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"Ads are us", boasts CMGI

Written By: D. Geller
Published On: October 1 1999

Event Summary

On September 30, 1999 CMGI announced its purchase of Flycast Communications (Nasdaq: FCST) for $559 million. The agreement followed on the heels of CMGI's purchase of AdForce (Nasdaq: ADFC) for $500M on September 20 and the purchase of AdKnowledge for $193 million by CMGI's majority owned subsidiary Engage (Nasdaq: ENGA). Prior to this outlay of $1.252 billion over 10 days, Engage had paid $30 million for I/PRO in April and $35 million for Accipiter in March of 1998. Engage and another advertising property, AdSmart, were founded by CMGI.

Market Impact

With these purchases CMGI has dealt itself a powerful hand. The six companies provide the following capabilities:

Engage: demographic ad targeting
Accipiter: ad management for websites
AdKnowledge: ad management for ad agencies
I/PRO: outsourced traffic and ad campaign measurement and auditing
AdForce: outsourced ad serving
Flycast: ad placement network
Adsmart: ad placement network

Although there are some overlaps in product offerings, which will undoubtedly be rationalized as CMGI digests its huge meal, the result is a breathtaking capability. If CMGI can smoothly integrate these different products and services, it will impact everything that can be done with an ad, and every question that can be asked. A website publisher will be able to use Accipiter to serve ads - or outsource that function to AdForce. The publisher will be able to offer its advertisers the ability to precisely target visitors with Engage's technology. Advertising agencies can manage campaigns to place targeted ads on multiple websites with AdKnowledge. Businesses too small to work with advertising agencies or make deals with premium websites will use Adsmart's forthcoming ad-buy.com to buy impressions on websites that are members of the Adsmart Network. Websites with excess impression inventory will have those impressions filled by Flycast. And I/PRO will provide auditable reports to advertisers proving that the ad impression and click counts that they pay for are real.

Vendor Winners/Losers

CMGI has positioned itself extremely well with respect to its main advertising rival DoubleClick (Nasdaq: DCLK), which recently acquired NetGravity (Nasdaq: NETG). DoubleClick will have some catching up to do, but is probably not worrying too much. In fact, one result of the September 30 announcement was an uptick in DoubleClick's stock. With NetGravity, DoubleClick offers most of the ad serving capabilities of the new CMGI family in one form or another, although it can make improvements in its targeting capabilities and its position compared with Flycast and Adsmart is weak. On the other hand, the whole panoply of ad serving features rests on the quality of the ad server (See TEC Technology Research Note: "How to Serve An Ad" October 23rd, 1999); NetGravity has the stronger product, and its technology will strengthen DoubleClick's outsourcing services significantly.

The real repercussions are likely to involve the smaller players. If CMGI can integrate its holdings, and if DoubleClick fills in its holdings, the two companies will own the market for large websites and ad agencies. We predict (probability 70%) that CMGI will have significant success in pulling its products together. The biggest risks it faces are the complexity of the undertaking, which includes products and features not yet announced (see the October 11 annocunement of AudienceNet ), and the potential difficulties of scaling some of its current products to meet more demanding tasks. We are more confident (probability 85%) that DoubleClick will be able to make use of NetGravity's technology in its outsourced ad server product to improve performance and features. We therefore believe (probability 60%) that the remaining market for smaller websites that want to manage their own ads will not have room for more than one significant player, given that both of CMGI and DoubleClick will continue to play there.

Vendor Recommendations

CMGI has a lot to pull together here, and its best strategy is to concentrate on this. It must reduce the number of internal pieces. A good first move would be to follow the strategy we predict for Doubleclick and combine the separate ad serving modules owned by Excite and AdForce, at the same time making perfromance and reliability improvements. This takes time-- most likely between six and eighteen months. Also, DoubleClick and its new NetGravity acquisition have the better reputation for scalability. With so many new products to integrate, CMGI may be caught between the Scylla of getting to market late and the Charybdis of releasing software that's unreliable or unstable. We believe the greater danger would be to put out a sub-standard product; advertising managers are extremely unforgiving about having to make refunds to advertisers whose ads were not displayed because of technical problems.

User Recommendations

Users who were looking at CMGI or DoubleClick products or services need not behave differently as a result of this buying blitz. CMGI had already been developing partnerships with some of the new acquisitions, so there is very little new functionality or synergy in the short run. And, although there may be enhanced business opportunities by working with a handful of CMGI properties, there is a lot of plug and play between different vendors to allow a user to base its choices more on cost and functionality than on ownership. In fact, Lycos, in which CMGI holds a large minority position, is a DoubleClick customer, while NetGravity's mega customer the World Wresting Foundation is a member of the Adsmart network.

Users who were looking at one of the other players in the ad serving space should be cautious. The danger, should the company you choose discontinue its product or service, would be two-fold. First, effort put into placing ad tags (the data sent to an ad server to cause it to serve an ad) on pages would have to be undone, and then redone for a new service. Second, all of the information about your advertisers and their ads would probably not be transferable to the database of a new ad server. Although the second problem sounds worse, the reality is that data can be re-entered with temps (skilled temps, but temps nonetheless). The first issue can be mitigated in most cases either with server-side include statements, so that only a few tag specifications would need to be touched, or by post processing. Bring your concerns up with the vendor and use them for negotiating leverage, but don't shy away from a product or service that otherwise meets your current and short-term needs for functionality, service, and corporate viability. A lot can happen in a year - or even in ten days.

 
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