Spongecell, Backed by Eric Schmidt, Squeezes Social Media and Video Into Banner Ads

8/30/11Follow @jpruth

Ben Kartzman wants banner ads to do more than sit and wait to be clicked. As common as that mode of marketing has become, he believes his company, Spongecell, can more efficiently engage the public by weaving rich content—video, social media, or interactive features—into typically idle ads.

“We don’t think static ads should exist anymore,” says Kartzman, CEO and co-founder of Spongecell in New York.

A heavyweight in the online world seems to agree with him. In June, Spongecell raised an undisclosed amount in a Series A2 round led by Eric Schmidt, executive chairman of Google. The recent funding is helping to expand the technology and sales staff at Spongecell, according to Kartzman. Other investors in the round included Jim Pallotta, chairman of the Raptor Group; Brian Rooney, who serves on the board of directors for the Pittsburgh Steelers; and SilverHaze Partners.

Five-year-old Spongecell adds functions such as Twitter feeds and rotating deals to banner ads for more than 200 brands such as fashion label Emporio Armani, ice cream maker Ben & Jerry’s, and automaker Volvo. Features embedded into the ads include video, streaming audio, and connections to social networks. For example, Kartzman says consumers watching video within these ads might pause the content and download a coupon from the brand.

Though Spongecell’s latest funding was not huge money-wise, according Kartzman, support from investors such as Schmidt lends credence to the company’s plans. “He understood where we were coming from, exactly what we were trying to build, and got pretty excited about it,” Kartzman says.

Other investors in Spongecell include Halo Venture Partners, The Interpublic Group of Companies, and the Pilot Group. Spongecell raised a Series A round in 2007 and an add-on in 2008, Kartzman says. The company is profitable and on track this year to more than double its 2010 revenue of $3.8 million, he says. Spongecell may not immediately seek more funding, though the right opportunity could change that strategy.

Spongecell has weathered its share of challenges. In 2006, the company started out with a widget platform, Kartzman says, that advertising agencies could use to promote sales at stores and other special events. Kartzman previously served as a manager at Accenture and graduated from Carnegie Mellon University in 2000 with dual bachelor’s degrees in human computer interaction and information and decision systems. Though Spongecell attracted some business and funding, it was not enough. Agencies wanted ads, not widgets. “We were nowhere near profitability,” Kartzman says.

Kartzman says his company became profitable shortly after pivoting.

By late 2008, the company ran out of money and eliminated most of its staff of 17. “We scaled back to the original founding team [of four] plus one guy,” Kartzman says. The company pivoted in 2009 with a new strategy to bring social media and other rich content to banner ads. Spongecell shut down its widget platform but salvaged its analytics engine. Kartzman says the company became profitable in April of that year and began to replenish its ranks. It currently has a staff of 40 and is hiring in engineering, sales, and operations.

Though Spongecell is currently focused on ads for traditional Web pages, Kartzman says the company is also developing a way to bring the ads to mobile devices. “We’re building a platform that will allow brand advertisers to create an ad once and then run it everywhere,” he says. That includes letting customers build their own ads to run at the beginning of online videos. “Soon after that we will launch our ‘mobilet’ strategy,” he says, referring to ads customized to operate on mobile and tablet devices.

Kartzman says the buildup of online video offers a familiar medium for traditional advertisers acclimated to television ads. “No one was used to working with an ad people could click on,” he says. “[Video] is a medium that advertisers understand and have lived with for a long time.” Spongecell, he says, plans to develop ads for video tailored to consumers’ locations and other data. Kartzman believes video and social media will continue to grow into dominant mediums for online advertising.

“That’s where we see the world heading,” he says.

João-Pierre S. Ruth is the editor of Xconomy New York. He can be reached at jpruth@xconomy.com and followed on Twitter @jpruth. Follow @jpruth

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