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The Ad Tech Company Google Pays Attention To

It’s a tall order to compete with Google and Facebook in selling digital ads. That’s especially true for the hundreds of advertising technology firms that sell ads on sites or apps owned by other companies.

Many know they face slim odds as standalone entities. So they typically sell themselves to Google, Facebook, Twitter, Yahoo and others that want to use those startups to boost the value of ad space on their Web properties or build out an “ad network” business outside of the sites they own.

Criteo, which went public in late 2013, has separated itself from the pack. It’s currently the most valuable ad tech firm, with a $2.4 billion market capitalization and more than 1,000 employees. Its stock is up 25 percent since IPO and has outperformed most smaller ad tech stocks, though many investors still have doubts about the sector. It also faces headwinds in the form of increased competition from bigger giants like Google and Facebook as well as from the broader industry’s shift to lower-priced ads on smartphones versus PCs. That shift is also hitting Google and others hard.

Criteo is profitable and generated around $750 million in revenue over the last four quarters it reported. Year-over-year revenue growth has been accelerating and reached 71 percent in the third quarter of last year.

That might sound like peanuts to a firm like Google. But for years, executives there have privately discussed their admiration for, and concern about, Criteo’s ability to lure ad-spending dollars from clients.

Criteo and other ad tech firms took Google’s search-ad business model to display ads; advertisers bid in auctions to show ads and Criteo only charges them when a consumer clicks. Criteo’s business is dependent on being able to buy lots of ad space across the Web at one price and sell it to advertisers at a higher price after targeting the ads to individual consumers and as long as that leads to sales on advertisers’ sites. Criteo was among the first firms to employ “retargeting” techniques so that a person who looked at a shirt on a clothing retailer’s site, for instance, will later see ads for that shirt on other sites.

That makes Criteo and other ad tech firms dependent on ad inventory that is listed for sale on Google’s and Facebook’s ad exchanges, which are key marketplaces for advertisers to buy ad space across the Web and apps. That can be risky as the priorities of those big companies can quickly change. However, Criteo has separately struck deals with individual website publishers that allow it to buy ad space ahead of other ad tech firms.

Criteo’s 45-year-old CEO, J.B. Rudelle, started his career as a telecom engineer. In the early 2000s he built a firm that sold ringtones in Europe. He sold the startup to American Greetings Interactive for about $20 million. Using funds from that sale, he helped launch Criteo in 2005 as a firm that tried to sell data to retailers about what individuals were likely to buy based on the websites they visited. But that proved difficult so he shifted the business to ads.

Google now competes head-to-head with Criteo, and its retargeting business is among the fastest-growing in Google’s display business, bringing in well north of $100 million in annual revenue, according to a person briefed on the matter. Facebook also is expected to become a strong competitor to Criteo over time.

The French-born Mr. Rudelle recently spoke to The Information about Wall Street’s on-again, off-again relationship with ad tech, competition from Google and Facebook and why clicks are still the king of digital advertising. Edited excerpts below.

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