Silicon Valley startup BlackArrow is shooting to deliver an ambitious advertising triple play that likely won’t materialize for a few years.
The company, which has been flying below the radar for the last two years, is developing an ad-management system that perhaps someday will be able to place and track ads in video content played out in three different mediums: the Internet, cable video on demand and digital video recorders.
It has some blue-chip backers in Comcast Interactive Capital, Cisco Systems, Intel and venture-capital firms Mayfield Fund and Polaris Venture Partners. The company recently closed $12 million in second-round funding, after raising an initial $4.7 million.
“The new opportunity is to tap the migration of people from traditional broadcast TV to other platforms,” BlackArrow CEO Dean Denhart said.
Denhart, who joined the company about six months ago, previously was chief technology officer of Knight Ridder Digital, the online division of the newspaper chain that was acquired last year by The McClatchy Co.
He said BlackArrow initially is focusing on bringing targeted on-demand advertising to cable, working with programmers, operators and ad agencies. Denhart would not identify operators the company is working with, but said they will be launching on the BlackArrow platform this fall.
BlackArrow, with 30 full-time employees, has offices in San Mateo, Calif., and New York City. The company was formed in 2005 as a spinoff from Idealab, a technology-company incubator headed by software entrepreneur Bill Gross.
At first, BlackArrow will launch its ad-management system for broadband video. But Denhart argues the real ad dollars won’t be in online video, rather, he says, most people view high-quality TV programming using DVRs or VOD.
“If you look at the amount of viewing hours [of online video] and you strip out YouTube and porn, it’s relatively small,” he said.
The problem is, the technologies for managing VOD ads are immature. And techniques for placing nonskippable, interactive ads into DVRs are just getting off the drawing board. One proposed DVR advertising spec is the Society of Cable Telecommunications Engineers’ DVS 629, designed to let an advertising system communicate with equipment that delivers that content to the consumer.
To place advertising on VOD and DVR platforms, BlackArrow will need the cooperation of big operators while simultaneously trying to convince marketers to use its system.
“They’re in this chicken-and-egg situation where they need to do multiple things to succeed,” said Will Richmond, president of consulting firm Broadband Directions. But, he added, “if and when they succeed, it’s an enormous barrier to entry to anyone else who would try to do this.”
BlackArrow will also face large and serious competitors as the interactive TV advertising space develops — including Microsoft and Google. In August, Microsoft paid $6 billion for aQuantive, which sells software to manage targeted Internet and VOD advertising. Then earlier this month, Microsoft CEO Steve Ballmer told a group of ad executives that advertising would become 25% of the company’s business in a few years.
Denhart acknowledges the challenges his startup faces but says the company has advantages over behemoths like Google and Microsoft.
“We’re not a software company, and we don’t have a legacy business to support,” he said.