A True Story about Dave, how a switch in business models led to his company being bought by AOL
Dave had previously founded an ad server company, and he had seen the need for better targeting of display ads on the Internet. His idea was to build a companion to an ad server that could collect behavioral data and target display ads to the people who actually wanted to see them. This became known as behavioral targeting. The business model was to sell the behavioral targeting engine to publishers who would then sell the behavioral segments to their agency customers.
The software cost between $10k a month and $20k a month. Dave closed a few big deals early on and got validation of the product and the market from that. But it got harder and harder to close these deals as publishers were wary of coming out of pocket big dollars on a new technology that they weren't sure would help them make more money.
After six or nine months of disappointing numbers, Dave said the team is "working too hard and not getting anywhere." He suggested that the company try a new business model in which it would operate the targeting engine in the cloud and sell the advertising in an ad network model and then share the revenue with the publishers.
Dave slowly but surely pivoted the company into an ad network. And once the business model pivot was completed, revenue took off. In less than three years after the business model pivot, the company was doing $50mm in revenues and was bought by AOL for $275mm.
The moral of this story is sometimes you have the right product but the wrong business model. Fixing the business model can fix the company.