October 16, 2007

Community is top priority in monetizing open source Openads

Author: Tina Gasperson

Openads, formerly known as phpAdsNew, is one of the more successful open source development projects. Its online advertising software is used by many thousands of domain owners who want to make a profit on their Web content by selling advertisements. Scott Switzer, the project leader, recently went commercial with the project, securing $5 million in venture capital and a new CEO straight from Skype. The key to the company's success? "I have really seen the value in what a community can give to a software project," he says.

Switzer used to work for Unanimis Consulting, a large ad space agency based in the United Kingdom. Today, he does work for them through Openads. Unanimis, Switzer says, is very much like Federated Media. It represents publishers such as eBay, Ticketmasters, and the BBC, selling Internet ad inventory on their behalf. "[At Unanimis] we realized a lot of our profits were going toward the ad-serving technology, so we decided to use an open source ad server to save money," Switzer says. "Over the next two to three years, I made significant changes and improvements to phpAdsNew, and became the leader of that project," while still working full time for Unanimis.

Switzer says that because he was working for Unanimis, most of the changes to phpAdsNew at that time were "solely for the benefit of Unanimis, without taking much consideration for what the community wanted." He had a sneaking suspicion the community was much larger than just Unanimis users, so Switzer set out to prove it. "I wrote a script for Google to find out how many people had our tags on their files. It was over 100,000 domains serving hundreds of billions of ads a month. It was obvious that phpAdsNew (now known as Openads) was the biggest ad server network on the Internet." With a community that big, Switzer reasoned, it needed to have a company backing the product up, rather than "this guy here and that guy there." His entrepreneurial spirit jumped at the chance to create that company. Switzer soon left Unanimis in order to focus completely on expanding and monetizing the Openads project.

"The goal for Openads is to provide a platform for advertisers to be able to buy ads on publishers' sites," he says. "We're taking the large community of publishers who have our software loaded, and creating ways for them to make it easy to get ads on their site. If you have a small site, you'd probably just get Google Adsense. Over time, after you start making more money, you'd probably add Tribal Fusion and any number of other ad products. Then you'd rotate them to see which gave you the most profits. As the site grows, you'd also get solicitations from advertisers who want to advertise directly on the site. That's good, but it's also getting more complex -- which is really a barrier to entry into making real revenue. So we're building a publisher platform that makes it easy for advertisers to click on a link, upload their ad creative, and pay automatically. We're also making it easier for publishers to try out a number of different networks, to automatically rotate them and bubble up the network that pays the most."

Openads derives its income from advertisers who pay for access to the ad space inventory, and from publishers who pay yearly fees for technical support, consulting, bespoke training, and custom coding, though that is on a limited basis, Switzer says, until the project can "build a community of developers that can help us out in that area."

The biggest challenge in monetizing a large open source project has been meeting the needs of the community, Switzer says -- "Trying to put together a structure so that they can have a voice, so I can really get new product ideas and direction for Openads to come directly from the community. I wouldn't say they have been ignored, but there hasn't been that structure. So, over the last six months we've spent a lot of time serving people -- we've dedicated resources to reading forum messages and responding by building up the infrastructure, consulting with publishers, and getting venture capital investment to help with that."

Landing $5 million in venture capital this past June has changed Openads "quite a bit," Switzer says. "Before we had it, it was largely just me and a few developers, and so we would sit there and develop whatever we decided to and there wasn't a lot of significant project planning going on." Switzer says Openads purposefully chose Index Ventures to provide the majority of the funding, because "they specialize in open source and community-based products. We were very selective in who was going to give us money because the potential for taking a special project like this and overcommercializing it is there -- but Index absolutely gets it. They know the value of using community to help drive forward the company."

As part of the financing deal, Openads recruited Skype vice president James Bilefield to fill the CEO spot. "We were introduced to James by one of the investors," Switzer says. "He's somebody who really gets the Internet space. He absolutely got it. He really knows the value of community, and he has strong operations and management skills. It was a pretty obvious thing to bring him aboard. And by the time we were looking for a CEO I'd already known him for seven or eight months, and there was a level of trust."

Switzer says listening to the community is the most important aspect of commercializing an open source project. "Take advice and direction from them in terms of new product features and even strategically positioning your company. We've not yet fully monetized Openads, and we've even ruled out some commercial options, because we spent a long time making sure all the features the community wanted were there. Monetizing an open source project is still an art, and there are people that understand the value of community and they understand the fact that when you're the leader of a great project, that's something incredibly special. Surround yourself with people who understand that from an investment perspective, and from a coworker perspective."


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