I thought this offered some view of the industry and would be of some interest.
ON-LINE NETWORKS CONFRONT SURVIVAL OF THE
CLICKEST: FIRMS ARE MERGING, EXPANDING, CUTTING
RATES IN QUEST FOR CAPITAL
Judith Messina
01/12/98
Crain's New York Business
In a bid to upstage bigger rivals, three of New
York's
on-line advertising networks are merging.
The companies-Petry Interactive Inc., Katz Millennium
Marketing and
Interactive Imaginations Inc.-tout the merger as a
significant interactive
marketing marriage. But to less sanguine observers,
it is one more sign that
the on-line advertising market has a long way to go.
Companies that have
staked their fortunes on Internet advertising are
scrambling for money and
partners, lowering their rates, and entering overseas
markets in an almost
desperate attempt at survival.
"All these companies are planning on living off
Internet advertising, but
there's not a whole lot there yet," says Bill Bass,
an analyst at Cambridge,
Mass.-based Forrester Research. "You've got to have
capital
to survive."
Advertising networks came on the interactive scene
two years ago to help
advertisers make sense of the vast and unruly Web.
Many grew out of rep
firms trying to exploit the targeting possibilities
of the Internet. They
represent dozens, sometimes thousands, of sites,
which they package and
offer to advertisers in various combinations. The
sites
themselves give up 30% to 75% of their ad revenues
but get access to
brand-name advertisers and don't have to field a
costly sales team.
All signs point to networks as important cogs in
managing and building the
on-line ad market. But the on-line ad business is
still anemic-an estimated
$550 million of the $175 billion in total ad spending
in 1997-and networks
command
less than 10% of the on-line slice. Most rep firms
and networks have yet
to turn a profit. Even Softbank Interactive
Marketing, whose rep business
brought in $50 million in revenue between August 1996
and August 1997,
isn't profitable.
The lion's share of advertising is going to giant
content aggregators like
Yahoo!, which operates a virtual network of its own
and offers seductive
deals to sites and advertisers. Prestigious sites
that could be headliners for
a network, like EarthWeb's Gamelan site, often do
their own selling.
Jockeying for position
The networks themselves are in the last stages of a
Darwinian struggle.
"You don't need 10 firms in this space," says Evan
Neufeld, an on-line
advertising analyst with Manhattan-based Jupiter
Communications Inc.
"Those that have brand equity and are close to making
money need to get
capital to crush the competition."
Industry leader DoubleClick Inc ., which still has
$12 million in the bank
from a June 1997 venture round, is looking to raise
another $27 million in
an initial public offering. It will use the stash to
expand its sales force and
buy other companies.
Softbank is looking for new investors, and others,
such as Petry, Katz and
Interactive Imaginations, are consolidating. Spinoffs
of larger media buying
parents, Petry and Katz had been looking for outside
money to grow.
Interactive Imaginations, whose network represents
small Web sites,
needed to build a bigger audience and broader
representation to attract
advertisers.
Backed by $10 million in new venture money, the
merged company, 24/7
Media Inc., will be the industry's No. 2 player. Its
500 million impressions
a month will put it in the running with DoubleClick,
whose 60 sites deliver
900 million impressions a month. 24/7 Media plans to
expand its sales
force and buy up other firms to push its numbers even
higher.
"We need to accumulate as much critical mass as
possible," says Chief
Executive David Moore. "If you look at who is leading
with ad sales, it's
the sites with all the users. They're knocking down
the big bucks because
they have the biggest audiences."
Widespread discounting and mountains of excess ad
space on the Web
are bringing down ad rates and forcing firms to deal.
Networks that used
to sell ads based on how many users saw them are now
offering to charge
only when a user actually clicks on an ad banner, or
somehow generates a
sales lead. Interactive Imaginations' Content Zone
has started offering such
pricing, and DoubleClick introduced a cost-per-action
product a few
months ago.
Cliqnow!, a Manhattan-based network subsidiary of
interactive marketing
agency K2 Design, says it offers controversial
cost-per-action pricing
when it has to. And these days, advertisers are
asking for it more and
more. "We got a lot of requests for cost-per-action
prices
last quarter," says Scott Paternoster, Cliqnow!
executive vice president.
Overseas opportunities
Some firms are looking to expand in overseas markets
where there's still
little competition and the cost
to win business is low. DoubleClick, for one, has
been tearing across the
globe, opening offices or forming joint ventures in
seven countries and
Latin America. None so far is producing much revenue.
Archrival
Softbank Interactive Marketing has three
international outposts. Cliqnow!
is expanding into Canada, and 24/7 Media's Mr. Moore
says he's looking
at foreign acquisitions.
Foreign expansion, of course, carries its own set of
risks.
"It's one of our big dilemmas," says Caroline
Vanderlip, chief executive of
Softbank Interactive Marketing, which has offices in
Europe and Australia
and plans to launch an overseas network next year.
"How far ahead do
you want to be in the market? You can wind up putting
a lot of
infrastructure in place without getting much return."
Photo/Graphic: CLICKING WITH ADVERTISERS: Networks
are
offering to charge only when a user actually clicks
on an ad banner. "We
got a lot of requests for cost-per-action prices last
quarter," says Scott
Paternoster, Cliqnow! executive vice president;
Technology IPO
Wrap-up.
Sorry about the size;>) |
