slide-1-638Editor’s note: This post was compiled both from conversations with El Toro executives at the firm’s Distillery Commons offices, and from a Feb. 24 OpenCoffee event.

There’s an old joke that half the money spent on advertising is wasted. It’s just no one knows which half.

With targeted advertising startup El Toro, Stacy Griggs and Co. are out to challenge that platitude, applying new technology, massive amounts of data and new digital targeting strategies to an old concept — target marketing.

Griggs, El Toro president and CEO, says the firm is at “the nexus of Big Data and cloud computing.”

El Toro is using direct mail standards that have been around for a hundred years while refining the concept of reaching customers with information they want by compiling and analyzing data.

Griggs used the example of a Honda dealership that sold a customer a car four years earlier. The dealership realizes the customer is likely ready for a new car, and starts targeting them with direct mail.

“Our theory was to apply the same sort of targeting to the Internet.”

Most companies target consumers using “cookies,” small lines of code that capture data from your IP address about your session on a website, then send it back to a server.

David Stadler

David Stadler

El Toro developed and patented what Griggs says is a superior technology. “We think cookies are problematic for a number of reasons,” he said. Web browsers increasingly allow people to block cookies, which make them less valuable for ad targeting.

But the main issue with cookies is privacy, he said. With cookies, data collectors know which sites people visited. What key words they typed into a browser. They can do what’s called “cookie matching” and derive that person’s identity, “and that’s pretty invasive,” Griggs said. “What we wanted to do was come up with a (technology) that’s more accurate and also more privacy-conscious.”

Using data from third-party providers and clients, Toro techs mapped millions of IP addresses, creating what Griggs calls “a phone book for the Internet. We use that phone book to basically recreate direct mail.”

Direct mail costs about 70 cents to 80 cents per piece. “We can target people for a penny and a half per touch,” Griggs said. Internet marketing doesn’t have the same resonance as a direct mail piece. But internet marketing has the advantage of multiple touches for far less than 70 cents, he said.

El Toro clients range from small businesses to giant global corporations such as GE and Honda. “We intentionally kept our minimums low,” Griggs said. “If you went to Google and asked them for the same services, it would be a quarter of a million dollars. Our minimums are much, much less than that.”

El Toro doesn’t serve mobile because Griggs said the click through and conversion rates are “extraordinarily low. While there’s a high degree of business interest in doing mobile, there is a low degree on the return to investment.”

Mobile is just not there right now, though he believes that’s coming.

Shockingly, this company is in Louisville, not Silicon Valley.

Griggs says the El Toro story is one of creative destruction within the Louisville tech community, with a number of employees having worked for, built and sold technology firms. Before El Toro, Griggs was an executive with Cbeyond, a publicly traded cloud communications company (Trades on the Nasdaq system under the symbol “CBEY”). He went to Cbeyond after it acquired Louisville-based MaximumASP where he was VP of sales and marketing.

Prior to MaximumASP, Griggs was at

David Stadler, vice president of client advertising options, came to El Toro from Germany where he worked with, the third largest domain parking provider in the world.

Eight months ago, the core team raised $400,000 of their own money along with friends and family startup capital, Griggs said. He declined to give 2013 revenue figures, pointing out the company isn’t even one year old yet. But Griggs said the nine-person firm is already cash flow positive.

Though only months old, El Toro is the culmination of the founders spending years collecting data and perfecting technology, Stadler said. “This is something we played around with for about two years before we got it right. We did two years worth of testing before we officially launched…”

“We have a massive pool of data we’re making sense of in real time,” he added. “We look for a certain number of actions taken online that correlate both IP and physical mailing address. We look for those in which we have 95 percent confidence that physical address has a lot of activity from that IP address.”

Griggs said El Toro, which claims several large companies as clients, including GE and Honda, as well as universities, doesn’t need a high local profile here. Its executive team currently isn’t looking to raise capital, and they’re finding sufficient talent.

Sooner or later, they will need to hook up with local investors who can help them stay in Louisville, rather than having to expand into a larger market, he said: “We prefer to live in Louisville.”

To attract talent, Griggs said El Toro doesn’t have to be the coolest company in town a la tech firms in The Valley, “giving away Ferraris at our Christmas party.” Its loft offices in Distillery Commons on Lexington Road have amenities such as (serious) workout rooms, kegs of beer on tap, and shelves of premium bourbons and ryes, “so we’re looking pretty damn cool,” he said.

During a recent OpenCoffee, IL’s weekly meetup for entrepreneurs and techies, Griggs and Stadler talked at length about El Toro and the technology behind targeted advertising.

Here are some of the points they made, edited for length and continuity.

• User Behavior Targeting: When you start seeing ads for what you’ve been shopping for follow you around the Internet, that’s UB targeting. “You’re shopping and let’s say you’re shopping for a red sweater,” Griggs said. “You look at a red sweater on Site A. But you didn’t buy that red sweater. So what happens is, that web property decides to re-target you. They dropped a cookie on you.”

“If you ever want to have an interesting experiment, download a program call Ghostery, which will show you which cookies are being dropped on you,” Stadler said. Ghostery will tell you in real time which cookies are being dropped on your browser. Some sites are dropping 40 or 50 cookies on you as soon as you hit the site, Griggs said.

 • Real time ad markets: The online ads consumers see are often bought and sold via an exchange resembling the New York Stock Exchange. “When you go to website, did you ever see the ads just a little a fraction of a second slower?” Griggs said. “You’ve got the rest of the site loaded, then the ads load. What’s happening is, there’s a real-time bidding process going on in the background to determine what ad you see.”

El Toro has a real-time bidding platform that sits atop one of the exchanges. The firm has access to ads on about a million sites, or about 91 percent of the total Internet inventory on a daily basis. “When we see a visitor come into a site we have interest in, in real time, we bid on that ad” via automated bidding, Griggs said. “When we win that bid, we place our ad in front of that person.”

• Dayparting. El Toro is working with a university they declined to identify on a “dayparting” project. The concept divides consumers’ days the same as prime time television or drive time radio, with assessments of the audience based on what that audience likely is doing during specific parts of the mornings, afternoons and evenings.

Students are at school from 7 a.m. to 3 p.m., so El Toro technology targets university ads to parents during the work day. After 3, it serves ads to students, Stadler said. “We have a lot of universities,” Griggs added. The average cost to go out and recruit a student is more than $3,000, and most students are online. So it’s a very cost-effective way to target students.”

 • What’s next? There are interesting predictive models El Toro engineers have been working on as of late, Stadler said: “We’ve seen interesting patterns.”

Right around the time of that third trimester, researchers know expectant parents start buying strollers. “We can put those people in a segment that lets us model them for the next 18 years,” Stadler said.

“We know people in their 30s bought a first-time home in the last two years… we know they’re looking for life insurance. We know the best times to hit those individuals is in the morning and we have some really interesting data as to how to get those people to click.

“Who specifically in the process is clicking … and when the purchases generally occur.”

El Toro is NOT a creative agency. “We’re engineers,” Griggs said. “You do not want to see advertising created by engineers.”