Knowledge Networks: Making the Brand –

MENLO PARK, Calif. – Knowledge Networks isn’t shy about touting the revolutionary virtues of its marketing intelligence system, which its founders claim is the world’s only 360-degree view of consumers and their behavior toward advertising, brands and buying.

To date, the Menlo Park, Calif., company has received venture backing totaling more than $82 million, and secured business with 80 customers including major consumer brands.

Douglas Rivers and Norman Nie founded the company in 1998 with grand visions of turning Knowledge Networks into the world’s first and only predictive marketing intelligence company. “We connect what people think about products with the advertisements they see and what they buy, so companies can see consumers from an advertisement and purchasing standpoint,” said Rivers, co-founder and chief executive officer.

At the heart of this system is a network database of 100,000 individuals whose households have received interactive television units provided by the company. The units measure what consumers think about ads, brands and whether they would buy specific products. “Let’s say you are a company considering running an ad on Thursday night at 10 p.m. on NBC. We can draw a sample of people who watch NBC at 10 p.m. on Thursdays, download a preview of the ad to their TVs and see if they watch it,” Rivers said. “Then we can send them a follow-up email to see what their feelings are about the brand, and we can check that against people who have not seen the ad.”

Knowledge Networks also conducts media research and tracks purchasing data via surveys and frequent shopper card programs. The company tracks its network members’ online shopping and surfing habits through computer software that is installed on their home PCs, Rivers added.

The company selects its potential network participants through random digit dialing, he said. “We call people and try to convince them to participate. More than 50% agree to do it…after they understand that their personal information isn’t being sold,” he said. The company also runs contests with cash prizes to keep its network participants involved. This process provides Knowledge Networks with a random sample of consumers who constitute a representative sample of the U.S. population, Rivers said.

To be sure, Knowledge Networks isn’t alone in surveying consumers. However, Rivers said his company has a number of advantages. Among the most significant is the quality of Knowledge Network’s service, he said. “We have people at home in front of their TV, so it’s the right context in which to show them a sample commercial,” he noted. “We have a multimedia capability you don’t get by mail and our speed is very good. Plus, people can look at what we send to their TV whenever they want – it’s not like we are bothering them with a phone call during dinner.”

Meanwhile, surveys at malls can be expensive and difficult to execute, producing low-grade results and online researchers can only connect with consumers who are online and willing to click through pop-up ads, Rivers said.

In June, Knowledge Networks secured $40 million from a syndicate of investors in its series C round of funding led by new investor Maveron LLC and included return investors Oak Investment Partners, Alloy Ventures, Meritech Capital Partners and Oak Hill Venture Partners.

“Companies that care about brands do a lot of market research and right now that is often done in a costly, inefficient way that is, many times, not scientifically respected. Knowledge Networks has the answer to that,” said Debra Somberg, a general partner at Maveron.

Meritech led the company’s $36 million series B round in November 1999, which included Oak, Oak Hill and Alloy. The company received $6 million in its series A round from Oak and Alloy.

The June round will go toward developing the company’s infrastructure through new hardware and management software, as well as increasing the number of households the company tracks, Rivers said. “What we do is capital intensive – all the hardware and the recruiting. Doing this research through the Internet is a lot more expensive than anyone thought,” he said.

The company can provide a number of services. It has done concept testing, including one for a client thinking of launching a cranberry flavored vodka, and another for a beverage company looking to name a new soft drink. It can use its network for political polling, which it did for CBS after last year’s presidential debates. While polling is not a core business, Knowledge Networks will continue to do some polling because its participants enjoy expressing their opinions on issues beyond advertising, Rivers noted.

Knowledge Networks charges its clients from $10,000 for a concept test, to more than $1 million for a comprehensive program. Rivers said the company achieved revenue of $10 million for the first time last year, and expects to increase that significantly this year.

This most recent round of financing should be enough to get the company to profitability, Rivers added. “It was certainly our expectation that this money is enough to take them to profitability,” said Maveron’s Somberg. “We don’t have some scheme for endless infusions of cash,” echoed Rivers.

The company is not concerned about exit strategies. “It could definitely be a viable stand-alone business, or it could be a great acquisition target,” Somberg said. “Knowledge Networks is in the fortuitous position of, if they continue to satisfy their customers, controlling their own destiny,” she added.