Online ad start-up takes on Google with open source model

Valerie | 27 May 2009, 10:29

An online advertising firm start-up is hoping to take on the likes of Google, Microsoft and Yahoo after announcing this week that it had raised $10 million in a third round of financing, reflecting increasing market optimism that online advertising will return to higher growth.

OpenX, based in Pasadena, California, and run by British-born former Yahoo!  executive Tim Cadogan, offers advertising software and tools to thousands of online publishers. It currently oversees an advertising network that receives more than 7.5 billion impressions each month, putting it on a par with Google subsidiary DoubleClick in terms of volume.

The Washington Post points out that the extra financing is coming from a new investor which is increasingly rare in these troubled times . DAG Ventures, the European venture capital group best known for investing in Skype led the round with existing investors Accel Partners, Index Ventures, Mangrove Capital , First Round Capital and the recently appointed new Chief Digital Officer of News Corp. Jonathan Miller participating.

The company has experienced rapid growth despite the sudden slowdown in online advertising brought on by the recession and has raised $20.5 million in two rounds of funding so far.

According to Cadogan, the company’s success is down to its business model - OpenX offers its open source software for free to most users, but charges high-end clients and offers support services to companies and individuals who use it. The fund raising will, Cadogan believes, aid OpenX’s expansion and follows the launch of its new advertising exchange, which is expected to transform its revenues and help it capitalise on the thousands of companies currently using its service for free.

In addition, Cadogan points out the market potential in ad sales for smaller, independent publishers. Its recently launched OpenX Market is positioned as a mid-market platform that is simpler than Google’s DoubleClick Advertising Exchange and Yahoo ’s RightMedia Exchange and has already attracted more than 3,000 active users in the six weeks since its launch.

Nick Pianim, managing director, DAG Ventures told the Times:

“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.”