‘We created a platform so you could talk to ads’

Audio ads in VK can drive a person crazy with their intrusiveness. What’s more, until the Instreamatic platform appeared, advertisers had been unable to evaluate user reaction to their ads. Project co-founder and HSE graduate Stas Tushinskiy now lives and works in Silicon Valley. In an interview with Success Builder, he describes today’s audio market, how our hatred of advertising is measured and what a San Francisco ‘propiska’ (residence permit) does for a business.

What circumstances brought you to HSE?

I won Moscow’s Olympiad (academic competition) in Entrepreneurship and HSE accepted me without entrance exams. But I was still tormented by having to choose between the five different faculties offered. I narrowed it down to two, Economics and Management, and after a lot of thought, opted for the latter.

Why?

I thoroughly researched each programme and at some point realized that management would give me the skills most applicable to real life, regardless of what work I would do in the future. The second reason might seem laughable, but it also played a role: I lived closer to that part of campus at the time. True, that faculty moved across town only six months later, but I was already at HSE.

To get real-world skills, wouldn’t it have been easier to start working in the industry right away rather than attend university?

My studies took place in the mid-2000s when everything was changing rapidly and the country was trying hard to catch up with the West. Enormous economic growth in Russia enabled people to live better and earn more. This affected all areas of life and offered greater prospects for what was possible than what we see now. HSE was the best at that time at communicating society’s new values and goals and had a lot to offer in this regard. I lot of people ask me where their children or younger siblings should study: the problem is that many young people don’t know who they want to become. I tell all of them to study at HSE — at any one of its faculties. This is because HSE has a strong corporate culture, unlike other universities. I went to HSE because of this culture and I recommend it to others.

Our instructors were world-class specialists who never ‘played favourites’ with students from so-called ‘elite’ families. In general, the atmosphere at HSE was extremely healthy. The people here clearly knew what they wanted and helped you see the goal and reach it without getting sidetracked by various nonsense. This was very important and unusual: you knew why you were studying. And this helped bring the faculty up to international standards faster. We wrote coursework in English and used English-language sources and foreign databases that gave a global character to our education. It was tough, but now I can appreciate how great HSE was by challenging all of us in this way.

How did you get interested in entrepreneurship?

Like most children, I wanted to be like my father, who was in business. It so happened that I had a lot of freedom as a child and I developed a certain resistance to outside control. Entrepreneurship means following your own path. It involves risk, responsibility and being deeply involved, but you know that you are pursuing your goal and your goal alone.

One well-known American entrepreneur aptly described it this way: ‘When I became a founder and CEO, I slept like a baby — I woke up every two hours and cried.’ Of course, entrepreneurs must take enormous risks, which is extremely uncomfortable, and that’s why it’s easier for most people to build their careers in a big company. Others rush into the fray, and only a small portion of those manage to emerge holding the prize.

When did you have your first experience in business?

During my studies. There was very little student life then, so I became the faculty’s student council chairman to lobby the university for more activities. At the same time, I organized a separate initiative for student field trips beyond the city limits. The result was a sort of nature camp where students stayed for several days, discussed ideas, grew closer and even started some joint projects. You can’t really call that a ‘business,’ but it gave me excellent experience in taking responsibility and organizing, especially in taking care of the leisure and logistical needs for a group of 120 people.

How did you become interested in technology?

As a third-year undergrad, I saw a slip of paper on the notice board that read: ‘Sign up here for a six-month exchange in Finland.’ Only seven others from the whole university signed up with me. In Finland, I studied marketing, innovation management and other subjects, approximately 80% of which overlapped the Management programme at HSE. I was surprised to discover that Finland was practically the leader in innovation for Europe, despite its unenviable geographic location and small population. It was there that I became immersed in the technology scene. I found it fascinating and decided to develop in that direction.

The Russian Internet had only been around for 10 years at that point and there were no digital technologies courses in the curriculum. Like everyone else, I had to learn everything myself. Every day on the web was like a new world — I had to read articles on foreign sites, observe, study and draw conclusions. All of my work from that point onward was connected with the Internet, and all that digging around, following my interests online, provided a novel type of experience: it enabled me to think and invent, to see possibilities where others did not.

Have you always worked for yourself, or have you also been an employee in other people’s companies?

