Adsmart Blazes Vertical B2B Trail

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Event Summary

Adsmart is a privately held company in which CMGI (Nasdaq: CMGI) has a majority stake. As an online advertising network, Adsmart's function is to bring advertising to websites. Adsmart has experience serving websites that are too small to manage their own advertising, although it does have many large brand name sites on their client list. Part of the company's added value is to match advertisers with websites whose surfership is likely to respond to the advertiser's banners. Besides relying on the overt content of the site, Adsmart, like other networks, uses various technologies for capturing information about surfers' previous behavior to ensure they get served appropriate ads. In particular, Adsmart has access to (and uses) the AudienceNet tool from CMGI's subsidiary Engage (See TEC Technology Research Note: "Engage AudienceNet Brings Users the Ads They Want To See" January 3rd, 2000).

Adsmart is now setting up a special network with vertical categories that concentrate on business-to-business websites. It has already recruited sites in the area of law and intellectual property. One advantage that Adsmart expects is more predictability of its revenue stream, because business-to-business sites are believed to be less likely than consumer sites to grow to the point where they can handle their own ads .

Market Impact

With the expected growth of business-to-business E-commerce, Adsmart's move is a natural one, and the company will soon be only one of many doing this. Business-to-business advertising is somewhat different from its consumer cousin. Some business-to-business sites see advertising as only a secondary revenue source. Some prefer to sell sponsorships rather than rotating ads. Most want to be sure that their visitors see the ads on their site as adding content. While a site specializing in truck equipment would probably be happy to get the revenue from a Pepsi ad, they would see more benefit from showing ads from vendors of truck parts, sellers of fleet management software, and other related products.

There are also differences in what advertisers expect from business-to-business sites. Whereas advertisers of consumer products are used to the shotgun approach of advertising in print magazines and on television, many business-to-business advertisers are more accustomed to advertising in trade magazines, which typically offer controlled circulation and many opportunities - such as reader response cards - for the readership to request more information. Such requests serve the purpose of providing the advertiser with the user's name and address for later follow-up, and sometimes the subscription lists can also be culled for readers to whom the advertiser would like to send mailings.

The challenge for Adsmart and others in this space will be to craft an offering for advertisers that provides the marketing information those advertisers want. While there will be many that are happy to pay only for banner ads, at least when they first begin advertising on the Internet, in the long run most will want to see more tangible results than impression and clickthrough counts. (Of course a clickthrough does bring a surfer to the advertiser's site, but the advertiser would like to be able to maintain a relationship with this surfer through a later sales call.) They will learn from some of the larger business-to-business sites that such payback is possible, and will demand it from smaller sites. This will not be as much of a hurdle as it might seem, since business-to-business sites often collect identifying information from their visitors through registrations. Registrations may be associated with access to parts of the site, to e-mail newsletters or to promotional offerings. Merging such registration data with advertising records is difficult even for websites that do manage their own ads. To do this typically requires merging information from advertising logs, web server logs and registration databases. This is difficult even with commercial ad servers. To make it work with an advertising network is technically possible, but will require careful design and programming, and custom tailoring to the individual websites that serve ads.

We predict (probability 85%) that some ad network will announce this degree of visitor identification within 9 months. Adsmart is among the best positioned to do this, since it has access to the resources of all of CMGI, and especially to Engage, which has been dabbling with technologies to identify individual surfers since its founding.

User Recommendations

For an advertiser or a website in a vertical industry this announcement is excellent news. There is every reason, if advertising is within your strategy - or has been rejected only because of the complexity, to watch for Adsmart or someone else to create an ad network within your vertical market. Our only caveat, given the rapid influx of competitors that we expect if Adsmart is even marginally successful, is to sign a short-term contract, so that you can jump to a competitor with a stronger offering when one becomes available.

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