ARCast.TV - Taking TV Ads to the Long Tail with Spot Runner

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In the past TV ads were only for the big guys with Madison avenue advertising agencies producing multi-million dollar contracts.  And the little guys?  They were the one who put up those cheesy ads that look like they were shot with Dad's movie camera.  But today there is a new company that is helping bring TV ads to the little guys with a difference... they actually look good!  Spot Runner is an amazing company and on this episode we meet the co-founder David Waxman as we architects learn about the business drivers for the architecture.

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    ARCast.TV - Taking TV Ads to the Long Tail with Spot Runner

    Announcer: It's Wednesday, September 19th, 2007, and you're watching ARCast TV.

    Ron Jacobs: Welcome back to ARCast TV. This is your host Ron Jacobs. And today I'm back here at ARCast TV, where I'm thinking about a company that I went to see this summer, down in Los Angeles, kind of in the Hollywood area. That's a company called Spot Runner. Now, these guys are in the business of making television advertising accessible to the little guy. And they're looking at the long tail. That's the small and medium businesses that really can't afford the big TV campaigns, you know, with lots of big budget and advertising companies involved. These are the little guys. And they're using technology to make it possible for the little guys to get a great TV ad. And it's all powered by dot net, so let's go to Spot Runner and learn about their business.

    Hey, welcome back to ARCast TV. This is your host Ron Jacobs and today I am in beautiful Los Angeles, where I'm joined by David Waxman. And David, you are the co-founder of Spot Runner.
    David Waxman: Yes.
    Ron: Hey, well, so tell me a little bit about Spot Runner. What is Spot Runner anyway?
    David: Spot Runner is the first Internet-based advertising agency. And we set out to really make it easy and affordable for local businesses to get themselves on television. When we set out to look at the market, we realized that television and a lot of off-line media are typically the purview of only very large national companies. And people think of television as being something that is expensive, slow, and really based on a national scale. When we dug a little deeper, we found that television can be a very, very powerful tool for local businesses, and in fact, using local television, you can be more targeted than oftentimes you can be on the Internet.
    Ron: So let me ask a question, though. Were you in the advertising business before you started this, or how did you get involved?
    David: By training I'm a technologist, and an entrepreneur. This is my third company that I've done. The first company that I did was called Firefly Network, and actually that company was purchased by Microsoft in 1998.
    Ron: Oh, OK.
    David: We developed a product that became the Microsoft Passport. The company after that was called People PC. And that company provided low-cost PCs and Internet access, all in a bundle, to make it easy for people to get on the Internet.
    Ron: Yeah.
    David: We launched that company in 1999. We went public, and then ultimately sold the company to EarthLink.
    Ron: Oh, OK. So then after building a couple companies, you're sitting back, you're thinking, "What's next? What's next?" And you looked at this advertising market. Now, I understand that people are spending lots of money on advertising, and in fact, though a lot of people predicted that TV ads would go away eventually, Internet would all take over and we'd all post our stuff on YouTube, that hasn't been happening. As far as I can tell from what I've been reading the market is actually growing.
    David: That's right. People have are watching more television than ever. But what is happening is that there are more choices in television and more fragmentation in the marketplace, both locally and demographically. And you have hundreds of stations, and you can target down to thousands and thousands of local markets using local television. And what that creates is a problem of fragmentation in scale, and you really need technology in order to consummate the transactions in an economic way, so that you can target more effectively.
    Ron: Yes, so there's this phenomenon a lot of people talk about. Web 2.0 type people say, you know, it's "The Long Tail," right? And we talk about the under-served market of small and medium business that, you know, they can't afford to go down to Madison Avenue and hire the big advertising agency that's going to do the million-dollar Super Bowl ads or whatever. The mom-and-pop stores. But they can benefit from a TV ad, and this is the market you're going after?
    David: Well, absolutely, that's the market where we started. And our company has evolved in a very interesting way. But what we did first is, we actually hired the head of research from eBay to become our head of research. And we sent him out into the marketplace to talk to these mom-and-pops of which you speak. And they all said, "Well, television isn't for me." They had the same perception that television was for Super Bowl ads, and it was big, and too expensive. We said, "Well, how much do you think a spot in local television, maybe on a premium channel, you know, like CNN or Lifetime, would be in your market during prime time?" And they said, "Well, ten thousand dollars."
    Ron: Hmm.
    David: Actually, that's a couple orders off in most markets.
    Ron: Wow.
    David: You can get a spot in prime time in most any market in the United States for as little as ten or twenty dollars, and certainly under a hundred or two hundred dollars, with the exception of Manhattan and a few places that are really the edge cases. And when we said that, their jaws dropped. They said, "Wow, I never knew this before. But I've got this other problem, which is, local ads don't look very good."
    Ron: [laughs]
    David: "And they don't necessarily represent what I want to represent when I think of my company. And I don't think they're going to attract the customers that I want to attract." And so we set out to tackle that problem. And what we did was we took the nation's small businesses, the 12 million small businesses that exist in the country, and made a taxonomy, a few thousand categories of businesses, and then made ads for each of those categories, that could be re-used and customized for different advertisers in different markets. And so now we have a library of literally thousand of ads. And if you are a pizza shop - which, by the way, you're probably competing with Dominos and Papa John's, and a whole bunch of national brands who are using television. If you're a pizza shop or a local lawyer, you can go look through our ad library and find one of ten or twenty ads that's just right for you.
    Ron: Yeah, you know, it's funny, when you think about making the Long Tail work, it's all about scaling everything you do to lots and lots of customers and being able to benefit from these economies of scale for the little guy, but it typically means you've got to leverage technology in some kind of interesting way, to make the scale work. Because you can't have people on the phone or people dealing with every little last small transaction, otherwise it doesn't become profitable.
    David: Absolutely. And the television marketplace in particular was one where we saw lots of opportunity for improvement. As you say, if you're doing a million-dollar Super Bowl ad, you can choose to send that ad to the station on a Beta tape that costs eighty dollars, via FedEx, which costs ten or twenty dollars or whatever the FedEx fee is. That hundred dollars is irrelevant in the context of a million-dollar buy. If you're sending lots and lots of ads to lots and lots of places for lots and lots of small clients, those dollars ad up really fast. And so to automate it and send that file electronically is a significant proposition. It's very important that you do that.
    Ron: I'm just wondering on the other end, like when you're talking about the stations, from my experience of dealing with professional television people, I was kind of surprised to find that they were often perplexed by an AVI file or a WMV file. "How do we deal with this," you know? "Give us a tape," you know? And so, did you have to kind of penetrate from that side as well?
    David: Yeah, we're in a really interesting place in the market, where people are tuned to what's going on in technology, and often focused on improving their technological infrastructure on the station side, on the broadcaster's side, but are sort of halfway there, or not all the way there yet. So it's a great opportunity for us to come in and help them along, and also to help understand their systems as they're building them. So I think we're right on the cusp of seeing a real change in how broadcasters do business with their technical infrastructures.
    Ron: Well, and by being, you know, kind of the first guy there, I found this in general, if you can help a business get over a technological hurdle and you're the first guy to help them out to do that, they're just more open to you, as doing business with you because they know you, that you helped them out, you got them over that hump and so you're already halfway there.
    David: Yeah, absolutely. And I want to get back a little bit to who our customers are. Because one of the things that we found when we serve the little guy, this local mom-and-pop, is that often that little guy is associated in some way or another with the national company. And what we found was, after serving some of these little guys for the first few months of operation, that quickly we can solve a problem for their parent companies were affiliate companies.

