Serious Serial Entrepreneurs: Heidi & Stephen Messer

It was the deal heard ’round the web in 2005: Heidi Messer and Stephen Messer sold their nine-year-old company, LinkShare, to the Japanese portal Rakuten for $425 million in cash.

The sister and brother team had built a game-changer with LinkShare Corp., a pioneering and, eventually one of the largest, pay-for-performance affiliate network on the Internet.

The company’s patented tracking technology allows businesses and their affiliates to track sales and clicks; affiliates then receive commission payments directly from Link-

Share. In less than a decade, more than two thirds of Fortune 500 companies who had an affiliate network were LinkShare clients.

The accomplishment is even more impressive when you consider that the Messers were developing and selling their product in 1996, when ecommerce was no more than a gleam in a few retailers’ eyes.

“We recently found the original deck we used when we first started to raise money,” Stephen remembers. “The first 15 slides are, ‘What is the Internet, and why it’s not a fad.’ The next 15 were, ‘E-commerce will take place on the Internet and people will use their credit cards, and it will grow.’”

The Messers, of course, proved prescient, and had a successful exit indeed. But like so many entrepreneurs, they soon found themselves back in an office, building a business. They’ve founded World Evolved as well as Cross Commerce Media, the latter co-founded by former Overstock.com COO (and Heidi Messer spouse) Tad Martin. Cross Commerce, a worldwide marketing network that allows companies to track consumer behavior across online and offline media, uses some of the technology the Messers have been quietly developing for World Evolved.

And what’s their goal with the new venture? Nothing less than to help improve the impact of advertising across all media channels, including radio, TV, direct mail, newspapers and magazines. Print and “old media”, they say, are far from dead—they’ve just been undervalued. If the Messers have their way, that won’t be for long.

Stephen and Heidi sat with NY Report editor Robert Levin for a rare in-depth interview, in which they reflected on how they started and gave a fascinating peek at their next big thing.

The birth of a notion

Robert Levin: Where did the idea for LinkShare come from?

Stephen Messer: It came from some basic research around the cable industry.

Heidi was working at a law firm that represented John Malone, who was running the cable company Tele-Communications, Inc. [since sold to AT&T] at the time. Around that time, he announced that cable would eventually have something like 2,000 channels.

And so Heidi and I got together to try to understand what would happen in a world where there were so many cable channels. How would they make money? We learned that the number one way most cable companies were making money was through the Home Shopping Network and QVC. What most people don’t know is that the 800 number at the bottom of the screen tells the call center which cable company you’re in—if I’m in Time Warner of New York, I have a different 800 number than if I’m in Comcast to Philadelphia. When you call in to make a purchase, the call center keeps a log of what number you called, and the cable company gets a commission on what you bought from QVC.

So we thought, “That’s interesting. That [kind of marketing and tracking technology] would scale across a lot of other markets. Why don’t we just build that?” It turned out that having 1,000 cable channels was far into the future, but the Internet was taking off, so we just took the technology there.

RL: So the technology you built for LinkShare was originally designed for cable. Did either of you have experience in online marketing?

Heidi Messer: We had as much experience as anyone else. At the time, there was really no such thing as online marketing, because there were no sales. When we started in 1996, people were on 56k modems and basically they were just trying to get any content they could, let alone start buying things.

SM: People don’t realize this, but in ’96 and ’97 there was a thing called “netiquette” which meant there were very specific rules about what you could and couldn’t do. If you had a long signature line on your e-mails, for example, people would get upset because it took a long time to download them. There were all these sort of weird and anti-business rules.

So here we were trying to convince people that, no, no, no a lot of products are going to get bought and sold over the Internet. We had something like 12 examples of merchants who were selling online to use as case studies, and even then people were skeptical. We finally ended up raising money in 1998 from Internet Capital Group and Comcast. It was probably the third or fourth year of the business before we started making money.

RL: Given what was going on in the Internet at the time, what was it that turned the corner for your business?

SM: In late 1998 we actually started to get some competition from a company called BeFree, and so a market was created. When we were the only ones out there, investors had a hard time understanding whether this was an industry, a business or sort of a fluke. People make decisions a lot faster when they have something to compare you to.

RL: A competitor helps to validate the market, right?