Analytical approach to native advertising

Photo: Vitaly Sotnikov

In early 2017, "NativeOS" start-up presented, within the framework of "GenerationS" accelerator, its programmatic service based on computer vision creating native advertising with the help of artificial intelligence.

The neural network analyses all objects within the content, and then the index developed by the start-up evaluates the degree of "nativity" of the advertisement. Based on the information received the solution of "NativeOS" provides a forecast of placement efficiency and recommendations on advertising messages that would be relevant in one context or another.

Now the company is involved in "Starta" accelerator in New York. It has concluded a contract of partnership with "Publicis Communications" agency and is going to launch its product on the market in the spring of 2018.

The founder of "NativeOS" Vitaly Sotnikov told vc. ru how the team had been gathered by him from around the world, why the start-up refused investments and in which city it would be better to engage in advertising services.

Photo: Vitaly Sotnikov

The founder of "NativeOS" Vitaly Sotnikov worked as a programmer in "Roskosmos"; four years of his professional life were devoted to "Wargaming" company; and in 2014 he opened his own advertising agency "Chernika" in St. Petersburg.

At that time, a first-time entrepreneur did not deal with the topic of the media and originally planned to launch his own business aimed at video production. Sotnikov got such an idea after filming the show in Europe and the release of a short film.

"I really enjoyed shooting, and I thought that I had to earn money on it, then I could release my own TV show later", — he says.

During one year "Chernika" turned into an advertising agency, which began to design and develop websites. Then Sotnikov began to study the advertising market and to understand its needs. In 2015, the founder of "Chernika" wondered if there was a tool in the world that scientifically approaches the demonstration of advertising.

"I’ve realized that banners and video displays are irrelevant to what the user is currently watching. There is no connection between the fact that now you are watching an interview with Putin, and then you’ll start " Smeshariki" cartoon show. Perhaps you will even be shown the same advertisement in these different content videos — simply because it is built on demographics. You are looked at as a set of numbers with age, search history and conditional interests, which are not related to what is exciting you at this very moment. Advertising is too far from the content, and this inflicts pain on budgets that are so actively burned for the sake of a couple per cent conversion", Vitaly Sotnikov says.

Even before the launch of "Medusa" edition native projects, Sotnikov took interest in native advertising on examples of western media. The founder of "Chernika" offered a similar format to "KudaGo" service, but this project hung in the air.

After half a year of work of the agency, Sotnikov broke into views on the development of business with his American partner.

"I had a clear desire to implement everything without manual work, and my partner wanted to organize a media platform with the creation of content, something like a marketplace. We absolutely did not see eye to eye. The project that I got, and the one he had were two different things. We have peacefully parted; we are still friends and stay in touch", Vitaly Sotnikov says.

In August 2017, "Chernika" became a part of "Indagate" group of companies. Sotnikov clarifies that he did not sell the share, but his agency start work using the in-house model. According to "Contour-focus" database, he still appears as the general director of the agency.

Sotnikov continued to study native advertising along with mathematical analysis and began to think about how to use neural networks and computer vision in advertising and to move away from the concept of "500 Chinese" that assign tags to objects in the video. However, the entrepreneur initially had no idea how to implement such a project.

"There was already a third wave of talks about artificial intelligence since the Dartmouth Congress, but I still felt like a French revolutionary who, for a year already, had been starting revolution in his own underground. A native revolution", the businessman notices ironically.

The founder of "NativeOS" believes that now advertising isdependent on people’s opinion no less than on numbers.

"Why did the phenomenon like Adblock appear? Advertising is annoying, because, most often, the audience is abstract. Users are not an "average check", a set of demographic parameters, and a history of cookies. We are people with different personal constructs of thinking. However, in the end, it turns out that the advertiser has done a shopping, the publisher has handled a sale and the audience makes a block. We live in a world where 3% of conversion is cool. But it turns out that 97% of advertising is annoying", Vitaly Sotnikov says.

In turn, the advertising campaign launched through "NativeOS" will not be blocked, the project creators promise.

TRAINING OF THE NEURO NET AND INDEX OF THE NATIONAL ADVERTISING

Initially, the basis for prototype of "NativeOS" was formed by the open source solutions from the field of computer vision. The prototype works on the basis of a single-layer neural network. The most important part of the work consists not of unmarked sets of objects, but of their interpretation, Sotnikov notes.

"Imagine, you need to knock in a nail. Many others will sell you just a hammer, but we sell along with it the knowledge of how to nail correctly. It’s not enough to have a tool if you do not know how to use it. Our value is in interpretation, analysis, and not in the presence of a "hammer", Vitaly Sotnikov says.

"NativeOS" network learns how to interpret and evaluate ambiguous videos. Among them, there are religion, politics, violence, nudity and other categories of unsafe advertising content.