    So, an example is that we work a lot with franchise owners and franchisees. We sat down with the CEOs at Coldwell Banker and Century 21 and ERA and Sotheby's and said, "Why don't you use TV for your brokers and agents?" "Well, it's kind of too dangerous. It's something that we would love to have them do. We would love to have them to move on to TV and more on the Internet because those media are very efficient, but you know, we have the same problem with giving them a good quality ad that represents our brand which is a national brand and a very valuable asset to us."

    So, what we're able to do is set up a private library for all of those brands and then a private portal entry and we can talk about how we do this technology later so that they can give proprietary access to a library that they know and trust and that is consistent with the company's brand values. And the agent on the ground gets a real professional quality ad that looks like their parent company's brand. So, it's a win-win for both parties.

    And since that time, we've also found that there are other companies such as product companies who distribute a product locally and would love to help the local partner, retailer or distributor promote that product more effectively. So we have a deal. We actually were approached by J. Walter Thompson, one of the largest agencies in the country to work with their client, Diamond Promotions Service. Diamond Promotions Service is the company that promotes diamonds such as the "Diamonds are Forever" campaign.
    Ron: Oh, those are the guys that make me feel so guilty for not buying the $10,000 anniversary ring for my wife. OK.
    David: Those guys, yes. And what they said is, "We have 25,000 jewelers that carry our product, diamonds, and we want them to be more successful. And when we talk to them, they say consistently, "Get us on television. That is something that could really work for us."

    And what they then did is, they said, "Let us give you creative direction. We don't want a give you our ad because we spend a whole lot of money on these ads. We don't want them to be unnecessary to be mixed-up with the local stuff. Let's give you creative directions so you can make ads for local jewelers that look very similar and very consistent with our national campaign." And then we'll help you retail these jewelers and say, "Listen, you can promote your jewelry shop with this latest promotion that's totally consistent with the national campaign that will get the combine coverage that we're doing nationally." And once again, the two campaigns will have a synergistic effect instead of being at odds with each other and not in combination. I'd love to share you one of that ads.
    Ron: Yeah, yeah. Let's see that.