I have tried taking on various responsible positions, including in entrepreneurial endeavours. I began as a project manager for a startup. Later, I had a job leading the development of a company providing advertising technologies to the Chinese market. They entrusted me to hire Chinese employees, which was quite an adventure because I did not speak Chinese. But I felt every bit a businessman. After that, I joined a project that made games for social networks. There was a huge boom in the social media market at the time, and games were the main way to earn money. Our task was to motivate people to pay money for what was ordinarily a free product. This job helped me grow professionally more than any other did.

I now have a lot of respect for professionals who come from the gaming industry. It takes a special sort of magic to figure out how to sell virtual goods through a free game. The trick is to create conditions by which players can pay to get even more pleasure from the process. It is a great example of true capitalism.

Most graduates with good job prospects do not return for a master’s degree. Why did you, and why at HSE?

I wanted a master’s programme to gain specialized knowledge in management. I wanted to study with the ‘HSE stars,’ professors whom only master’s students have access to and whom I had known about even before I began my freshman year. I wanted to go higher and know more. Compared to the bachelor’s degree, it offered a fundamentally new level in terms of communication, formats, approaches, opportunities and the people themselves.

When did you decide to start your own business?

When the organic cosmetics boom started in 2012, we opened an online store and began purchasing branded products directly from the manufacturer, selling them directly and bypassing distributors. The store performed well and we sold it to the market leader. After that, I joined the Zvuk (Sound) company that was the market leader for streaming licensed music at the time. I was the director of development and focused on monetization. It was there that I met my current business partners. This job helped me understand the global market for audio content — its structure and defects and what users wanted. The main problem with the audio market was that not a single audio company in the world turned a profit. We created Instreamatic to solve this global problem.

How did the audio market look back then? Has it changed much today?

Piracy has almost completely disappeared in the last five years, which has greatly improved the economy. Still, only Spotify has come close to breaking even. This was the main problem that prompted us to create Instreamatic. Our technology helps audio services generate enough income to break even at least.

The Mail.ru Group now owns VK and Odnoklassniki (Classmates.com) and spends loads of money on music rights. Because this needs to be compensated, users now see ads in their playlists. People are accustomed to pirated, free content, but no industry can develop without money. The opportunity to earn money always attracts more people, including the most talented in this or that industry. The proof is how interesting and varied Russia’s music scene has once again become in every genre.

Otherwise, we would all be listening to Alla Pugacheva — which is also good, of course, in certain doses.

Why did you move to the West and open an office in San Francisco instead of staying in Moscow?

In my opinion, there are existential reasons that make it impossible to run a global business from Moscow. The problem is that the world knows almost nothing about Russia and Russian culture. Russia has bad PR and people tend to fear the unfamiliar. The only news or movies that come out of Russia are grisly action films meant for export. Every five years or so, a flick appears by someone like Andrey Zvyagintsev in which everyone drinks, fights, steals and then dies. After all the publicity surrounding it dies down, viewers are left with the impression that Russia is home to a bunch of savages with their hands on the nuclear button. You have to admit — that is a scary thought. Now there is a new stereotype that all Russians are hackers, and a hacker is basically a criminal.

It is extremely difficult to do business from Russia, and everyone who realizes this early on moves to the U.S., Europe or Singapore. What’s more, Russia has a completely different understanding of the situation — namely, that fear means respect. That leaves a monstrous imprint on business communications, with the result that it is practically impossible to find support for an international project based in Russia. This is one of the biggest problems that Russian society needs to solve, both culturally and mentally, if it wants to create conditions for global companies to emerge here.

How does your technology work?

Demand for Instreamatic stems primarily from the fact that users do not want to pay for subscriptions. The only other way to earn money is through advertising, but audio ads have one major drawback: there is no way to ‘click’ on them. But the ‘click’ is the main metric for measuring the effectiveness of an Internet ad. When a brand decides how much money to spend on promotion, it adheres to certain criteria: how many people came in to buy these sneakers after viewing the ad? That cannot be measured with an audio ad. Of course, the audio ad might be effective, but there is no way to know for sure.

Internet resources pay about half of their income to the major companies that own the music rights. This raises a question: how can these resources survive? We created a platform so you can talk to ads. This is a completely new way of interacting with audio. It replaces the classic model of 'talking radio' with interactive dialogue. Now, a direct response to advertising makes it possible to improve the user experience, understand the feedback and measure the effectiveness of the ad. This makes the large-scale use of audio possible and finally enables the audio platform market to develop.

