By Parmy Olson, Forbes Staff • Forbes
Picture this scenario. A bored woman sits waiting in an airline lounge. She scrolls through her iPhone and taps on a brightly colored square to launch a free mobile game. In the instant before the app loads something extraordinary happens behind the scenes: an auction for her eyeballs, run by a company you’ve probably never heard of, called Flurry.
Flurry presents the woman to dozens of advertisers. We have a new mother, business traveler, fashion follower, in her late 20s and somewhere near JFK airport. In a tiny fraction of a second the exchange picks the highest bidder with the best-fitting parameters. None the wiser, she sees an ad for designer sunglasses.
So-called real-time bidding is taking over the desktop Web and is expected to account for a third of the $25.2 billion in U.S. digital display-ad spending due by 2016, according to eMarketer.
But real-time bidding has only just begun tapping into mobile advertising, an estimated $11.4 billion market this year and one still dominated by the traditional dragnet approach of paying for large swaths of ad impressions on thousands of devices at once.
The prospect of having its own high-speed auction system for targeting ads is what spurred Twitter to acquire MoPub in September for $350 million, despite its mere $6.5 million in revenue in the first half of 2013.
Then there’s Flurry, which went from not even being in the ad business to occupying one of its most enviable positions. It recently launched a pair of real-time mobile ad exchanges, built over two years, that uniquely handle both demand and supply in the ad marketplace.
“We have the data that glues them together,” says CEO Simon Khalaf, thanks to a “huge audience and a device that’s with them all the time.”
He’s referring to Flurry’s other big selling point: a trove of mobile-app-user data that is bigger in reach than Google and Facebook*.
The reason you never heard of Flurry is that you never put it on your phone. App developers did. Soon after Khalaf became CEO in 2008, Flurry started giving away an analytics tool that tells app makers how people are using their apps.
More than 400,000 apps now use the tool and, in return, funnel much of that user data back to Flurry. Flurry thus has a pipe into more than 1.2 billion devices globally and is inside seven to ten apps per device. It continuously triangulates among them all, collecting on average 3 terabytes of data each day.
“We felt the best place to start was with the app economy. It’s young folks, very ambitious, and they don’t have a clue how to build an audience. We started an audience with them, and it took off like wildfire,” says Khalaf from Flurry’s offices in a nondescript high-rise in San Francisco, where his 160 staffers are still opening boxes after moving to a larger space. Last month Khalaf poached one of Facebook’s top mobile ad execs, Grady Burnett, to be his COO.
Mobile phones don’t have cookies in their browsers, so Flurry’s analytics tool crowd-sources that data through apps instead. It encrypts and combines identifying bits of data to create an anonymous ID for each device, lumping them into one or more of 40 “personas” (psychographic profiles like “business traveler” and “sports fanatic”) that it edits every two weeks for each Flurry ID. Khalaf is aiming for up to 100 personas by the end of 2013. They won’t get more granular, he says, just “better” for advertisers.
One developer of an iOS app that uses Flurry says many like him stay happily ignorant about the extent of user details they are funneling back to Flurry, quite possibly because thousands of them are making money through Flurry’s ads. “We’re their paycheck,” says Khalaf.
He says Flurry is on a pace to generate $100 million a year and “might” be profitable next year. Perhaps soon after, he’ll float the company. He’s made good on his predictions before. When Khalaf joined Flurry as CEO in 2008, he bet that mobile apps would overtake browsers in number of minutes per month spent online, and he was right (though it wasn’t too far-fetched a bet).
Yet Flurry’s policy of encrypting personal information into an anonymous ID hasn’t kept it from raising suspicion in the privacy community. Yung Shin Van Der Sype, a legal researcher at the University of Leuven in Belgium, says Flurry is already in breach of the EU’s E-Privacy Directive, which applies to mobile devices and states that end users should be notified of cookies or tracking programs above and beyond the opt-out option Flurry offers. “They have to ask consent,” she says.
Irritating as this sounds, the idea is that each time an EU resident opens an app that uses Flurry, a pop-up should say that the tool is tracking them. “Your consent might change according to the circumstances and the time,” Van Der Sype argues.
Khalaf counteracts that Flurry doesn’t collect private information. “You pose a threat if you don’t give people a chance to say no. But we have nothing to hide,” he says. “We’re a walking X-ray.”
A separate, potentially tighter privacy law looms next year, updating the EU’s 1995 Data Directive. With this, all EU nations will have to enforce rules such as “the right to be forgotten,” meaning if an end user asks to have their data deleted, an ad exchange or developer must comply. Data brokers who experience a breach could also be fined 2% or more of their annual worldwide income.
Critics say the already delayed directive will remain caught up in red tape. “Europe is having a philosophical discussion about inalienable privacy rights, but there’s been very little implementation,” says Mike Zaneis, senior vice president of public policy and general counsel of the Interactive Advertising Bureau, which helps oversee the self-regulating ad-tech industry in the U.S.
Besides, if the EU directive gets too hot, the IAB has an eight-person team in Brussels along with two dozen offices in the EU to lobby fiercely against it. “We are actively engaged,” Zaneis warns.
Khalaf has fortunately survived past confrontations. Flurry famously ticked off Apple’s Steve Jobs when it issued market research about the iPad before Apple had announced the device.
“We understand now that it was none of our business,” he says, “and the value added to the ecosystem was not high. So we stopped doing it.” Perhaps in that case, Flurry can’t always be a walking X-ray. “We know a lot,” he adds, “but we don’t share all of it.”
* On Flurry’s reach: while the company sees app activity from 1.2 billion devices each month, Facebook’s last released figure for its mobile products was 819 million monthly active users. In May 2013 Google said it had activated 900 million Android devices in the last five years.