PaperG brushes off competition from Google, continues to grow profitably

By Michael Carney , written on October 21, 2013

From The News Desk

Any business not advertising online is at a major disadvantage when it comes to reaching today’s consumers. Most small business owners would agree with this sentiment, but many still find themselves on the outside looking in. Most often, this is because they can’t afford to get in the game, not because they don’t want to. Not only do a businesses need to pay for ad placement on the website, social platform, or app of their choosing, but they also need to pay to create (hopefully compelling) display ads in multiple sizes and formats.

PaperG is a San Francisco-based startup created to solve this problem by automating the creation and distribution of display ads. Business is good. The five year old company has doubled in size to more than 50 employees over the last 12 months and is now profitable with just a fraction of the funding of most companies in its industry, according to co-founder and President Roger Lee. The company was recently named the 756th fastest growing company in America according to Inc Magazine, with $7.1 million in 2012 revenue, up 596 percent over the preceding three years.

But despite all the success, Lee and his team got a major surprise when Google entered their category last month with a similar automated display ad builder called “Ready Image Ads.” Lee has a cautiously optimistic perspective on newest product from the ad industry’s 800 pound gorilla, saying that it validates the need for solutions in this space.

“We’ve seen a trend of companies realizing that creative is the major barrier to display advertising,” Lee says. “Google entering the space is a testament to the growing strategic importance of ad creation, since it's the starting point for all ad campaigns and where the dollars flow.”

Google has taken a slightly different approach than PaperG, Lee says, in that it’s targeting individual small businesses rather than media companies and ad agencies that PaperG works with. Also, the Google product only uses content from a business’ website to create its ads, while PaperG pulls in content from across the Web. It may be enough of a differentiation, but then again, it’s Google we’re talking about, the company whose stock just sprinted past $1,000 per share.

Lee and his co-founder, PaperG CEO Victor Wong, are staying focused on serving their customer, something that they feel the large, faceless Google will struggle to do as effectively. This may be a glass is half full interpretation, but it’s the way any good entrepreneur would likely view the situation.

While small- and mid-sized businesses (SMBs) are the ultimate beneficiary of PaperG’s technology, the company doesn’t sell to them directly. Rather, it targets media companies and small creative agencies who work with SMBs as clients or advertisers.

PaperG’s clients include Hearst, Tribune, Time Warner, DexOne, Yellow Pages Group, and MediaNews Group, among other giants, as well as dozens of small- and mid-size agencies. These organizations pay PaperG a percentage of the ad spend driven by its platform in exchange for access to its ad creation and distribution tools. Doing so allows these companies to serve the long tail small business advertisers while still dedicating the bulk of their resources to larger, more profitable clients, according to Lee.

“Google AdWords made search ads accessible to the long tail, but until recently, that still wasn’t the case display advertising,” Lee says. “We think we’ve changed that. Our clients have thousands of small campaigns that they can't monitor and continuously optimize manually, but that they can execute through PaperG.”

PaperG’s ad creation module pulls data and content about the target business from across the Web, including from the company’s website and social media profiles, or from Yelp or other consumer marketplaces. The company uses semantic analysis to grab the most compelling and positive bits from reviews and press coverage, combining this content with images into one of dozens of templated formats to create professional looking display ads.

If the solution stopped there, it would be a nice to have, but not necessarily a game changer. But PaperG also offers ad targeting and distribution by integrating with the leading real-time bidding (RTB) platforms including Google, Rubicon, Pubmatic, and AppNexus. Through the PaperG distribution dashboard, users can choose to target ads according to a geographic radius or other demographic criteria.

With Google encroaching on its turf, PaperG isn’t resting on its laurels. The company is fast at work building out the next iterations of its platform in areas where Google is unlikely to compete. Specifically, PaperG plans to add the ability to create native ads for popular social platforms like Facebook, Twitter, LinkedIn, and potentially others. The company also plans to add a “pro mode” to its existing tools, making available more advanced functionality with the hopes of moving its way up the long tail.

One of PaperG’s tricks for growing as rapidly as it has was to find top talent outside of the costly Silicon Valley market. The company opened a Seattle office late last year and set out to attract employees away from Microsoft Advertising, and other ad-tech companies in the area. The move appears to have paid off as nearly 50 percent of the company is now based in the Pacific northwest.

Lee and Wong have built this rapidly growing business which now supports dozens of employees on just $1.1 million in funding from LaunchCapital, Brian O'Kelley, Mark Potts, and Steve Taylor.

“The funding environment was different on the East Coast in 2008 when we started the business,” Lee says, from the company’s current San Francisco headquarters. “We chose to raise as little as possible, and looked to get to profitability as quickly as possible.”

It’s a refreshing sentiment in an era when most companies raise multiple rounds of financing with only a notional path toward revenue and profitability.

PaperG is a classic case of two entrepreneurs recognizing a problem that affected a large market of people and setting out to address it. Automating ad creation may not be the sexiest business in the world, but it’s one that is appealing enough for Google to dedicate time and resources to solving. It could prove to be PaperG’s undoing or the thing that refocuses the company for the long slog ahead. The fact that Lee and Wong made it this far on the shoestring budget they had leads me to believe they won’t scare off easily.