DoubleClick Inc.

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DoubleClick Inc.

450 West 33rd Street
New York, New York 10001
U.S.A.
Telephone: (212) 683-0001
Fax: (212) 889-0062
Web site: http://www.doubleclick.net

Public Company
Incorporated: 1996
Employees: 1,929
Sales: $405.6 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: DCLK
NAIC: 541810 Advertising Agencies

DoubleClick Inc., based in New York City, offers a variety of Internet marketing and advertising services. It originally acted as a broker that sold banner ads to a large network of Web sites and also used its proprietary DART technology to determine what ads to deliver to individual visitors. To keep pace with the evolution of Internet advertising, and to maintain its dominant position in the industry, DoubleClick has evolved into a broader based operation divided into five strategic business units. DoubleClick TechSolutions helps Web sites and marketers to deliver targeted ads. DoubleClick Media sells ads to the company’s network of Web sites, which attract nearly half of all Internet traffic. The company’s Direct Marketing unit makes use of consumer information gathered by Abacus, a 1999 acquisition. The Abacus database includes detailed information on nearly 90 million consumers drawn from catalogers. DoubleClick’s Email Marketing Solutions uses its DARTmail technology to help advertisers target potential customers and create email advertising campaigns. Finally, DoubleClick’s online research company, Diameter, provides tools to marketers to evaluate and maximize their online advertising efforts.

DoubleClick Formed in 1995

Although chairman Kevin J. O’Connor and Dwight Merriman are generally regarded as the cofounders of DoubleClick, in fact the company was originally a division of the Poppe Tyson advertising agency. In business for decades, New York-based Poppe Tyson was a traditional television and print ad agency that concentrated on industrial clients until its 1993 acquisition of a modest Silicon Valley online advertising agency, Carlick Advertising. In April 1995, Poppe Tyson created a division named DoubleClick in order to sell ads on the Internet. Operating out of California, DoubleClick created a network of Web sites on which advertisers could purchase banner ads. Member Web sites were required to sign exclusive deals with DoubleClick and allow the broker to coordinate the delivery of ads for the entire network. The goal, as always in advertising, was to reach a maximum number of potential buyers of a particular product while minimizing waste. In order to select an appropriate banner ad for a Web site visitor, however, DoubleClick required better technology than it possessed. O’Connor and his partner Dwight Merriman would fill that need.

Until 1996, O’Connor had never worked in advertising. Fascinated with technology since childhood, he earned a degree in electrical engineering from the University of Michigan, then dropped out of a Ph.D. program to become involved in the rise of the personal computer industry in the early 1980s. He recognized the future importance of the PC in a business world then dominated by mainframe computers, and he started a software company, Intercomputer Communications Corp., to develop a way for PC’s to communicate with mainframes. Investors, however, did not share his vision for the PC, forcing O’Connor to scrape together his seed money by appealing to family and friends, as well as tapping into savings and even resorting to personal credit cards. Instrumental in developing the technology that contributed to making Intercomputer successful was Merriman, a computer science graduate from Miami University of Ohio. By early 1995, O’Connor sold his business to a larger rival, Attachmate Corporation. Both he and Merriman went to work for an Atlanta computer software company, Digital Communications Associates, ultimately quitting their jobs in order to start a new business together. As he had done some fifteen years earlier with personal computers, O’Connor recognized the future importance of the Internet and wanted to become part of the new medium. He and Merriman reportedly spent eight months brainstorming in a basement, developing 100 product ideas. O’Connor recalled that in September 1995, “all the stars lined up, and we realized advertising was going to be the key part of the Internet and we had the product that could solve a key problem.” At the time, it was far from certain whether the Internet would develop into a subscription-based medium or be supported by advertising. Moreover, O’Connor understood that what differentiated the Web from television, radio, and print was its potential to deliver advertising to target customers, thereby eliminating a great deal of waste.

1995 Operations Merger

In 1995, O’Connor and Merriman created the Internet Advertising Network in Atlanta. Its first product offering was Internet Address Finder, which located email addresses. More importantly, the company was developing a way to target banner ads. Even though the goal was narrowcasting, O’Connor recognized the importance of selling ads to a network of Web sites in order to achieve the kind of mass exposure that advertisers required. In late 1995, the DoubleClick unit of Poppe Tyson was well on its way to creating the kind of network that O’Connor needed, while he and Merriman were developing the kind of ad delivery software that DoubleClick required. A ten-minute telephone conversation between O’Connor and his counterpart at DoubleClick paved the way for a merger of the two parties in early 1996. As part of the transaction, Poppe Tyson spun off its Internet unit, and O’Connor took over as the chief executive officer of the combined company, which retained the better-sounding DoubleClick name. Merriman became its chief technical officer. Poppe Tyson’s corporate parent, advertising firm Bozell, Jacobs, also provided $2 million in capital.

O’Connor and Merriman moved to New York, setting up shop in the section of Manhattan that had become known as Silicon Alley. Within three months the new DoubleClick was selling ads to a network of 30 web sites, as well as continuing work on its ad delivery software. The initial product was called ClickBoosters. Essentially a robotic media planner, ClickBoosters was able to determine which Web pages generated the most traffic while spotlighting visitors that had yet to be exposed to a particular banner ad. It was assumed that new viewers of an ad were more likely to “click through,” or actually visit the advertising site linked to the banner. The goal was to deliver fresh ads to Web visitors, a rough first step in targeted Internet advertising.