"We had a video in which a person burned himself near a monastery. Thus, the tag "burning man" appeared. At this point, everything depends on the context: Is it good or bad? It can be a stuntman who set himself on fire to shoot a film, or maybe a person who really poured some gasoline on himself and set fire to the monastery. There is a question of interpretation. In one case, you can show, for example, an advertisement of the Burning man festival, and in the other, you cannot show anything at all, as this is not brand safety. No brand will want his ads to appear on such content", Vitaly Sotnikov says.

Also, the "NativeOS" team trains its neural network on such ambiguous videos with complex scenes like "Kung Fury", in which Adolf Hitler fights with Tyrannosaurus, and "Six-Charger", in which the hero shoots at the rabbit’s head. "You cannot show ads in this scene, but none of the services understands what is in shot", Sotnikov notes.

For this reason, the "NativeOS" team has decided not to rely on third-party mechanisms and develop their own tool for pattern recognition and interpretation.

In addition to working on a neural network, the "NativeOS" team created an Index of Native Ads. The founder of the start-up calls this an objective metric, based not on human opinion, but on analytics which demonstrates how much advertising is native to content. "Advertising has much more science than many people think. Very few people understand this," Sotnikov stressed.

Photo: Example of the work of the index. Presentation of "NativeOS".

Now the start-up is working on patenting the index in the US. The process itself, according to Vitaliy Sotnikov, takes a long time and requires a lot of money. "We want to find a start-up that deals with patenting," he jokes.

TEAM OF ADVERTISERS AND STIGA

Sotnikov began working on the project together with his partner Sergey Prasolov, who had supervised the technical development of "Yulmart" retailer. He also served as technical director of "Kuznech" start-up.

In 2016, an acquaintance of Sotnikov learned that he was interested in artificial intelligence technologies, and told him about Prasolov. The specialist began to advise the founder of "NativeOS", and then became the technical director of the company. "For the second year aleady he has made me down to earth — we have a perfect tandem in this regard," Sotnikov says.

Maxim Zhiltsov, Marketing Director of "NativeOS", before the start-up worked in the company, which was faced with the task of creating an associative connection with the consumer, convincing that, for example, pizza or burgers tastes is better with a certain drink. "The employees selected the content by tags manually for several weeks to compose these pairs. And we can accomplish such a task in just a few seconds", Vitaliy Sotnikov notes.

Two employees of "Chernika" — the Executive Director Alexander Soldatov and the Art Director Sergei Bortsov — helped Sotnikov with the design and branding of the future company given the working title "NativeOS", which later became the main one. The entrepreneur notes that"OS" part of te name cannot be deciphered and translated, and the name itself was chosen spontaneously.

It’s hard to say how much we’ve invested in the project, because we’ve used our resources as "Chernika" and we, ve been an agency ourselves. Branding, marketing, business planning — we do all these for clients, and it is not difficult to do the same for ourselves. We need to be just a little more objective", Sotnikov notes.

Sotnikov supposes that, taking in consideration the time spent by "Chernika"’s staff and the night work on "NativeOS", he and his team spent about 30 million roubles during two years of project preparation.

Photo: Employees of "Chernika", who are engaged in "NativeOS"

Now the "NativeOS" team consists of eight people. Sotnikov calls the company the "hateful eight" by analogy with the film of the same name by Quentin Tarantino. Employees of the start-up with Russian rorigins are scattered around the world and live in New York, St. Petersburg, Moscow, Hamburg and Cyprus.

One of the developers in 2016 was named the engineer of the year by the version of the Ministry of Science and Education. The founder of "NativeOS" calls him the Project Stig (a pseudonym of the mysterious test pilot in the TV show "TopGear" — vc. ru), but adds that in fact the developer’s name is Sergey.

ACCELERATOR IN MOSCOW AND PUBLICIS COMMUNICATIONS

In 2015, Sotnikov applied to participate in the four-day "Bootcamp" by "GenerationS" accelerator of RVC. The entrepreneur confesses that he received the offer by chance, and before that he told about the project only to the representative of the Internet Initiatives Development Fund (FRII). According to Sotnikov, the interlocutor criticized his idea. In addition, according to the website of the Foundation for the Innovation Promotion, in 2016 Sotnikov submitted an application for participation in "StartGenS" competition, which was rejected.

In the course of "Bootcamp", several mentors became interested in the start-up, saying that "NativeOS" created a "future Facebook", says the entrepreneur. Nevertheless, in his opinion, no one understood what the start-up would be doing.

In 2016, Sotnikov’s project hit "GenerationS" accelerator. In the frameworks of the program, the founder of "NativeOS" was able to be acquainted with the Director of Strategic Development of "Publicis Communications Russia" Dragorad Knezi.
"We told him our idea, having caught him in the dining room, but it did not make him excited", Sotnikov says. Nevertheless, in 2017, Knezi became a mentor and director of the strategic development of the start-up, and "Publicis Communications" now helps NativeOS with the data that the start-up uses to train its neural network.

