Ybrant Plans To Acquire An Affiliate Marketing Company

VCcircle.com

August 06, 2009 – Ybrant raised $25 million from Hong Kong-based Asia Pacific Capital, said Ybrant Chairman Suresh Reddy in an interview.

Ybrant Digital, a Hyderabad based digital marketing solutions company with $60 million revenues, has completed six overseas acquisitions in last five years. Two of these deals have come in the past four months, while the latest one was last week’s acquisition of Australia’s Max Interactive. The firm has also raised $55 million in two rounds of private equity funding – from Sansar Capital in 2007 and from Hong Kong-based Asia Pacific Capital in in October 2008.

Currently the company offers services in three segments: banner, search and e-mail marketing. It plans to enter into affiliate marketing segment, and is now looking at acquisitions in this space. The company is also very keen on expanding into the Chinese markets. VCCircle spoke to Suresh Reddy, Chairman and CEO of Ybrant Digital, on the firm’s inorganic strategy and expansion plans going ahead. Excerpts:

Q. How did Ybrant Digital as a brand come into existence?
We started in 1999 as USAGreetings.com, an online greetings card business. When the business crashed in 2001, we merged into Ybrant Technology and started providing technology and platforms to help digital marketing companies as a back office supporter. We did that till 2004. Then we built up a lot of other businesses as a technology tool and services provider. We saw an opportunity when we found that our clients were making profits and growing, and their margins were higher than ours, and so we eventually moved into the business.

Q. Why did you choose inorganic growth strategyl?
Digital marketing, fundamentally, includes online marketing and mobile marketing. In online marketing, you can reach to your target customers through various ways. One such tool is banner marketing in which web-based banners, images, pop-ups are used. Then there are search marketing, e-mail marketing and affiliate marketing (an affiliate ad network brings together advertisers and website publishers together and get paid on the basis of number of leads generated from such programme or cost per action or CPA). Lastly, there is co-registration, somebody who is providing tools and services for working in all the five areas and more as a technology platform provider.

We decided to move across the value chain and started acquiring companies in each space. Our first acquisition was in 2006-07 a company called MediosOne, which was our client for almost four years and was in banner and search on the front end. This was followed by a company called Ad Dynamics, also our client for a long period of time and is in pure play banner space. With these two, we got search and banner and then we moved further. The third company was in e-mail marketing, called VoloMP, and then we bought a company called Oridian, which is the largest of all companies acquired by us till date. Besides expanding our business across verticals, these acquisitions have given us reach to the US market, which is the leader in online advertising in the world.

Our growth strategy and objective is to provide an end-to-end solution to our clients, and help them spend their money across different channels of online marketing. Also, a lot of publishers coming to us are getting traffic from the US and other overseas markets as well. So we are planning to have global footprint and we made the two acquisitions this year as part of the plan.

Q. What are the reasons for the Max Interactive acquisition?
This is the sixth acquisition of the company. After Dream Ad acquisition in May this year, which has given us reach across South America, we were trying to enter into Asia-Pacific. Max Interactive is a market leader in the region. It has the largest network in Australia with an online penetration of about 50% in Australia. They have a pretty strong presence locally and have seven million unique visitors and about 1.5 billion impressions.

Specifically, we will benefit in two things through this acquisition-first, we got a presence in Asia-Pacific region to start with and to grow in other countries of the region. Secondly, Max Interactive is already selling e-mail, banners and mobile marketing. So, we can use their strategy in selling our other products as well.

Q. What are the elements that you keep in focus while going for an acquisition?
We have a very simple business model. Our core objective is to help our client to reach maximum online consumers with the cheapest form of advertising possible.

Before acquisitions, we always look for a company which is strategically fit for us. No matter what the size of the company is, but it should give us something that we don’t have. So far we are in the domain of email, search and banner advertising. What we are missing is that on the front end we do not have affiliate marketing and that segment still needs to be filled. We are looking at some options, however, it is yet to take shape and will take sometime from now.

