from plunging advertising sales, Covario reports that online spending for paid search advertising remains robust—despite the global economic crisis.
Based on an analysis of 12 of its U.S.-based high-tech and consumer electronics customers, Covario found spending on global search advertising increased 43 percent during the last three months of 2008, compared to the same period in 2007. Spending during the fourth quarter also grew sequentially, by 7.2 percent, over the previous quarter, Covario recently reported.
“We were actually surprised by that,” says Craig Macdonald, Covario’s vice president of marketing. “Everybody was saying that Google’s growth was going to slow down.”
Macdonald says spending for search engine advertising probably continued after the credit crisis erupted in September because companies were already committed through the holiday season. It now appears that search engine advertising has retracted, and he estimates spending for the rest of 2009 will be flat to just 5 percent growth over 2008.
Until this year, though, the overall global market for paid search marketing has expanded dramatically—from about $500 million in 2001 to an estimated $20 billion this year.
Mann says the key advantage of search engine marketing is the mathematical precision with which software analytics can be applied to online transactions. Unlike advertising in conventional media, he says, “It’s not about arts and crafts for business professionals. It’s all about the math.” The company even derived its name by combining “covariance,” a mathematical term for the statistical measure of the variance between two random variables, with the sigma symbol (σ), which is used to indicate one standard deviation from the mean. (As an aside, Mann sees the flourishing concentration of software analytics companies in San Diego as a development that could differentiate the region amid the innovation economy nationwide.)
He attributes Covario’s mathematical underpinnings in particular to co-founder Zlotin, “a brilliant visionary” who is now vice president of strategic services. Zlotin had developed what Mann describes as a “search engine marketing management system” as a co-founder of Silicon Space, a San Diego provider of customized, Web-based enterprise software.
Zlotkin’s product was spun out from Silicon Space in 2006 as a separate company then known as SEMDirector.The co-founders bankrolled their startup with roughly $6 million in venture funding, which came initially from Dubilier & Co., a Stamford, CT, private equity firm, and later from Seattle-based Voyager Capital. The two investors joined in a secondary round of $16 million that was led a year ago by FT Ventures, a fund based in San Francisco and New York that specializes in software developed for the financial services industry.
In an email yesterday, Voyager’s Erik Benson says he met Mann in 1997, after he had moved to Seattle and Mann was working for what was then a promising startup called ONYX Software. They kept in touch after Mann left for San Diego a year or two later for a succession of jobs at software developers HNC, Fair Isaac, and Peregrine Systems (where Mann helped rebuild Peregrine following its 2002 bankruptcy). When Mann approached Voyager in 2006, he knew Voyager had previously invested in Seattle’s Avenue A, an interactive advertising and analytics startup. Avenue A later changed its name to aQuantive and went public through an IPO—and was acquired by Microsoft in 2007 for $6.4 billion.
“When Russ pitched me on Covario in early 2006, his pitch was very reminiscent of the factors that created and drove the growth of Avenue A,” Benson wrote. “I like how Dema and Russ are focused on the fundamentals of building a real business, not a momentum chasing business. They provide real value to customers and partners, and generate a profit, which is nice for Covario’s shareholders, especially in today’s difficult times.”
