The Hottest Israeli Investment In Years Is A Facebook Performance Marketing Platform

The hottest deal in Israel is turning out to be a company whose name I first heard only a few of months ago. I can’t go to any industry networking event these days without being asked what I know about the company, which has managed to keep a low profile since its founding a couple of years ago.

Why are VCs in hot pursuit for a company they know so little about? First and foremost, because it’s playing in what is already and what will only grow as a lucrative performance marketing playing-field: Facebook.

By all accounts, the company developed an engine that does this really, really well. Second, it bootstrapped itself to $5M in annual revenues for 2011 and is expecting to nearly tripple that in 2012. Finally, it’s about to bet the entire house on a shift to a SaaS solution.

This company is Adotomi.

I recently had a chance to learn more about Adotomi from CEO Joe McCormack, whom I met at the company’s offices, located in a very non-chic area of Tel-Aviv, overlooking a brothel (seriously).

Adotomi’s technology was built upon the premise that in Social, advertisers are creating a demand, as opposed to Search, in which they are fulfilling a demand (users’ search queries). In the case of the latter, a new ad campaign is initiated typically with a large amount of ads which are then funneled down to a much small quantity that are the best performing. The challenge is figuring out the best performing keywords to target against.

In Social though, instead of being built upon keywords, user profiles are built upon the volunteering of demographic data (age, gender, etc.), and explicit sentiment by way of ‘Likes’ or ‘+1’s’. The challenge here is to optimize ad spend on the decypehring of the optimal demographics. The problem though is that if the pool is small and the CTR’s are high, the cost of targeting this group increases dramatically, contrary of course to what advertisers are trying to accomplish.

Adotomi’s approach is the opposite. Instead of auto-bidding on a large amount of ads, they start with a small set of ads they are fairly certain will work. They then let their engine find correlations that expand the target group. In this way, a small number of ads is expanded to thousands.

The key to this is Big Data crunching. Specifically, large data sets of user types and their behavior and engagement with ads.

How did Adotomi come to own these data sets? Well, Adotomi is a Facebook Preferred Developer and were one of the first companies to get access to the social networking company’s Ads API. This means that they’re crunching historical data that very few companies are sitting on top of. Read as ‘competitive advantage’.

“Crunching billions of pieces of data,” in the words of McCormack, allows Adotomi to figure out in real-time how to expand the targeted pool of users with a high likelihood of affinity to the advertised product, at the lowest possible cost.

Granted, a very vague and high-level description of the company’s ‘secret sauce’, however, from what I’ve been able to understand from the company itself and those that have looked deeper into it, Adotomi’s platform emobdies Israeli software engineering prowess.

What is making the local VCs really salivate is Adotomi’s intent to open up the platform. While many media platforms have built enterprise solutions for agencies and large advertisers, Facebook still does not have such a system.

Adotomi thinks it can plug that hole. Evidently, investors seems think so as well and are actively vying for participation in the company’s Series A round.