The current online advertising powerhouses - Google, Yahoo, Microsoft and AOL - have been forced to sit up and take notice of technology start-up OpenX that delivers online advertising to web publishers.
OpenX, based in Pasadena, California, and run by Tim Cadogan, a British-born industry veteran and ex-chief of Yahoo's search business, has announced another $10 million in venture capital funding as it rapidly expands its reach.
Silicon Valley venture capital firm DAG Ventures has joined the backers of OpenX, leading a series C funding round of $10 million that takes total investment in the company to $31 million.
OpenX recently launched an online ad marketplace to make it easier for smaller Web publishers and advertisers to find each other, and help smaller, niche publishers to maximise their advertising revenues. Mechanisms to link advertisers with online properties are still developing, but have been made more difficult by an explosion in the number of websites.
Advertisers are faced with an explosion in the number of Websites run by small publishers, some of whom have valuable niche audiences, while the publishers often find it hard to get the best value from ad platforms run by the likes of Google.
OpenX runs more than 300 billion internet page impressions a month through its software from a network of about 150,000 websites. In terms of volume, this puts it in the same league as Google's DoubleClick.
OpenX, formerly known by a succession of other names, including Openads, has developed its ad server through the open-source developer community over nine years, and has raised $20.5 million in two earlier rounds of funding.
The company said it had experienced rapid growth despite the sudden slowdown in online advertising brought on by the recession: the latest version of its free ad serving software, OpenX 2.8, has attracted more than 3,000 active users and a monthly run rate of more than 10 billion impressions in the six weeks since its launch.
Apart from DAG Ventures, existing investors Accel Partners, Index Ventures, Mangrove Capital, First Round Capital, and Jonathan Miller, the company's board chairman, all participated. Miller is also the chief executive of Digital Media at News Corp, the parent company of The Times.
OpenX said it would use the additional funds to expand its technology products and services and to accelerate the growth of the recently launched OpenX Market.
OpenX's new platform stages real-time auctions for online advertising spots, allowing publishers to receive bids until the last second. It appeals mostly to smaller publishers. OpenX Market has a monthly run rate of more than two billion impressions since its April 2009 launch, but with 300 billion impressions running through OpenX software overall, it has room to expand and become profitable, according to Cadogan.
Cadogan sees better times ahead
Cadogan, who spent five years at Yahoo till he joined OpenX as chief executive a year ago, said that the company's community of more than 38,000 publishers powers more than 150,000 websites and that OpenX products are used in more than 100 countries and have been translated into 25 languages by community contributors.
He oversaw the relocation of the company's headquarters from London to California last year and has focused the company on building revenue streams. OpenX makes money from professional services for publishers, premium support packages, premium hosting services and the new Market service.
He said it was important for web publishers to have an independent ad server to turn to as an alternative to the big names. He added that there is increasing optimism that the worst of the economic downturn is over, and that online advertising will see a return to higher growth.
Google's DoubleClick ad server is OpenX's main rival. Google bought the company for $3.1 billion in 2007, as part of a multi-billion-dollar wave of ad-server company acquisitions that included Microsoft and AOL buying aQuantive and Adtech, respectively.
''OpenX is demonstrating that combining a unique business model with a widely adopted open-source product can provide the basis for a company of significant scale,'' said Nick Pianim, managing director, DAG Ventures.
Cadogan said he believed those publishers who could survive the next year or two would have many more possibilities to make money out of their online offers than they currently do. "I think we're on the cusp of a renaissance in online advertising outside of search," he said.