    Announcer: The memory captures the moment in time and you mean the first moment you saw her and she was the one. Not much has changed. Show her how much she means with three-stone diamond jewelry - for your past, present and future. Spot Runner Jewelers, where quality craftsmanship and customer service set us apart.

    [end music]
    David: And as you can see, this ad in its pre-produced form is Spot Runner Jewelers and has generic information.
    Ron: Yeah.
    David: When we customized it for a local jeweler, we take that end part and we render it and we record the voiceover with the appropriate text changes. I hope you'll agree that is very consistent with the kind of messaging that the national brand is giving.
    Ron: Well, you know, it doesn't have that local ad look. You know, where you got the cheesy camera shot with the local video storeowner. You know?
    David: In a sombrero.
    Ron: [laughs] Yeah, I mean, you know, that kind of stuff almost works against you, you know. It makes you like, "No, I definitely do not want to go there." So, I think yeah, that has a lot of potential. Now, you know, with the big TV agency ad by the sell and payment process is complex business relationships. You got contracts where you're signing POs are open, all that kind of stuff. A very daunting process for a small- and medium-sized business.

    Tell me about the buying process. How did you work that out to address the Long Tail?
    David: That's been the whole lot of work that we do here at Spot Runner is to try and make that process simple and easy enough for anyone to do. And you know, our customers are often people who have multiple jobs including marketing director. They might also be the chief cashier or the owner. So what we've done is really tried to make our site very straightforward. And we made some very powerful media planning engines that will help you determine where the best on your ad. So, let me describe a little bit the process of coming to our site and how it works.
    Ron: OK.
    David: You come to our site and first you identify what business you're in so we can help you steer you to an ad that's appropriate for you. So, let's say that you're a florist. We'll show you a number of floral ads, different ranges of emotions and key messages and you can pick one that's seems right for you. Then we go through a process of customization where you tell us the places where the script has to change. And you type that directly into what looks sort of like the old game of Mad Libs. So, there'll be some holes in the script where you can type in information about yourself. Then, you can upload a photo of your store front or a piece of video so we can really customize that ad for you.

    The next thing that we do is we take a look at your markets. So you tell us, let's say you're located in Seattle, Washington. We'll look at the different advertising opportunities in Seattle and you fill out a very, very straightforward questions here. What are you trying to achieve? Are you trying to go for a new store opening, for brand awareness or just, you know, an upcoming sale or just an ongoing customer acquisition? And we'll ask you about who your demographic is? What kind of audience you're trying to reach?

    And, we'll take all that information and then combine it with a whole bunch of data sets like Nielsen and census data. And we'll crunch it all together and come up with a media plan that makes the most economic sense for you. And it's all online, so you do that process from start to finish in one, you can do it in one sitting and you can pay by credit card and you can pay by other means as well. Presto, and we're off to the races.

    So, everything can happen online. You'll then get a new an email within about 48 hours to come and take a look at your customized ad because we will do the voice over for you, etc. And you can have your campaign on the air in a matter of weeks. Whereas, in a typical agency scenario with the typical process, it can be normally like months.
    Ron: Wow! So all of these, I could go on and do it all online and I don't have to get on the phone and talk to somebody and have a big, long conversation. It's just going to be sit down and check it all out. Right?
    David: Right. You can do it all on Now we have people available on the phone if people need help. It can be a pretty important purchase for a lot of people. So we are happy to talk to you, as well. You can do the whole thing on-line.
    Ron: That's pretty amazing. So, like you said, you come up the whole media plan based on what I am trying to accomplish in the demographics. I am sure there is a lot of interesting technical challenge behind that. Because, once again, we see technology becoming the helpful expert behind the scene, that brings the cost down. So instead of having the talk to the guy who has done this for 25 years and knows the market, we get some help this way.
    David: Yes, it is a data problem, right? Media planning is a matter of taking a lot of different data sources and applying some smart rules to how you deal with those data sources, and in coming up with an optimal plan.
    Ron: Yes. So one of the big things that people are talking about, is there's a lot of new opportunities for advertising on the web. Maybe you run your little banner ad video thing or whatever it may be, even print, or bus banners, whatever. Are you guys into any of that, or are you thinking that the future may be addressing other types of advertising they go with it?
    David: Absolutely. We quickly heard from our customers that they wanted us to be a full service agency and that is why I say that we're an automated agency. I use that word very deliberately because I think that is the role that we play. And in order to really serve our customers, they need campaigns that are of mixed media types and serve our already serving customers' radio search and we're adding new media types as it become important for our customers.

