invest in their own companies, particularly with advertising and media companies that struggle to raise money from venture-capital or private-equity firms. This week, marketing firm Conductor said that it was spinning out of WeWork in a management-led buyout, and adtech company Viant similarly recently spun out of Meredith Corp.
But sources said the personal investments by IgnitionOne's management hampered the company's ability to stay ahead of competitors and the shift to automated media buying. They said clashes over strategies and products made it difficult to set a vision and muddied communication with staff.
"It was a culture of fear that was driven by the personal fear of losing money," a former sales exec said.
"It makes it more challenging to deal with disagreements, strategy, and management tactics," a former tech exec said. "It's like firing a relative."
The tech employee said management believed it could replicate the playbook they used in selling the firm to Dentsu but that some employees saw this idea as unrealistic.
"People sometimes confuse being lucky with being good," the source said. "They can sometimes be challenged to be humble enough, learn, and listen to really be effective the next time around if luck doesn't play the same role for them."
To Margiloff, the management-led financing was critical to the company's success.
"These are people who put money in side by side with me to try and build a company that could change how digital marketing was done," Margiloff said. "We weren't in it for salary - we were in it to build a good business and sell it."
He disagreed that management's personal investments controlled the company, pointing out that he made tough decisions like letting go of chief operating officer Jonathan Ragals and president Roger Barnette, and moved IgnitionOne out of search and email marketing when they became dominated by a few companies.
"I'd look back and say we did the smart thing," he said. "We took capabilities that we had and repositioned what we were doing to try and get out of commoditized capabilities."
Three former employees said that Margiloff was known for pushing salespeople hard and that departments like sales, product, and engineering clashed with one another.
"At heart, I think Will wanted to do the right thing but was in such a tailspin at the end," one senior adviser to the company said.
Margiloff said the same could be said for any company.
"As I've said in front of everybody in every meeting, we're all salespeople. It doesn't matter if you're in engineering, client success, or finance. If you know somebody in this business and you can make an intro for a sales guy, you should make it."
Margiloff went on to say he had town hall meetings with "Grill Will" sessions where he would answer questions from staffers. Screens in the office displayed the company's revenue and profit goals as a percentage each quarter.
"This wasn't a dictatorship by any stretch of the imagination," he said.
IgnitionOne pivoted several times but struggled to win over big brands
IgnitionOne initially pitched brands on a "marketing cloud" to help them manage and track their digital media buys.
After a couple of years, Margiloff said it became hard to sell because brands didn't want to buy a full marketing stack, similar to problems that marketers today cite with Adobe and Salesforce.
IgnitionOne also had a big programmatic advertising business and sold advertisers a demand-side platform, or DSP, that helped agencies buy display ads.
But it struggled to compete for agencies with the two biggest DSPs - Google and The Trade Desk.
It also lagged behind companies such as The Trade Desk, Dataxu, and Google in the shift into over-the-top advertising, Andrew Goode, EVP and head of programmatic at Havas Media Group, said.
Google is a juggernaut in digital advertising and made $32.6 billion during the second quarter of this year. Roku acquired Dataxu for $150 million in October, and The Trade Desk had a $11 billion market cap as of December 13.
"It is really hard to maintain a sustainable business in the DSP marketplace," Goode said. "It's an expensive business because it requires constant innovation on a product."
IgnitionOne tried to stay ahead through acquisitions of companies such as data firm Knotice and mobile-ad company Human Demand. But three former employees and one adviser said those acquisitions were hard to integrate into sellable products for marketers.
"Conceptually, IgnitionOne was always on point in the way to think about digital advertising, but the execution part is probably where it fell short," another former employee said.
Most recently, IgnitionOne started moving deeper into marketing tech. It sold a customer-intelligence platform that pulls together first- and third-party data and creates audiences for ad targeting. It also had a product that analyzed web traffic to provide marketers with a score of how likely someone was to convert. For example, a hotel chain could create audiences of people likely to book a room and use IgnitionOne's technology for ad targeting, personalization and bid pricing, Margiloff said.
But, Margiloff said, this subscription-based business didn't grow fast enough to offset costs.
A former tech exec said: "They had a good team and strong technology. There was a lack of a solid clear direction from the product side. You can't really be an ad company and a software company at the same time."
Over the past few years, a lot of adtech companies have tried to shift into martech as a way into software-as-a-service business models to work directly with brands. Raising funding has also grown more difficult for companies that can't prove recurring revenue to investors.
According to investment firm Luma Partners, 40 adtech companies were acquired in the first three quarters of this year compared to 125 martech companies.
Luma Partners
Luma Partners tracked acquisitions through the first three quarters of 2019.
Some say IgnitionOne was too dependent on Publicis Media
Four former employees said another problem for IgnitionOne was that it was too reliant on a single client: Publicis Media.
An internal monthly report from June obtained by Business Insider showed Publicis Media was on track to made up $14.6 million of IgnitionOne's $17.7 million display business (called Netmining) during the second quarter of 2019. Big Publicis Media clients included Kohl's and Lowe's, which spent $1 million and $2 million with IgnitionOne in June. Fiat Chrysler Automobiles, which splits its work between Publicis and directly with IgnitionOne, spent a forecast $11 million during the second quarter, according to the report.
