Airport Internet

There’s more than one way to skin the startup cat. Most young companies raise several rounds of private capital, build toward a mythical hundred million or even billion dollar valuation, and then, if everything goes exceptionally well, eventually go public through an IPO.

MediaShift is a small two-and-a-half-year-old ad-tech company based in Irvine, roughly 40 miles south of Los Angeles, that took a far different route: it’s already public, with a market cap of just $10.26 million.

The company, which trades on the over the counter bulletin boards market (OTCBB) – a sort of minor leagues to the NASDAQ and NYSE – is the product of an August 2012 reverse merger between distributed ad network startup AdVantage Networks and public shell company JMG Exploration. (MediaShift is still in the process of changing its name and currently trades under the symbol JMGE.)

Atypical as this is, the primary reason companies go public early is to access a wider range of financing options and to use company stock as a currency for acquisitions. Right on cue, today the company announced the acquisition of Travora Media, which is the world’s second largest travel display advertising network behind TripAdvisor, according to MediaShift president Brendon Kensel.

“We are now positioned with the three legs of stool: advertisers, publishers, Internet network providers,” Kensel says. “We’re building the largest last-mile ad platform with a massive install base.”

Well, it sounds good, but what the hell does it mean?

AdVantage provides ad targeting technology to the operators of private Internet networks, such as those in airports, hotels, and cafes. Data collected by AdVantage during the network signup process and throughout browsing allows it to segment users of the private networks and optimize performance advertising.

The company serves primarily post-authorization display ads, rather than the pre-authorization surveys and videos many networks serve before granting access – you may have seen these the last time you were at the airport. MediaShift uses its knowledge of a user’s location and online behavior to programmatically target and buy interstitial video and “in margin” display ads.

Travora, on the other hand, currently represents 300 travel publishing sites, such as Fodor’s, Viator, and Vayama, which collectively see 30 million unique visitors per month. According to a press release on the acquisition, Travora generated $11 million in revenue in 2011.

Prior to the acquisition, Travora raised $30.5 million across three rounds of venture financing from Village Ventures and Rho Capital Partners. AdVantage raised an undisclosed sum of private capital prior to its reverse merger, according to its president. While the terms of the transaction were not disclosed, Kensel described it as a mixture of cash and stock, and as “a positive and productive transaction for everyone involved.”

Combined, AdVantage and Travora become a sizeable on-the-go audience platform with access to travelers across multiple points in the travel lifecycle, including trip planning and booking, in airports, in hotel rooms, and on-the-go.

AdVantage’s current team of 21 employees will continue to focus on selling into the network provider channel, while managing the combined the company’s technology group, explains the newly-hired president. Travora’s existing team of 20 will manage ad sales and ad operations for entire company. One strategic benefit of the acquisition is that AdVantage gets this ready-made sales force, rather than having to build it organically, something that was on its roadmap for 2013 and 2014.

If the company can track traveler behavior from booking to experience and serve them with ads at various points within that process, there’s a significant opportunity to drive purchase behavior. If a user looks up flights to Hawaii, they may be served with ads for local hotels. When they get to the airport a few months later, the company can identify the user based on previous search activity and serve ads for helicopter tours and snorkeling. Similar ads might be served while the visitor is on the hotel Wi-Fi network and that of the local coffee shop.

The company’s knowledge that a user is on vacation, or will be soon, is key to targeting its advertising. The long-term vision for MediaShift is to expand beyond travel and hospitality into other lifestyle and “on-the-go” categories and locations, such as gyms, conference centers, and food service locations.

Consumers are never fond of being targeted with ads, but MediaShift may be less offensive than most. First, users generally concede to some form of advertising in exchange for free access to the Internet. Similarly, the least intrusive ads are well-timed offers for things that consumers actually want and need. If the company can properly target its users, it has the opportunity to actually add value when serving its ads. Imagine that, ads that add value.

Kensel is adamant that the combined companies will continue to operate as a startup, despite their growing size and the fact that they’re publicly traded. Being public may have a few disadvantages in terms of “publishing our playbook once a year,” concedes the president. On the other hand, this latest transaction is a clear illustration of how he plans to leverage the public markets and the company’s stock as a financing vehicle.

As content consumption increases – due primarily to online video streaming – it’s getting more and more expensive for private network providers to deliver access to consumers. Following today’s acquisition, MediaShift is now even better positioned to capitalize on this dynamic by offering network operators attractive monetization opportunities.