Q. How big is the Indian market vis-a-vis the overseas markets for online advertising?
Worldwide it’s a $40 billion industry and the US market alone is pegged at $20 billion, followed by UK, which is at around $3 billion. The industry is very fragmented right now with a company called ValueClick in the US doing half of the business. India is still in a very early stage as far as online advertising is concerned. India is about a $100-200 million market, but is growing. Our business is mostly outside of India. Around 95% of our business is coming from global markets.

Q. Do you find enough opportunity for your company after the launch of 3G service in India?
The internet penetration is India is happening at a very rapid rate and as a result internet advertising is also growing at faster rate. However, mobile marketing in India has a different story and lot of SMS marketing is happening today. As it is tech based and as more and more people have been graduating to using 3G, I see lot of advertising happening through mobile services. We also do a lot of advertising in India that are mobile based.

Q. Is inorganic growth always a strategy at Ybrant Digital?
Besides inorganic growth, we have been growing organically as well. We will continue to set up new offices, develop new business areas and put up new technology. But sometimes when the market is consolidated at a very rapid rate, it does not make sense to wait and build up the same business organically when the market leader is making $100-200 million revenue. So, in some areas, you have to be very smart and it is better to join hands and use the expertise. That is the key thing.

What we bring to table through acquisitions is efficiency to the company because the DNA of our company is technology as we started as platform provider. So we can even go into some of the very strong companies when we purchase them and improve their efficiency by adding our technology platform. We bring a lot of strengths to each other when we go for an acquisition.

Q. How do you want to capitalise from your global reach?
With the six acquisitions, currently we have a global sales force spread across 16 countries. We can now able to provide our clients, if we enter into affiliate marketing, a presence in 16 countries at one shot. For them to go and expand in these countries will be easier. We are creating a platform, we have men on the ground in all these countries with representatives in almost all the top ad agencies and marketers, which will definitely help us get new clients in future.

Q. Where does the company raise the money for the acquisitions?
Most of the funds are raised through internal accrual, and we also raised around $55 million through private equity and other route. At various stages, we got investors. In 2007 Sansar Capital came in and invested $20 million and again in October 2008, we raised $25 million fund from a Hong Kong based group called Asia-Pacific Capital, which is a GE-backed fund. We filed for an IPO but due to market conditions we had to drop the plans. It looks like the market is coming back. We still need some ore time to take a decision on that. We do eventually plan to list on the stock exchange.

Q. Are you looking at more funding this year?
We are trying to grow at a certain rate and to keep the momentum intact. We definitely need capital essentially to fund the growth of the company. We are looking at PE or will go for an IPO. But we are yet to figure out the amount we would require this year.

Q. What kind of companies you are looking at for acquisitions in near future?
We are looking at right acquisition in affiliate marketing. We are very keen in Chinese market. But nothing is finalised yet.

Q. Any new product to be launched this year?
Yes, definitely. We are looking at launching a new product for the Indian market. It is in test phases and once it is ready, we will launch it.

Q. You have acquired two companies in this economic downturn. Is slowdown a blessings in disguise for your company?
Not exactly. There are two kind of advertising – one is called brand advertising, and the other is performance based advertising. The latter has picked up a lot in the slowdown. We are in a position to quickly adopt the changes and ably manage it. So, a bigger chunk of revenue came from brand advertising. But from the beginning of this year, we have moved to something called CPA (Cost Per acquisition), which is based on customer acquisition or lead generation. It has helped us a lot during the downturn.

Q. What is the Y-o-Y growth rate of the company? We are not very consistent in Y-o-Y, and we are very small and in early stages of development. Sometimes we get around 20 per cent growth as well. In 2006-07, we have grown at highest rate.

Q. What is the roadmap of your company?
It is not about how big you are, it is about the survival. It is a very fast moving market and you have to be on top of the things, and thus you have to make all the right moves. In the next 4-5 years, there won’t be so many players as the consolidation happens. There will be 10-20 major digital marketing firms and we want to be one of them.

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