The tight partnership with Publicis Media required dedicated staff and resources, and while IgnitionOne did work with other agencies, a former IgnitionOne exec said it was hard for IgnitionOne to diversify beyond Publicis.
At the same time, the agency world was changing drastically.
Ana Milicevic, a principal and cofounder of the consulting firm Sparrow Advisers, said advertisers were putting more pressure on agencies and adtech companies with extended payment terms in contracts. The beer giant Anheuser-Busch InBev, for example, recently said it would change its payment terms from 120 days to 150 days as part of a global media review of its business, according to Campaign.
But adtech companies like IgnitionOne often buy ad space from publishers before they themselves get paid by advertisers and agencies, and IgnitionOne fell behind in its payments to publishers, according to former employees and court records obtained by Business Insider.
Agencies have also started slashing the number of adtech companies they work with to cut costs, which is putting pressure on adtech companies to stand out. At the same time, holding companies such as Publicis and Interpublic Group have bought their own adtech companies like Epsilon and Acxiom rather than work with dozens of companies.
"The market needs consolidation in order to maintain focus and integrity," Goode, of Havas Media Group, said. "It changes every six months. If you're not moving fast enough and creating noise, agencies won't engage with you."
Acquisition rumors lingered at IgnitionOne
Starting in 2017, IgnitionOne went through rounds of layoffs to cut costs, and turnover rose. IgnitionOne had 250 employees this year, down from 300 in 2015.
"Over time, you start to see a pattern emerging - it shrunk and shrunk," a former technology exec said.
Meanwhile, employees started hearing rumors that Publicis Media was interested in acquiring IgnitionOne.
For some employees who had worked at IgnitionOne while it was part of Dentsu, the idea of becoming part of a big company again was exciting, one longtime engineering employee said.
"The beginning of the downfall was when that deal did not come to fruition," a second data employee who worked at IgnitionOne at the time added.
The company's financial troubles escalated this year
IgnitionOne's situation became more urgent this year. It aggressively looked for a buyer, hiring investment firm Progress Partners to help with the sale.
According to the internal June report, IgnitionOne was forecast to be profitable during the second quarter, its first profitable second quarter in its history. Margiloff said IgnitionOne was also profitable in the second half of 2018.
As of June 24, IgnitionOne was $500,000 short of hitting second-quarter sales goals, according to the report.
But without the line of credit, IgnitionOne was burning cash, leading management to start sounding the alarm in recent months.
Janet Urciuoli, then IgnitionOne's CFO, cited challenges selling subscription products in a forecast of third-quarter revenue in the report.
"Subs pacing is slightly behind [where] we were at this point last year," she wrote. "We need to close deals with urgency [and] get them implemented as soon as possible once the contract is signed."
IgnitionOne's story is a cautionary tale for the ad industry
Like other adtech companies, IgnitionOne's tentacles stretch wide in the advertising industry, which became apparent this fall.
On October 25, Progress Partners filed a civil complaint in Massachusetts District Court alleging that IgnitionOne owed the company more than $590,000 in damages, plus attorneys' fees, interest, and other costs related to its work in helping IgnitionOne find a buyer this year.
The adtech firm PubMatic filed a civil complaint with the Superior Court of California on November 6 alleging that IgnitionOne owed more than $1.4 million plus attorneys' fees and interest.
"As the programmatic market evolves and matures, we are seeing a trend of accelerating consolidation to fewer, larger platforms across the digital supply chain," Jeff Hirsch, PubMatic's chief commercial officer, said in a statement to Business Insider. "There will be winners and losers. Publishers and advertisers alike should ensure that their technology partners are sustainable and financially viable to deliver long-term value."
IgnitionOne also owed Amazon's cloud-computing service, AWS, more than $380,000, according to an AWS invoice viewed by Business Insider.
Adtech firms that work with publishers compared IgnitionOne's liquidation to bankrupt adtech firm Sizmek, which owed millions to a number of adtech companies, including PubMatic, Index Exchange, and OpenX. With Sizmek, PubMatic was owed $7.3 million.
Because of programmatic advertising's complex payment structure, IgnitionOne's creditors extend beyond its direct contracts.
Another casualty is ad-management company Mediavine, which does not have a contract with IgnitionOne but gets paid through supply-side platforms that IgnitionOne bought ads from. Mediavine helps bloggers and content creators such as recipe and food sites $5 Dinners and Polished Habitat to earn advertising money. After Business Insider began reporting on IgnitionOne in November, Mediavine published a blog post explaining to publishers that the company might not recoup revenue from IgnitionOne but that it would not charge clients for the lost money.
Mediavine's CEO, Eric Hochberger, said IgnitionOne owes money to an unnamed supply-side platform that he works with. Mediavine is also owed money from Sizmek's collapse.
"The industry has to start looking out for these warning signs or get better at it," Hochberger said. "It's a little scary to know as a publisher that the money you're supposedly being paid isn't necessarily going to be paid due to a relationship that you don't control."