Email Is The Godfather Of Native Ads, So TellApart Makes AdStack Its First Acquisition

It’s dark days for email marketing. Gmail’s new tabbed filters are hiding messages from brands. Email promotions have to be highly personalized in order for opens to equal clicks and conversions. TellApart wants to sell that personalization, so today the four-year-old, big-data, ad tech player announced its first acquisition: email targeting, A/B testing, and personalization startup AdStack.

In cash and stock, buying AdStack and six of its employees cost TellApart in the single-digit millions, the company tells me. It can afford it, since TellApart is both profitable and has raised $17.75 million over three rounds from SV Angel, Greylock, Bain Capital Ventures, and angels including Twitter CEO Dick Costolo, LinkedIn founder Reid Hoffman, and ex-eBay VP Michael Dearing.

In fact it was mutual investor Dearing who introduced TellApart CEO McFarland to AdStack CEO Evan Reiser.

TellApart was launched in 2009 by McFarland and Mark Ayzenshtat who spent five years building the core infrastructure of Google’s ads business. They’d found Google’s weakness: it’s not sure of when you buy things online or offline; it has to guess. Meanwhile, McFarland says he discovered that “retailers are as scared of Google as they are of Amazon. It controls a lot of their traffic and a lot of their livelihood. They don’t want Google to know any more about their sales.

So McFarland and Reiser left to create an independent data platform to help retailers “tell apart” low-quality leads from people likely to buy something. By applying big data and machine learning to online and offline purchase data, TellApart devised a way to target personalized, relevant ads to high-potential customers.

When people came to a TellApart-powered site, it could analyze their browsing history and shopping patterns to optimize ads and offers. For example, if someone came to Neiman Marcus’ site, seemed to have been to expensive shopping sites before, and were browsing pricey items, TellApart could determine they had a high lifetime value to the business and were worth offering an initial discount.

TellApart learned to serve retargeted display ads and dynamic offers, was one of the first companies running on Facebook’s FBX retargeted ad exchange and putting those ads in the News Feed, and took advantage of Facebook’s CRM-based Custom Audiences ads.

The kicker is that TellApart doesn’t sell impressions or even clicks. Its business model only sees TellApart get paid when people delivered by its ads buy something from its clients. That’s helped it turn 50 of the top retailers into its clients, including Warby Parker, Brookstone, and One Kings Lane.

But there was still a big piece missing. Clients were using email to drum up traffic, not just ads. It’s a tough channel, though, because email has fallen victim to the tragedy of the commons. Anyone can send it, so everyone does, and overloaded recipients become fatigued and disinterested.

“Retailers, spammers, social networks, even my family forwarding jokes — the resource gets trampled and becomes much less valuable to everyone,” McFarland tells me. Brands need a way to stand out. That’s what AdStack does by making bulk emails less cookie-cutter. It figures out who the recipient is, fills the email with products they’ll actually want, and A/B tests designs and targeting. So TellApart bought it.

Together, they’ll use TellApart’s big data background to make email marketing even more effective. “Email truly is the godfather of native advertising — commercial messages designed to be consumed as content,” says McFarland. The combined company’s goal is to help businesses augment that one-size-fits-all content, like a “6 Reasons You Need A Juicer” email with suggestions of other appliances the recipient might want.

Personalization won’t necessarily help TellApart’s clients escape the Gmail Promotions filter. That could be a problem if the startup extends its “only pay when you earn” pricing model to email. The startup is also at risk as Google attempts to shift the industry away from standardized cookies to its own proprietary browsing tracking system.

At the same time, though, retargeted social advertising is growing fast thanks to Facebook and Twitter, and it’s one of TellApart’s specialties. As businesses come looking to optimize ads in our news feeds, TellApart could convince them to invest in one of our oldest feeds: the inbox.

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