Geosign

» see geosign.com as it lived, on the wayback machine

~ the obit ~

In March 2007 an American private equity firm called American Capital Strategies put $160 million into a company almost nobody in the technology press had heard of. Geosign was based in Guelph, Ontario, a university town about an hour west of Toronto, and it had been founded in 2001 by Tim Nye. At the time of the investment the company said it had 230 employees and annual revenue above $100 million. Canadian business writers called it the deal of the year, because by the measure of dollars committed it was.

What Geosign actually did took longer to explain than it took to do. The company ran more than 180 websites across about 20 categories, with names like GizmoCafe.com and ThinkFashion.com and hockey.com, and it claimed 35 million unique visitors a month across the collection. Those sites were not really publications. They were landing surfaces. Geosign bought search traffic cheaply through Google AdWords, pointed it at a page whose main content was a denser grid of Google AdSense ads, and kept the difference when the visitor clicked again. The industry name for this was arbitrage, and for a few years it was one of the most reliably profitable things a person could do on the open web.

The weakness in it is visible as soon as you write down who the counterparty is. Geosign was buying from Google and selling to Google, so Google sat on both sides of every transaction and could see the whole shape of the trade. It also had every reason to dislike it, because an advertiser who paid for a click and landed on a page of more ads was getting a worse product than Google wanted to sell. Through 2007 Google tightened its landing page quality scoring and raised the cost of exactly the kind of traffic Geosign depended on. The margin that had been the business stopped existing.

Within a few months of the investment the company laid off somewhere between 50 and 100 people, a number the Guelph Mercury reported at the time. In November 2007 the assets were divided. Most of the websites went to eMedia Interactive, controlled by Nye. The internet advertising operation went to Moxy Media, a wholly owned subsidiary of American Capital Strategies, which is to say the investor ended up holding the part of its own $160 million that still ran. geosign.com does not resolve today.

~ the rap sheet ~

~ what the money was for ~

One detail that gets lost when this is told as a story about a startup failing: a meaningful part of the $160 million was never working capital. Press coverage at the time indicated that some of it went to Nye directly, swapping out the founder's original equity. That is an ordinary structure in a private equity deal and it is also the reason the collapse looks so fast from the outside. The company did not burn through $160 million in eight months. It was sold, partly cashed out, and then discovered that the thing being bought had a dependency nobody had priced.

~ the arbitrage era ~

Geosign was the largest Canadian example of a practice that was briefly everywhere. The mid-2000s search results page had a whole stratum of sites underneath it that existed only to sit between a query and an advertisement, and the economics were good enough that serious money chased them. The practice did not end with Geosign. It mutated into the content farm, which at least paid humans to write something, and the farms in turn got flattened by Google's Panda update in 2011.

This is the part I can speak to from where I was sitting. I was in Turkey in 2007, working and online daily, and I never heard the name Geosign in my life until I went looking for it. But I had absolutely met its output. Anybody searching in those years knows the specific disappointment of clicking a promising result and landing on a page that is ninety percent advertisement and ten percent three paragraphs of nothing, then clicking again because the only thing on the page that looked like an answer was an ad. That was the product. It just never had a name attached that a visitor would see.

~ the lesson Canadian tech kept repeating ~

Geosign became a reference point in Canadian startup writing for years afterward, usually deployed as a warning when another company raised an unusually large round. The warning was not really about the size of the round. It was about building a business whose single supplier and single customer are the same company, and that company is not your partner.

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