Besides, in 2018, the agency will test the company’s decision on its customers.

In addition to participating in the accelerated program, "NativeOS" won an RVC internship in the Silicon Valley, which was due to begin in June 2017. However, Sotnikov and his team could not go to the US because of visa delays — the embassy issued documents only in July.

At the same time, "Chernika" agency has executed the order for RVC on making a brand book of the fund. According to the website of public procurement, the contract price was 1.14 million rubles.

ABANDONING INVESTMENTS

On the day when the founder of "NativeOS" received a passport with a visa, he was called by the co-founder of a New York accelerator "Starta", Ekaterina Dorozhkina, who offered him to take part in the internship, which should run from September to December 2017. Sotnikov agreed and moved to New York.

"NativeOS" is going to concentrate on the American market, not only because it just turned out that way, but also for pragmatic reasons: the advertising market in the US is many times greater.

"The advertising market in Russia is only 0.5% of the US market, that is, a difference of 200 times. Whatever you do in Russia, you will still receive 200 times less. I left Russia with a clear realization that I would not come back very often. What is the point of returning after moving and starting your own company?", says Sotnikov.

Sotnikov also notes that the start-up in the field of advertising is preferable to work in New York or Boston, rather than in the Silicon Valley. "Boston is the Silicon Valley for advertising. New York is the centre of advertising and budgets. In the Valley, we have nothing to do, if only to attract investment, but there is no problem with this in New York either," he says.

In spite of attracting funds from "Starta" and strategic partnership with "Publicis Communications", "NativeOS" refused investments several times. Sotnikov believes that the views with the investor should coincide.

Sotnikov and Prasolov own some shares of "NativeOS", the amount of which the founder of the project does not disclose. Another 7% of shares were bought by "Starta" for $ 130 thousand. The other members of the start-up team have equal options, since at first they did not get paid. Now the project is looking for another employee for their office in New York.

According to Sotnikov, adtech-market is overvalued, and start-ups in this area haven’t answered the investors’ expectations.

"The form of advertising has changed, but the content remains the same. We have made quite good moves in all industries, for example, from horses to Tesla, but we have not done it in advertising. We’ve moved beyond the announcement boards with ads and have begun to use banners, but the efficiency remained at the level of the boards ", Sotnikov notes.

"NativeOS" applied on two occasions for participation in "Y Combinator" accelerator, but without success. Sotnikov believes that this is an evidence of the attitude to adtech-start-ups, and not the problem of "NativeOS" itself.

The project plans not to participate in accelerators in the future and to engage from 2018 in full-fledged business development. The start-up was invited to go to London to "Founders Factory" accelerator, but the team refused. Sotnikov believes that it is already unprofitable to sell 6% of the company for $100 thousand.

PROTECTION OF BRAND

Facebook has become one of the companies which are interested in the development of "NativeOS" and with which the project is negotiating now. Sotnikov does not think that the social network is going to buy his start-up, but believes that the corporation plans to increase the effectiveness of its video advertising and exploring the various options on the market.

The entrepreneur himself is working on partnerships with companies such as CBS, Fox, The New York Times and with "BuzzFeed" edition, which was one of the first to work with native advertising. However, in the meantime, the media project only invited Sotnikov to take pictures of "Bachelor" project.

By the spring of 2018, the start-up will launch a product based on 10 neural networks instead of one. Nine of them will recognize the picture on the video, and the tenth will interpret what is happening, assessing the level of brand safety (protection of the company brand from advertising mentions in an unfavourable context — vc ru ) to display ads.

"Analysis and definition of brand safety level is the first step of our "native rocket". This computer vision, which for a few seconds analyses the content and, on the basis of objects, context and tone of communication, gives a green or red light to the display of advertising. Because of the lack of such understanding, P&G also broke off cooperation with Google when their ads were shown on YouTube rollers with dubious content. For large brands ’brand safety’ is the main point in their checklist", notes Sotnikov.

"NativeOS" promises that the prices for the use of brand safety-solutions will be lower by 2-3 times than prices for solutions from Google and Microsoft companies. Sotnikov does not tell exact prices.

Initially, NativeOS counts on one type of customers — network advertising agencies, through which the project plans to scale to new markets. Now the partner of the start-up is "Publicis Communications" company. According to the presentation of "NativeOS", in 2018 the project is going to earn the commission for viewing advertising and hosting in the amount of $ 4.2 million.

The company does not consider the possibility of direct access to advertisers, at least not before 2019. Sotnikov explains that this is a longer way and that it is much more effective to work with agencies.

The next product of "NativeOS" will be a solution that uses a semantically similar principle and automatically turns the text of any article into video. The release is scheduled for the fourth quarter of 2018. The company promises to give this service to the publishers of "NativeOS" for free.

Sotnikov himself is not going to leave New York, he started his own Telegram channel about life in the US and still dreams of making his own TV series, but, for this time, it will be about social networks and advertising.

Source: VC