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.