DoubleClick's "Ad-ville" Headache

Coming relatively late in the year-long online ad crunch, DoubleClick's first-ever layoffs suggest things may be worse in Ad-ville than previously thought. So does the fact that the across-the-board cuts are not only in the company's media business, but also in data and technology, which is where much of DoubleClick's and the industry's promise is located.

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By Nico Detourn (TMF Nico)
December 6, 2000

Online advertising services firm DoubleClick (Nasdaq: DCLK) recently announced the first workforce reduction in its five-year history. The cuts amount to less than 10% of its total employee base, which will now be flat for the second half of 2000, the company says. Based on previously reported headcounts, 150 to 170 people will be double-clicked off the company's rolls.

The move was downplayed by the company, which did not initially issue a press release. In response to media queries, however, DoubleClick said the layoffs were part of a business reorganization following a disappointing third quarter. "We have always carefully managed headcount to assure our productivity outpaces our competitors," it announced. "The steps we have taken were not dramatic relative to the scale of DoubleClick.... This makes us well positioned for 2001."

DoubleClick is not the first online ad firm to make such a move. 24/7 Media (Nasdaq: TFSM) and Engage (Nasdaq: ENGA) also recently announced layoffs and the tweaking of their businesses in view of the online advertising slowdown. DoubleClick is, however, the leader in a space that's been under pressure all year and was expected to remain so through the first half of 2001.

Dot-com slack
DoubleClick reported its first profitable quarter for September of this year. At that time, the company guided expectations lower, saying fourth-quarter revenues would grow slowly and earnings would be flat with Q3. It also said it will report a loss in the first quarter of 2001 before turning positive again in Q2, which is when CEO Kevin Ryan said he expected online ad spending to pick up as offline advertisers increase their online budgets.

The softness in the online ad biz is partly due to distressed Internet companies that, unable to find further funding, have cut marketing budgets as a way of cutting costs. A potentially self-defeating tactic, it's one way of postponing the "Going Out of Business" banner. For DoubleClick, the hope has been that dot-com slack will be picked up by traditional advertisers. Unfortunately, they haven't found religion as fast as was once expected.

Online, offline
Traditional advertisers will also be more discriminating than the dot-com slackers and will want to see solid evidence that their online dollars are well spent. They'll also require that their online marketing works with what they are doing in the offline world. All of this promises to change the online advertising business in challenging ways. Indeed, as offline advertisers extend their activities online, the online ad business will also need to operate in both worlds.

DoubleClick would seem well positioned to bridge the worlds of online and offline advertising. Several of its many acquisitions have in one way or another been geared toward that end, most notably its Abacus Direct catalog database business. That business has not lived up to expectations, however, and is one of the items on DoubleClick's to-do list as it continues to restructure its business.

Treading carefully
Further complicating things, DoubleClick will need to tread carefully while building that online-offline bridge. A misstep earlier this year tripped the company into controversy over consumer privacy, and about how online user profiles -- which are often assembled without the informed consent of the consumer -- may be combined with offline databases. That was not the first time questions of privacy, profiling, and targeted marketing have come up, nor will it be the last.

Even more than advertising itself, however, DoubleClick's longer-term future is located in the collection and commercial use of this kind of personal information, adding weight to the layoffs in those parts of the business. How these new customer-tracking and marketing systems are accepted by consumers, and also by advertisers with their natural instinct to avoid controversy, will continue affect DoubleClick and the industry it leads.

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