'The market basically flipped on us in a six-month period': Why mobile-ad company Kargo decided to blow up a $100 million business

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A few years ago, the mobile-ad company Kargo had built a solid $100 million business selling mobile banners to big publishers.
Programmatic ad buying was slower to come to mobile, the company says. Then, last year, "it slammed us."
The sudden shift forced the company to morph from an ad network to an ad-tech company, which meant turning over a chunk of its staff.

The mobile-ad company Kargo closed out 2015 crossing the $100 million revenue threshold. A few years later, the company decided to blow everything up.

Kargo made its name building an ad network that sold a variety of custom mobile banners for publishers such as CNN, but over the past six months it's deliberately ripped up its business model. Instead of selling ads on a deal-by-deal basis, it has raced to morph into a software-driven ad platform.

That's meant turning over a significant portion of staff — less than 15%, according to CEO Harry Kargman — to replace traditional ad-sales executives and operators with engineering and data-oriented talent.

Indeed, Kargo has essentially endured what many digital publishers have gone through: It's had to ditch old-fashioned people-centric ad selling for building technology that allows marketers to plug in and buy ads as needed.

"We had a great high-end business, and in 2017 the market basically flipped on us in a six-month period," Kargman told Business Insider.

Kargman said he'd braced for programmatic advertising to affect his company for a few years. But given its mobile-ad focus, where ads and data and targeting don't operate mechanically the same way they do in the desktop world, things moved slower than expected.

Then things changed fast last year, and Kargo had to go through this reinvention in a truncated period, he said.

"We’ve been ready and waiting for this day," Kargman said. "Because there is this massive transformation taking place [in digital media]." Then mobile-ad-buying tech suddenly caught up. "It slammed us."

Kargman said Kargo's ad revenue was still 90% directly sold a year ago. Today, it's 50-50, programmatic versus direct, thanks to the company building its own custom supply-side platform, or SSP.

Among the brands that have been tapping into the Kargo SSP are Target, Microsoft, Verizon, Discover, and Unilever.

"After testing the approach, we've been able to scale our investment over the past few years due to strong results," Luis Di Como, senior vice president of global media at Unilever, said.

Last year, Kargo saw a just over double-digit decrease in its traditional ad-network business, while its automated ad demand tripled, despite having to work through a "whole host of plumbing problems."

Kargo has been pivoting its business while trying to move past legal headaches

Looming over Kargo's business shift has been an ugly lawsuit. A former Kargo sales executive was awarded $40 million last year after alleging that she faced wage discrimination at the company.

Kargo executives have contended that the employee in questions had faced performance issues.

Kargman lamented that the lawsuit happened, but said the company was not in the wrong and that the recent layoffs had nothing to do with the payout.

"Any time that you’re in a lawsuit it is tough," he said. "It's sad, and we're glad it's behind us. We legally don't believe we did anything wrong. But I personally take responsibility."

Kargman said that in hindsight he wished the situation could have been handled without human resources and lawyers. "We could have had better bedside manners."

Becoming an engineering company

Even though Kargo has had to let go of staff — and reduce its footprint in Europe, thanks to GDPR, according to The Drum — the company has 15 jobs open, mostly in the data and analytics realm, Kargman said. The company is closing in on 250 staffers, including 70 in its engineering and product team, up from 30 a few years ago.

"We had to change up the constitution of the people here," he said. That has included hiring Edric Chan, who just joined Kargo as its head of programmatic, after a similar role at the ad-tech firm The Trade Desk.

"We just had our largest-ever fourth quarter last year," said Kargman, adding that Kargo's revenue is now significantly north of $100 million. "This move says that we’re committed to figuring out to best serve our customers, and how to scale this business. Edric can actually take it and run with it."

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