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Advertising Vendors Open To Expansion

DoubleClick and Engage must shift focus from solely delivering banner ads
As interactive advertising vendors seek recovery from the dot-com fallout, leaders DoubleClick Inc. and Engage Inc. have been feverishly working to redefine their business and create new revenue streams.

Both companies' core competency has been delivering and monitoring banner ads across a network of Web sites--no longer a lucrative endeavor on its own. DoubleClick says it's now a full-service marketing-technology and research vendor and the largest E-mail marketing distributor. Engage is focused on offering in-house tools to manage the creation and distribution of online and offline advertising, in addition to analysis software and profiling technology.

DoubleClick, considered by analysts to be the most likely to succeed despite the advertising downturn, has faced several challenges. In March, the vendor cut 10% of its staff and split into two divisions: one serves advertisers who want to buy ad space on well-branded sites; the other focuses on advertisers interested in targeted vertical sites. Before that, it faced allegations that it inappropriately collected and used consumer data. The Federal Trade Commission in January deemed those charges of privacy violations unsubstantiated, but not before scarring DoubleClick's image.

The vendor has taken aggressive steps to expand its offerings by acquiring struggling niche-advertising companies at low prices, launching a research unit, and expanding its products to get more business from existing customers. Direct marketing E-mail distribution is key to that strategy. Earlier this month, DoubleClick added 100 million monthly E-mail deliveries to its arsenal when it acquired MessageMedia Inc. for $41 million. The deal follows the April acquisition of FloNetwork Inc., another E-mail distribution vendor. DoubleClick now delivers 600 million E-mails monthly for 240 clients. Last month, DoubleClick added ad-streaming capabilities through a deal with iBeam Broadcasting.

Two weeks ago, DoubleClick released a product, Dart 5, that mirrors its application service provider offering. Dart 5 lets publishers serve, plan, target, and report Internet advertising, eliminating the need to have DoubleClick provide such services. It also uses the DoubleClick Ad Server software with an API on the front end so companies can integrate their own applications and databases. For example, by tying in Oracle financials into ad serving, a site publisher running advertisements can automatically run credit checks as ads are being posted.

Meanwhile, Engage has faced problems of its own. Aggravating the slump in ad spending was the company's inefficient business structure, built through acquisitions that left it with five business units that were duplicating efforts. CEO Tony Nuzzo came on board last fall and cut costs by consolidating the units into a single group and laying off 725 employees--more than half its workforce.

Engage is almost finished consolidating ad-serving platforms to make its infrastructure more efficient. But the effects have yet to be felt. Financials are less than impressive, as revenue dropped 57% to 25.4 million for the third quarter ended April 30. And the fourth quarter looks bleak: Engage dropped its revenue outlook range from $25 million to $28 million down to $20 million to $22 million. Engage is negotiating with its operating company and majority shareholder CMGI Inc. for a $50 million loan to help it break even by Oct. 31. But CMGI posted more than $3 billion of its own losses during the last two quarters.

New Strategies For Interactive Advertisers
DoubleClick Engage
Original focus Provide ad services; collect and analyze audience behavior to predict and measure ad effectiveness Provide software and services to let clients collect profiles of Internet users and target online advertising
New focus Full-service interactive technology vendor and ad-services company Integrate creative development and placment of ads between online and offline media
Most recent quarter Revenue: $114.9 million
Net loss: $64.5 million
Revenue: $25.4 million
Net loss: $23.4 million
2000 revenue $505.6 million $176.8 million
2000 net loss $156 million $377.9 million
DATA: VENDORS

Nonetheless, Engage continues to unveil products. Last week, it released PromoManager, software designed to make it easier for marketing departments to control the delivery of online ad content without the expense of a full content-management system. Content-management systems from companies such as Vignette and BroadVision can cost more than $1 million; PromoManager is priced between $20,000 and $100,000. It focuses on real-time reporting and online behavioral profiling so that marketers can make promotion decisions immediately in response to customers' reactions.

Like DoubleClick, Engage is bringing streaming media to its advertisers, in its case through a partnership with Eyewonder Inc. Upcoming are products from the MediaBridge division that will further automate the integration between online and offline campaigns. "A couple of years ago, the Internet was outside the mainstream marketing department with separate groups looking at it," says Betsy Zikakis, Engage's senior VP of marketing.

With online advertising now definitely mainstream, the key to success will be integrating all forms of advertising. "Now customers can go to one of these guys and figure out how to integrate everything from E-mail marketing to wireless strategy rather than just run a series of ads," says Michele Pelino, director of Internet marketing strategies at the Yankee Group. "It's not just the online world anymore."