Strategy and Tactics: How Active Network’s CEO Uses Innovation to Fuel Growth

8/12/11Follow @bvbigelow

On the day after the San Diego-based Active Network reported its first quarterly financial results as a publicly traded company (NYSE: ACTV), CEO Dave Alberga was looking satisfied as he fielded questions in his office.

The Active Network had just posted its first-ever profit—$5.5 million for the second quarter ended June 30. The company  increased its second-quarter revenue to $99 million—a 21 percent gain over the same quarter last year. The company also has accumulated more than $157 million in available cash, and erased its debt of more than $40 million with some of the proceeds from the $148 million the company raised in its May 25 IPO.

Not bad, especially if you consider that this hot growth enterprise was founded 14 years ago—which practically qualifies for AARP membership in Internet years.

The Active Network provides Web-based services for the companies, organizations, and government agencies responsible for putting on triathlons, sporting events, recreation leagues, and other competitions. It also handles camping reservations, hunting and fishing permits, conferences, and major corporate events, providing a range of comprehensive services that range from online registration and transaction processing to marketing and communications. During the just-ended quarter, the company processed 22.9 million online registrations, a 7 percent increase over the same quarter last year.

Dave Alberga

Increasingly, the Active Network also counts itself as an online media company that serves millions of active people who are looking for things to do. The company not only builds online communities of people who share the same interests, it also amasses data that show precisely how they share their interests. In this way, the company can offer advertisers access to millions of engaged consumers.

“We’re going after a space that we think is a $10 billion space that’s completely unaddressed,” says Alberga, who was wearing blue jeans and a blue bike mechanic’s work shirt—the company’s homage to triathletes and competitive bicyclists everywhere. (Alberga, a former U.S. Army platoon leader and erstwhile triathlete, also has a framed U.S. Postal Service jersey signed by Lance Armstrong hanging on the wall near his desk.)

Yet the $10 billion market that Alberga has targeted has only become apparent in recent years. Before the advent of software-as-a-service (SaaS), Alberga says, “It was impossible to address as large and fragmented an audience as we’re addressing today, with the disparate needs these subverticals have.

“Saas hasn’t been around that long, but we’re kind of launching a third-generation SaaS product that allows us to essentially leverage this shared platform of services across products that in the end have very different features and functionalities.”

With most of the Active Network’s customers using most of the company’s shared online services, its software development teams can focus on the specialized needs of small groups of customers. That has allowed the Active Network to expand and diversify its customer base, and to provide services to smaller customers more rapidly.

For example, the Active Network acquired Fellowship Technologies for an undisclosed amount earlier this year. The company, based in Irving, TX, provides SaaS technology needed for church management and ministerial services to more than 1,700 customers.

That’s an acquisition that would not appear on its face to be well-aligned with the Active Network’s core market of sporting events and outdoor activities. However, says Alberga, “If you look at a very large faith-based organization, it actually looks and behaves not unlike a parks and recreation department. They have facilities. They have activities. They have members. They have fees. Really the data management problem is a very similar problem that we’re solving.”

While Fellowship Technologies can share many of the core services that Active Network provides to its customers, Alberga says the company also has been making a huge investment in developing more specialized technologies.

“If you look at anything that’s written about us, everyone wants to know why we’re spending so much on technology,” Alberga says. “Last year we spent 22 or 21 percent of our revenue on technology.” The Active Network’s long-term model calls for spending 15 percent of revenue on new technology development, which is closer to the industry average, he says. “But not until we have the [capabilities] in place that allow us to innovate much more rapidly than anyone else, and to serve our customers much more rapidly and profitably. That’s kind of the big investment that we’re making, which drives a lot of what we’re doing here.”

It’s also an investment that seems to leave room for more buyouts, an assumption that Alberga doesn’t dispute. “It’s reasonable to expect us to build on our organic growth by continuing to look for acquisition opportunities,” he says.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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