Spotzer to Duel Spot Runner in DIY Ads

NEW YORK Andrew Klein has started several businesses, including a beer company. But his biggest success came when he found a large, complex industry with an antiquated way of conducting business that created waste and was closed off to most participants.

That was in the mid-1990s, when Klein founded Wit Capital, an investment bank that popularized the auction method of public offering that Google ended up using when it made its stock debut. Now, 10 years later, he’s setting his sights on what he believes is a similarly inefficient industry that could use similar democratization: advertising.

“I’d characterize the media business as where the financial services industry was 25 years ago,” he said, describing a scene not dissimilar to most media buying of “people on phones passing orders on paper.”

Klein’s Amsterdam, the Netherlands-based startup Spotzer, which began operating in Europe in April, is launching in the U.S. market. It has a similar value proposition as Spot Runner: helping small and medium-size businesses make TV-quality spots for as little as $2,000 and air them locally for as little as $500 through a targeting system that only runs the ads where its consumers can see them. The spots can also run online, out of home and eventually on mobile.

To finance the U.S. push, which includes opening offices in New York, Spotzer closed a financing round of about $15 million, led by Silicon Valley venture firm Sierra Ventures and European Directories.

In the U.S., Spotzer faces a well-financed and more experienced competitor in Spot Runner, which has operated for nearly two years and has $60 million in backing from venture capital firms and strategic investors WPP Group, Interpublic Group and CBS.

Klein readily admits that Spot Runner inspired the creation of Spotzer, but he holds it has crucial differences. For one, Spotzer’s stock ads, in his estimation, are of a higher quality. The company contracts with agencies, production houses and independent filmmakers to create a library of about 500 different customizable ads. Spotzer is also skipping the “mom-and-pop” market for businesses that already spend at least $40,000 and up to $2 million on advertising, he said.

The ideal businesses for the company: heavy newspaper advertisers like furniture stores, retailers and recruiters.

But like Spot Runner, Spotzer faces the quandary of how to reach those businesses. Spot Runner began with the Google self-service model only to shift to striking partnerships with businesses and associations that already have relationships with small and medium-size clients. This is the route Spotzer plans to go, Klein said, pointing to the deal with European Directories to use its sales force as a template.

“There’s a relationship there that has to be fractured,” he said. “We never thought that was going to happen with just a Web site.”

The company has about 100 advertisers using its system in Europe and a handful of customers in the U.S. From his experience in Europe, Klein knows it will take time to convert businesses to the potential of the platform, a challenge he believes it shares with Spot Runner, despite its earlier start.

“The reality is the client base hasn’t heard of either one of us,” he said.