    And often, for example, search would be a great thing to combine with television, because search is a very good medium for measuring response, so collecting live leads, whereas television is a great medium for helping inform the people down the road.
    Ron: Well, I would think this is a great opportunity, also, for the mom-and-pop floral store, to say they don't have a website, and you want to drive traffic from the TV ad to the website so they can see this week's specials or maybe order online. I can imagine a whole world of opportunity between these different synergies here that are going on.
    David: Absolutely. And we are very focused on creating a media sweep for our customers over the next. As I said, we have already engaged in it now and you will see rolling out over the next year.
    Ron: That's pretty incredible. So, what has the response been in the market place?
    David: The response has been phenomenal. Like I said, in solving this problem for larger customers--such as the national affiliates of these local brands--we have really been able to get a lot of interest in the company. And one of the things that happen is that large agencies started to come to us and they said 'we have these great brands, you know, all the premium brands you heard of and they want to act locally and they want to act in targeted ways. That is not really our specialty. Our specialty is still the Super Bowl ad and the big national ad, so can you help us?'

    So, for example, when I talked about Diamond Promotion Service, that was done with J. Walter Thompson, who does their national advertising. It actually happen that, following that relationship, the WPP group--which is the parent company of J. Walter Thompson--made an investment in our company as well as Interpublic Group, which is another major advertising conglomerate, and some of the broadcasters including CBS and the Murdoch families. So a lot of people are seeing us now as a solution for cracking this problem and bringing some of these large clients to us, as a kind of sister agency.
    Ron: Well, I am sure that they look at a lot of this as a big headache. "I know we got to do it, but we don't have to do it, we don't necessarily want to do it," so they'd love to have you guys take on that role.
    David: Yes. It is a very complementary thing to what they do. Agencies is a very high touch human business, is not particularly a technological business and we're technologists and that is something they were good at. So I think we were very well in tandem with those companies and we're seeing great partnerships emerge.
    Ron: So, how long has Spot Runner been around?
    David: We've been around for almost three years and we've been in the marketplace for about a year and a half. So we spent the first little while building our systems and building our ad library and preparing the field.
    Ron: So, from this three year period, I am just curious about the evolution of the technology that was required to support this, and how, as a technologist, I am sure, from the very beginning, you had in mind the kind of things you would have to accomplish from a technology point of view to make this work. Tell me a little about how you plotted that out and built the team to make that happen.
    David: When we went out of the gate, we were interested in speed to market, and we knew that we didn't know a lot of things about the initial product and how things were going to be received. So we focused on a solution that could be built with a relatively small team and got out the door pretty quickly.

    As we started to get traction, we realized that, "OK. We are going to scale this thing and now we need to re-factor and really think about how we are going to make things that are scalable and can grow." And that is actually when we hired Marco DeMello, our VP of Engineering, who came from Microsoft--and I think he worked on the Exchange team--to come down and help rethink some of the stuff that we had built, for lack of a better word, 'quick and dirty' the first time, in a way that could scale up the real opportunity that we have.
    Ron: But, you know, that is an interesting point, because I think to a lot of technologists we go, "No, no, you've got to start with highly scalable blah, blah, blah" and you can spend a year and a half just building your first solution.

    But I think what you said was insightful, that you didn't know right away what exactly you are going to need, so you just did a pragmatic, "let's get something done." Because the truth is, you are going to learn a lot right after you get that thing going. And then you are going to learn what you missed, what you had forgotten. And so really, you're going to be living on V2 pretty much right away, anyway.
    David: Yeah, I mean, from Microsoft, you should know that, right?

    Ron: We're always doing that one, right? Actually, it takes us three versions to get there.
    David: But, that is still the way we approach when we enter something brand new. Maybe things are a little less quick and less dirty than they used to be, but we still go in with the 'test-and-learn approach' before we bring out the big guns and really nail stuff down.

    Ron: Yeah, wow, very interesting. Well, this has been a very fascinating conversation. We are going to continue on the next episode of ARCast TV with Marco who is going to tell us more about the technology that it took to support the business goals that we talked about today for Spot Runner. So we will see you next time on ARCast TV.

    You know, I am amazed when I meet people who have started businesses, who have built them up from next to nothing and you think, "Man, these guys are doing really good stuff, you know?" They took the risk that it took to make a business where it just didn't exist before. They built a brand new market. It is always interesting to learn about the strategy that the architects needed to put in place of support the way business would evolve. You can't build everything perfectly right the first time--time and money just aren't going to allow that--but these guys did a great job. And next time, we are going to learn more about how they developed the team at Spot Runner. So we'll talk to you next time on ARCast TV.
    Announcer: ARCast TV is a production of the Microsoft Architecture Strategy Team,

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