My experience shows that seven seconds are enough to determine whether a person is interested in a particular ad. After that, the person’s brain ‘switches off’ unwanted content. In addition to measuring interest, it is now also possible for advertisers to learn something about people who are not interested in their product. The ‘click’ indicates interest, but fewer than 1% of users will click on an ad. This leaves brands with no way of finding out why the other 99% did not click on their ad: did they find it uninteresting? Did they fail to even hear or notice the ad? Did they already buy this product? Was it an inconvenient time to respond to the ad? Do they dislike this brand? The only thing left for advertisers to do is to chase the person all over the Internet with the very same ad, and that is irritating.

With these metrics, the brand no longer wastes money and users can reduce the volume of irrelevant ads. By the way, 90% of the people in the world listen to audio in some form, whether a podcast, radio or VK playlist and as soon as advertisers learn to measure user reaction, advertising will become much more relevant and even entertaining.

How exactly do people communicate with an ad?

Interestingly, people like brands but hate ads. We use AI so that people can speak with ads. For example, the first ad campaign we did for Infiniti automobiles asked listeners if they would like to sign up for a test drive. Those who answered ‘yes’ were directed to a sign-up sheet. If they answered ‘no,’ a few days later Infiniti sent them another ad saying, ‘I remember that you didn’t want a test drive, but would you like to see some photos of the car?’ In fact, as 5.5% of users who had not expressed interest in a test drive agreed to look at photos, and as many as 19% engaged in this dialogue. These figures indicate a phenomenal level of effectiveness, especially if you compare them to the 0.6% average ‘clickability’ for online ads. It also enables brands to begin building positive relationships with users instead of irritating them with repetitive ads.

Who writes these dialogues? It seems like a windfall for screenwriters and reason to open an Audio Advertising Department at the Gerasimov Institute of Cinematography.

We have to write the dialogues ourselves because we are the ones creating this new market. Ten years down the road, HSE students will probably look at what we’re doing now as a case study in traditional marketing. This segment might require new copyright protections and screenwriters focused on user experience. The numbers show that no other technology penetrated the market as rapidly as voice assistants have — even smartphones did not catch on this quickly.

How large an impact does Instreamatic have?

We founded the company in late 2015 and launched a pilot voice ad in Russia in 2018. Radio Record lists Instreamatic as the first platform to offer AI-based voice ads and Alfa-Bank as one of the first advertisers to use them.

Then we got lucky — we were able to start working almost right away with major media companies such as Pandora, which is Number 1 in the States and Gaana, the top company in India. These are world leaders in the audio industry and they are not shy about talking us up, which is accelerating our company’s development.

We are still in the startup stage, but we have already shown the world that it is possible to make a well thought out and needed advertisement, even though everyone clearly hates this genre. I also analyze my advertising experience as a user. Most of the content gets so annoying that I want to howl with frustration. How to explain to them that I really, really don’t need their products?

Advertising, however, is very important for the economy. It powers growth by selling more products, which enables companies to grow and create jobs. Ads provide consumers with free entertainment — the cost is only their attention. If we can make the ad experience more enjoyable and manageable, it would be a breakthrough in our daily life. For the moribund media industry, this method of selling ads is a lifesaver.

Why does locating in Silicon Valley make it easier for you to find people who believe in your idea and willing to invest in it?

The U.S. has always been the land of opportunity, a country that looks to the future. Only in the States can immigrants become a ‘local’ in his own lifetime and reach the top. Immigrants from Europe, India and Asia are top managers here, and sometimes even governors. Companies that attract talent regardless of 'anthropological' considerations can raise their competency and competitiveness.

Of course, the simple act of relocating a business doesn’t change anything: it’s all about the expertise that comes with it. Nobody cares where you’re from or how you look: what matters is what you offer and whether it’s possible to earn money with you. When we opened our Moscow office and began negotiating with potential clients, a serious question always arose: I wonder, how is this already working in America?

Nobody asked that question after we moved to San Francisco. Everything changed as soon as a U.S. address appeared in the ‘Contacts’ section of the site: as if by magic, brands from all over the world began showing interest in us and our product. It sounds funny — all we did was switch location and we were flooded with offers. On the other hand, it fully reflects the effect of globalization, in which Russia is much less involved than are many other countries, in my opinion. In today’s world, American company = global company and, in my opinion, no other ‘street address’ provides the same marketing opportunities because everyone wants to work with a global company.