Outbrain Purges Customers Who Abused Platform, Takes Hit on Revenue

11/20/12Follow @jpruth

It can be easy to make a quick buck in this city, but New York’s rapidly growing Outbrain chose recently to turn down some business that it says cast a pall on its long-term plans.

The six-year-old company, which developed a content recommendation engine, steers its users to online stories and videos from publishers that include Mashable, Fox News, The New York Times, and CNN. Unfortunately, not everyone played by the rules.

Rather than direct users to media they might be interested in, some of the recommended links led to products, e-commerce pages, and marketing pitches. Chief Operating Officer David Sasson says the escalating volume of content fed to Outbrain’s engine led to an unexpected challenge for his company. “It put strains on our ability to editorially filter it,” he says.

Confronted with undesirable links mixed in with useful material, Outbrain says it severed ties with customers who did not measure up to its standards—even though they represented up to about 25 percent of its revenue.

Sasson says turning away those customers was necessary because of Outbrain’s strategy—recommending content that is not supposed to smack of advertising. “If you lose people’s interest, you’re never going to get that revenue back,” he says.

Outbrain is not naming the customers it jettisoned, but Sasson says in some cases a bit of sleight-of-hand was used to sneak in marketing content from advertising affiliate networks. “Sometimes you come to sites that seem to have original content but then you see it’s pushing a product or continuity [subscription] program,” he says.

As more instances caught Outbrain’s attention, the company made changes to its algorithms and increased its editorial scrutiny of recommended links. Sasson would not reveal many details, but he says said multiple customers were identified as transgressors.

Outbrain’s recommendation engine functions through a widget that appears on third-party websites in its network. The widget posts links to the stories the engine guesses readers want to see based on content they have already clicked on. Sasson says the company continues to invest in algorithm development to better automate and understand when users are satisfied with the content they find.

Recommended links may seem like another form of advertising to some critics, since customers must pay to have their content appear. But Sasson disagrees. He says Outbrain judges the content based on how worthwhile and significant it might be for the users.

Sasson says advertising networks, in contrast, tend to generate sales by getting customers to pay high rates for dominant placement on Web pages. “That can give a sugar rush of revenue for them and the publisher but we think users get inured to looking at that,” he says.

Though the purge cost Outbrain a sizable chunk of revenue, Sasson tried to put a positive spin on the situation by talking about deepening relationships with remaining clients. “There was a short-term revenue hit,” he says. “On the other hand we have a lot of companies with content who are able to get more exposure through Outbrain.”

The decision to eliminate nettlesome customers led to a rather frank discussion in Outbrain’s boardroom, Sasson says. The bitter logic behind the choice, however, made sense. The company’s investors include Lightspeed Venture Partners, GlenRock Israel, Index Ventures, and Carmel Ventures.

“They swallowed the medicine the same way we did,” he says, “but if we’re going to be healthy a year or two from now it is the right thing to do.”

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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