Online Marketing Firm Gets $20 Million

Even in a down market, direct marketing play HotSocket is hot stuff, if a $20 million investment led by Highland Capital Partners is any indication.

The company is putting the money — contributed by Highland, Bessemer Venture Partners, Goldman Sachs, and Zero Stage Capital — to work on expanding internationally, and expanding to different marketing channels.

HotSocket basically takes a classic direct-marketing technique — sending out several different mailings to see which one garners the most response — and translating it to the Web. The company measures responses to different outlays of marketing dollars, such as banner ads or sponsorships, and uses the data collected to tweak the campaign to be more effective.

“It turns out consumers are very predictable,” said Dev Bhatia, HotSocket’s founder and chief executive officer, who also helped found Yoyodyne, which was later sold to Yahoo

The company uses a pay-for-performance model, in which its clients pay it for reaching certain performance goals, such as customers acquired or purchases made.

Interestingly Bhatia and HotSocket reject the notion that building profiles of individual consumers is an effective way to target advertising and promotional offers.

“There are a lot of gaps in that knowledge,” said Bhatia.

So far, the company has attracted more than 50 clients, including Chase, BusinessWeek, Nova International, Reader’s Digest, Newsweek, Time, and Times Mirror Magazines.

International efforts so far have centered around a deal with Claritas Europe, publishing giant VNU’s direct marketing firm. Claritas has agreed to offer HotSocket’s services to its client base.

The new dough will be used to expand to other parts of the world, and to reach beyond the Web to bring in data from call centers, direct response television, and other media sales.