BlueKai Makes Splash with $10.5M Round, Wants Advertisers to Understand Consumer Intentions

BlueKai, an online-marketing startup in Bellevue, WA, has nailed down one of the bigger tech venture deals of the past few months. The company is announcing today it has closed a $10.5 million Series B investment led by Battery Ventures, based in Waltham, MA, and Menlo Park, CA. The round also includes returning investor Redpoint Ventures.

The company’s name with the Hawaiian suffix (“kai” means ocean) is inspired in part by the bestselling business book Blue Ocean Strategy, which urges businesspeople to create a new market or “blue ocean” rather than fight it out with competitors in established markets. BlueKai seems to be applying this idea to online advertising, creating a completely new way for businesses to reach customers.

I spoke with BlueKai CEO Omar Tawakol to get the story behind today’s deal. Tawakol, an MIT and Stanford University alum, is a veteran of Seattle-based Medio Systems and Bellevue-based Revenue Science. He started BlueKai in December 2007 with the idea of creating a huge database of online users’ preferences and intentions. The company provides data on users’ Web-browsing behavior to marketers, advertising networks, and publishers, and it collects a percentage of each ensuing transaction.

What makes BlueKai different from other related companies is its notion of “data exchange,” and the fact that it separates user data from everything else. A travel site, for instance, may sign up with BlueKai to provide anonymous user data. Publishers, airline marketers, and ad networks can then bid for the right to its “cookies”—snippets of code that tell where a user has been and what their preferences are—so as to more effectively target ads. “We’ve aggregated very high-value data at massive scale,” says Tawakol. “People pay for the data, instead of revenue sharing. That encourages big sellers, it gives them a revenue option that’s safe.”

Back in March, BlueKai closed a $3.2 million Series A round led by Redpoint. As Tawakol explains, the original plan was to focus on one “vertical” space—but the company got up and running in the travel, retail, and automotive sectors, ahead of schedule. “Our goal was to validate the concept in one vertical,” he says. “As it approached October, we had three verticals up with huge sellers, and a growing buyer base. So we thought, this is the right time to go for Series B…Our strategy was to keep our relationships with VCs, and we kept our contacts open.”

It seems to have paid off. Besides the infusion of capital, BlueKai gains the online-media expertise of Battery Ventures. Satya Patel, a Battery principal based in Silicon Valley, is joining the BlueKai board. Patel has previous experience as a product manager at Google and DoubleClick.

Tawakol isn’t naming names, but so far, BlueKai has signed up more than 20 large retailers, half of the top 20 ad networks, and several top travel search engines. He says the new funds will be used for “more investment in the product” and sales teams—to do things like add new categories and get more visibility. There will be modest growth in the staff, he says, which currently numbers 13.

I asked Tawakol whether consumers have to buy into the whole concept in order for BlueKai to take off. He emphasized that BlueKai is a business-to-business operation, and that its revenues are growing independent of any consumer push. But he acknowledged the privacy issue, pointing out that the company lets consumers opt out of having their data traded online, as well as letting you “see exactly what data is known about you by marketers” through its BlueKai Registry program.

As Tawakol points out, “If we don’t raise the bar and be more open with consumers, there could be FTC [Federal Trade Commission] backlash.” He adds that it’s important to be completely transparent about what is being done with user information.

All that said, Tawakol envisions a day, perhaps five to seven years from now, when Internet users will receive the equivalent of mileage points for their own data, and be able to trade them for goods and services. People could then manage their product preferences and other information, he says. “We’re creating an economy for data.”

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