Commercial Interest

Nick Grouf is betting that advertising buys from the little guys can amount to big bucks.

By John Heilemann, Business 2.0 Magazine columnist

(Business 2.0 Magazine) -- You don't often meet startup CEOs who introduce their new company's focus with the self-effacing phrase "It's an area that isn't very sexy." Instead they tell you, whether it's true or not, that they're about to change the world.

But Nick Grouf isn't a guy who's full of the standard startup braggadocio - though he ought to be. With two previous startups, Grouf and his partner, David Waxman, were pioneers of the Web 1.0 generation and made millions along the way. Now the two of them are at it again, this time attempting to revolutionize the television advertising business.

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"With Spot Runner, our mission is to be the ad agency for the masses. We probably make more ads in a week than most large agencies do in a year," says Nick Grouf, Spot Runner's cofounder.
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Maybe that doesn't get some folks all hot and bothered, but it sounds pretty sexy to me.

Grouf and Waxman's new outfit is called Spot Runner. Based in Los Angeles, the company uses the Web as a self-service platform to buy, place, and distribute local cable-TV ads. If that seems like a marriage of Google's AdWords to the world of video, it's because that's precisely what it is.

"Our mission is to be the ad agency of record for the little guy," Grouf says over drinks in New York, where he's come to schmooze the poobahs of Madison Avenue and the media business - many of whom are mighty impressed with Spot Runner. Last fall the firm secured $40 million in financing from Lachlan Murdoch (son of Rupert), CBS (Charts), and two of the world's biggest advertising conglomerates, WPP (Charts) and Interpublic Group (Charts).

While such marquee backers don't ensure success, and Spot Runner is racing into a realm that's going to be brutally competitive, it has a head start and distinct advantages that make it hard to beat.

What attracted Grouf and Waxman to local TV advertising isn't immediately obvious, for their first two startups were straight-ahead technology plays. First there was Firefly, a trailblazer in personalization on the Web that was sold to Microsoft (Charts) for a reported $40 million. Then came PeoplePC, which sold computers bundled with Internet service for a bargain price and was bought by EarthLink (Charts) for $10 million.

"What's common to all our companies is a commitment to democratizing access," Grouf says. "With Spot Runner, we want to give any business access to a medium that historically has been the province of only the largest and most powerful brands."

The Spot Runner team started three years ago by talking to small businesses about TV advertising. What they learned, Grouf says, is that these companies considered TV "the grail" but far beyond their means. Then Grouf's people told them the truth: "You can buy 30 seconds of prime time on a premium network in almost any local market in the country for less than $200. Outside the top 10 to 15 markets, it's less than $100. Outside prime time, it's less than $50."

The small-business owners were wowed, but said it didn't matter - they could never afford to create the ads.

So Spot Runner set about doing it for them. The company began by breaking down the 15 million U.S. companies into more than 4,000 categories. Then it produced multiple generic TV spots to cover each of them. Today, Spot Runner boasts a library containing "thousands and thousands of ads," Grouf says. "We probably make more ads in a week than most large agencies do in a year."

This video vault is what clients find when they arrive at the Spot Runner site. After choosing an ad, the client customizes it with its name, logo, and store- front picture - and then Grouf's people take over. They buy the airtime, place the ad, and report when it runs.

"Our goal is to offer a friction-free environment," Grouf says. "Everything has to be easy."

And also cheap. To produce an ad, a traditional agency would charge thousands of bucks; Spot Runner's ads cost $500. (Spot Runner also takes a commission on the media spend.) Meanwhile, because the ads run only in the precise micromarkets the merchant cares about, "it's hugely efficient because there's no wastage," Grouf adds.

You might expect ad agencies to object out of pure self-interest, for Spot Runner seems to be trespassing wantonly on their turf. But Grouf says the agencies rarely squawk.

"It's hard for them to make money doing hyperlocal stuff," he says. "It's easy to call CBS and drop $2 million in 10 minutes - but to spend $2 million locally could take a couple of weeks and 10 or 12 people to get it done."

Why are the monster agencies backing Spot Runner if they don't care about local? Because their clients increasingly do. Consider the Warner Independent arm of Warner Bros., which hired Spot Runner to help roll out the movie The Painted Veil in 18 markets by running the spots only in areas where it screened and on channels consistent with the film's target demographic. Grouf and the folks at Spot Runner are proud of that deal and others like it.

But isn't the bigger disruptive opportunity exploding the old TV paradigm, la YouTube, rather than innovating within it?

Grouf allows that this is true but argues that Spot Runner is poised to play a role in that explosion too, that it's readying itself for an incursion into online video, video-on-demand, and Internet television. "Ultimately, Spot Runner is absolutely agnostic as to medium," he says. "Today it's local TV; tomorrow it may be a [radio frequency]-triggered ad that pops up on your handheld when you pass the corner florist. Anywhere that advertisers believe they can get a return on their video ad dollars, that's where we're going to be."

For the moment, Spot Runner has the field all to itself, but Grouf is aware that this is a temporary condition. In particular, Google (Charts) is expanding its ad network into radio and newspapers; video can't be far behind.

But Grouf points out that Spot Runner has not only its vast library of ads but also a deep knowledge of the byzantine structure of television advertising around the country. "In the first boom cycle, a lot of people thought it was better to be lucky than smart," he says. "We're betting that, this time around, it's better to be smart."

And, he might add, early.

As Grouf gets up to leave, I sit there wondering if his outfit is as impressive as it seems. So I shoot an e-mail to my pal Fred Wilson, the brainy venture capitalist. "Do you have an opinion of Spot Runner?" I ask. "Yes," Fred replies, confirming my assessment. "That we should not have passed on that deal."

John Heilemann wrote "Pride Before the Fall." His next book is "The Valley." He lives in Brooklyn. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.