How AppNexus CEO Became the King of Ad Tech
Image: David Yellen for Forbes
mployees at AppNexus, a bustling advertising technology firm near New York City’s peaceful Madison Square Park, don’t often interact with the boss. The five-year-old company, with 547 employees, has been growing too fast for that. Plus, its 6-foot-5, 240-pound CEO, Brian O’Kelley, can be, well, a bit irascible. Office folklore has it that he once threw a stapler at a software engineer. (O’Kelley vehemently denies that version, saying it was a tape dispenser thrown on the floor with no employees present.) And he was forced to resign from his previous job for clashing with the boss and being hard to work for.
On a recent Wednesday O’Kelley confessed to Forbes that one of his staffers had earlier that day burst into tears after a project meeting with him. O’Kelley says the tears came from personal issues, “but I was thinking, ‘Oh God, I’m sensitive to my reputation.’ I know the impact I have on people.”
O’Kelley can be overbearing, and friends say he’s mellowed a bit, but people put up with him and invest millions in him because he’s arguably the most brilliant software engineer in New York’s brimming ad-tech community. He’s known as the inventor of ad exchanges, the massively interconnected bidding systems that account for a growing portion of sales of web banner and rectangle ads.
AppNexus servers process 16 billion ad buys per day and handled an estimated $700 million in ad spending last year, giving it the biggest reach on the open web after Google.
Yahoo and Facebook run bigger exchanges, but they primarily sell their own inventory. But AppNexus’s technology is widely regarded as the fastest and most flexible out there. If there’s an exchange that can rival Google in the $13 billion market for web display ads—and everyone in the industry wants alternatives—it’s AppNexus.
“I believe there will be a natural duopoly in the ad exchange space instead of eight or nine players,” says Bill Wise, CEO of ad infrastructure firm Mediaocean and former president of ad network Right Media. “The two that will emerge are AppNexus and Google.”
AppNexus will take in an estimated $130 million in fees this year, up 85 percent from 2012. Ebay, Microsoft and Facebook are all big partners. The company is not yet profitable but has raised $140 million in venture capital to invest in new products and global growth. In January it was valued at $625 million; now it’s likely closer to $850 million. After Tumblr it’s among the most valuable private firms in New York’s Silicon Alley. And it probably would not have happened had it not been for the sizeable chip on O’Kelley’s sizeable shoulder that spurred him to prove doubters wrong.
In less than a generation the ad-tech industry has gone from the equivalent of manual placement of banner ads on web pages to continuous auctions in which hundreds of ad-serving decisions are made in the milliseconds before a page loads. The lion’s share of banner ads (as opposed to the much larger search-ad market) are bundled into networks that apply the relevant user-targeting data. These groups of networks in turn form exchanges, giant pools of liquidity allowing publishers to sell their inventory faster and buyers to get a fairer price. The primordial ad-serving tech was created by DoubleClick in the mid-1990s, a firm sold for $1.1 billion in 2005 to private equity firm Hellman & Friedman and eventually to Google for $3.1 billion in 2007.
The most valuable descendant of Double-Click to date has been Right Media, founded in 2003 by DoubleClick executive Michael Walrath (and sold to Yahoo in 2007 for $850 million). Right Media commercialised the first big ad network, but started out as a glorified sales desk. Walrath needed a chief technology officer to build his automated ad network, and he found a brash young consultant and programmer named Brian O’Kelley.
O’Kelley built Right Media’s network but was soon interested in the newer idea of connecting networks to form exchanges. In 2005 O’Kelley hatched a plan to license a version of Right Media’s network to an Israeli software firm called Cydoor so it could bid from within Right Media’s own network. “The first time an auction connected across the two, I shouted, ‘Eureka!’ and no one had any idea what I was talking about,” O’Kelley says. (He calls himself “100 percent” the sole inventor of the exchange; others say Right Media’s management team had joined in the idea.)