This is why Criteo is one of the few star performers among the public ad tech companies right now
Described by Pivotal Research analyst Brian Wieser in a note as the "poster child" of re-targeting (serving an ad at someone that has already viewed your product or website), the French-based company is profitable (reporting a near 2439% increase in net income to €35.4 million in the 12 months to March 31), while many other ad tech companies are carrying huge losses. And its stock price has risen almost 50% over the past year, to around $49 at the time of writing. Meanwhile, other ad tech stocks have slumped.
We met with Eric Eichmann, Criteo's president and COO, at the company's London office to ask what makes the company different from the rest.
He told us it's mainly down to three reasons: It focuses on one thing and does it well, it works directly with clients, and that Criteo has the scale to drive competitors in the space out of the market.
Simplicity
Eichmann said the best way to think about Criteo isn't to compare it to other ad tech companies like Rocket Fuel or Millennial Media, but compare it to search. Criteo is focused on using its data and technology to drive sales for e-commerce clients, and it doesn't deviate from that.
"If you look at it from a client perspective, we are a cost of sale item, as opposed to a discretionary marketing item. It's very comparable to search. So if you're MarksandSpencer.com and you're spending money on search, you don't see that as being the same as what you spend on TV," Eichmann said.
The idea is that unlike other ad tech companies that are fighting for spend that only comes when a client has a live marketing campaign, like search, spend with Criteo is always on. "There's no company in ad tech that has anything like it," Eichmann added.
For Criteo what that means is its revenue doesn't go up in the winter and down in the summer, reflecting clients' ad buying patterns - instead it remains constant. What that also means is that the company's retention rate is high: Over 90% for the last 15 quarters, Eichmann told us.
Criteo, for the most part, cuts out ad agencies
More than 70% of Criteo's relationships are direct with clients, Eichmann told us. That's important because a client can see where Criteo is adding value and improving sales and attribute that to what Criteo and its technology is doing, rather than an agency.
That means better margins for Criteo as clients will plug their spend straight into its engine, rather than budget first passing through an agency, which takes its share, before it reaches Criteo's network.
The network effect
For all your technology, expertise, relationships and experience, to be a big player in the ad tech space you have to have network scale.
Eichmann said Criteo's ad network reaches 1.1 billion users, second only to Google, according to comScore. He added that its publisher relationships mean the company gets access to inventory that publishers don't want out in the open market, or it gets a first look at an impression before it reaches the wider marketplace.
He told us: "Scale matters and with scale and the improvements we have made to our technology, we have left all the independents out to be sold. Sociomantic to Dunnhumby. We know a lot of clients that said they just could not take the pressure after we improved our engine and some issues we had at our end, and we convinced all their clients to come to us. Struq in the UK also sold to Quantcast. Alliance Data Systems which runs brand loyalty plans for retailers acquired Conversant. Most recently you also had Twitter acquiring TellApart. Every time these acquisitions are announced, we feel great because it's telling us that their technology is not up to par against us and they're being acquired by companies that don't have technology in the sector."
What next?
The digital market is ever-changing and Criteo will need to ensure it stays on top of new consumer and marketer trends if it wants to keep out-performing the market. Google, for example, is reportedly readying the launch of a "Buy" button, so users could buy products straight through Google's ads without having to leave the page and visit the retailer's website.
If Google doesn't allow any third-party ad networks to buy up buy button ads, that could siphon off retailer's ad spend away from companies like Criteo (retailers always want a way to cut out the steps it takes to make a transaction, as the simpler it is for people to buy, the more likely it is they will complete a purchase). Or, as Eichmann predicts, Google could open it out to ad tech companies like Criteo and it could be additive to revenue.
And then there is the rise of relative newcomers to the industry like Facebook, and cloud companies like Oracle and Adobe, which are all steadily growing out their ad tech stacks, furthering competition in the market.
Further afield - and perhaps more left-field - Eichmann is also setting his sights on beacons - the small devices placed in retail stores that connect with smartphone apps using Bluetooth.
Here's how he sees it: "Beacons could provide traffic patterns, transactions, feedback loops ... so you'd know that this part of the store performed well and if I present it in this way, people are more likely to convert to a purchase. Today they don't really have feedback like this. Marketing is becoming more and more scientific."
And as a tech company, the transition of marketing from art to science plays into Criteo's hands.