Disintermediate this.

I just finished reading an interview with the founders of Topix.net, the site that uses algorithms to deliver local news customized to zip code level — and links this content to contextual ads that go beyond word matching to guess at the meaning of stories — all without editors or salespeople.

This posting is my condensation of a fascinating conversation between Online Journalism Review’s Mark Glaser and Topix executives Rich Skrenta and Chris Tolles. Here’s a quick intro for those not already familiar with this Palo Alto startup.

Topix was launched in January 2004. Its algorithms scan more than 10,000 news sources and decide what locale (or topic) each story is about. It serves this up this localized content through its own web site and also delivers news feeds to America Online, Ask Jeeves and Citysearch. (This morning I popped onto Topix, punched in my zip code, and learned that the California Highway Patrol was planning to put extra speeding patrols on my normal commute route.) This localization capability and other algorithmic inventions recently prompted three media companies to buy a 75-percent stake in Topix that valued the company at about $64 million. Not bad for a site that grossed about $1 million in its launch year, and now gets about 2 million unique visitors a month, according the OJR report.

I was fascinated by Skrenta’s comments on advertising and highlight them here, after noting that there is much else in the full story that I have chosen to overlook.

Topix bootstrapped itself and thus had to focus on revenue generation. “Because we were working on the advertising with the content from Day 1, we realized that 50 percent of the content that people want in the newspaper is commercial content,” Skrenta said. So while the firm’s underlying technology has to do with analyzing content and targeting it to geographic or social niches (“Our Gay & Lesbian channel is our No. 1 feed on My Yahoo,” Skrenta said.) its ad-focus appears to have yielded insights and innovations.

“What we’ve found is that the ads on the front page, nobody clicked on them,” Skrenta said. Topix has relied upon Google AdSense (“Google has 400,000 advertisers,” Tolles said. “We have zero salespeople.”) But using pure AdSense led to some silly mismatches of ads and stories. Skrenta referred to “the famous case … when the New York Times’ site had a story on a suitcase of body parts that washed ashore in New Jersey, and Google was showing luggage ads beside it.”

So Topix has used algoritms to minimize such gaffes and maximize the rate at which people clicked on ads (in new media, the rule is no click-e, no pay-e). Part of the improvement had to do with analyzing what sort of stories a given reader had looked at in the past — and serving future ads based on that past behavior. Here are two excerpts from Skrenta:

“What we found was we started to pour in our categorization technology to the Google [AdSense] ads that were on our site, and it started working a lot better. We doubled the clickthrough rate on them. But beyond that, it made our site look better. Improving the quality of the advertising improved the quality of the entire product … What we did was look at the cookie and see what pages they visited on Topix … . And it worked pretty well, and we expanded that, so half or a third of the ads you see are relevant to something else you’ve looked at and not to what you’re looking at.”

In closing, these guys are cooking up some incredible stuff. True, they seem not to like human beings, or at least journalists, if we still qualify as members of the species (OJR: So are you ever going to add human editors, or are you categorically rejecting them? Skrenta: We could. But as technology people, it’s kind of an admission of failure.)

But how can I argue with these guys? Their company is worth $64 million, and last time I checked, BlogShares had valued MiniMediaGuy at just under three grand. Besides, Topix saved me money today. I gotta rush off — but I know now to take a different route.

Tom Abate
‘Cause if you ain’t Mass Media, you’re Mini Media