By the end of 1996, DoubleClick unveiled a more sophisticated system called DART (Dynamic Advertising Reporting and Targeting), which it used for its own network and made available to other Web sites for a fee. DART was able to garner far more specific information about consumers than ClickBoosters, in effect creating a digital shadow of the person behind the computer who visited a particular Web site. DART accomplished this by taking advantage of the “cookie” file used by Web browsers that allowed Web sites to store information on the hard drive of a visitor’s computer. This small text file records information about a visitor ranging from site passwords to site preferences. Cookies have limited access to a computer, and allowing one Web site to create a cookie does not permit a different site to read that cookie. Users also have the ability to block the creation of a cookie, although many sites will not function without it. Aside from not knowing they can block cookies, a large number of computer users are simply unaware that information about their Web usage is being generated and stored on their computers. For DoubleClick, access to cookies placed by affiliated Web sites allowed it to take the next step in targeted Internet advertising. The company had limited information on the Internet activity that took place on specific computers, identified only by IP addresses, but it was enough to significantly improve the company’s ad delivery business.

Late in 1996, DoubleClick signed an exclusive deal to deliver ads for Alta Vista, a major Web search engine and portal owned by Digital Equipment. Alta Vista would immediately become the greatest single source of revenues for DoubleClick. During its few months of operation in 1996, DoubleClick generated $6.5 million in revenues while posting a loss of $3.2 million. It was a successful enough start, however, to attract venture capitalists, and in mid-1997 the company was able to raise $40 million by selling half of its stock, a record amount for a New York start-up at that time. Not only did the company repay money owed to Bozell, DoubleClick spent $25 million to redeem shares held by some investors. During 1997, DoubleClick also took steps to expand its footprint in an emerging industry by establishing sales offices around the world (including Canada, the United Kingdom, Australia, and Japan), in addition to forming business partnerships to create Web networks in Latin American, Spain, Portugal, and Scandinavia. Gaining a dominant position was important, as the Internet grew at a fast clip in 1997. By the end of the year over 29 million people used the Web in the United States, and over 50 million worldwide. The price of PC’s also continued to fall, putting them well within reach of most households, a development which promised to spur even greater growth for the Internet. For advertisers, the demographics of Web users were particularly attractive: almost half held a college degree, two-thirds were aged 18–44, and the mean household income was $53,000. DoubleClick’s 1997 results reflected the steady growth of the Internet, with revenues increasing to $30.6 million. Due to its rapid expansion, DoubleClick also saw its net loss increase to $8.4 million.

Company Perspectives:

DoubleClick is building the infrastructure that makes marketing work in the digital world. Combining media, data, research, and technological expertise, DoubleClick allows marketers to deliver the right message, to the right person, at the right time, while helping Web publishers maximize their revenue and build their business online. DoubleClick Inc. has Global headquarters in New York City and maintains 35 offices around the world.

In February 1998, DoubleClick was in the vanguard of New York new media start-up companies that went public. Underwritten by Goldman Sachs, DoubleClick’s initial offering raised $62.6 million at $17 per share. Trading on the NASDAQ, the stock quickly rose in value, nearly doubling within a month to make DoubleClick into a $4 billion company. Although the company was not close to making a profit, it was gaining market share and becoming the dominant player in its field. By the end of 1998, DoubleClick’s network grew to more than 1,300 Web sites. As a result, revenues increased to $80.2 million, with a $18.2 million net loss. Investors, however, remained sanguine about DoubleClick’s long-term prospects, as evidenced by a successful secondary offering of 2.5 million shares of stock priced above $34 in December 1998.

In March 1999, DoubleClick raised another $200 million by selling convertible subordinated notes. Flush with cash the company was able to launch further international operations and make several strategic acquisitions in 1999. It acquired software maker NetGravity for more than $550 million in stock, a deal that filled in a major gap in DoubleClick’s business. NetGravity offered software to Web sites that preferred to sell and deliver their own ads. Now DoubleClick could do business with customers who did not want to be part of its network of DART-managed Web sites. DoubleClick also became involved in e-mail advertising in 1999, a move that it supported by acquiring Opt-in Email.com, a privately held e-mail marketing firm. The most expensive and strategically important acquisition in 1999, however, was the $1.7 billion stock-for-stock purchase of Abacus Direct corporation, a leading information and research provider to the direct marketing industry. Abacus managed the nation’s largest proprietary database of consumer catalog buying behavior, containing five years of purchasing history of nearly 90 million U.S. households, updated weekly. Shortly before the acquisition, moreover, Abacus had formed an alliance with other market research companies to create a cooperative database, the Abacus Publishing Alliance, to gain access to even more consumer information. For DoubleClick, Abacus promised to take ad delivery to the next logical step: matching the digital shadows produced by cookies with actual names, addresses, and buying histories. Rival companies were also moving in this direction, but when privacy advocates and the media soon protested the linking of consumer information, the ensuing firestorm of controversy was almost entirely focused on DoubleClick and O’Connor, who had been forthcoming about his company’s intention of exploiting consumer information.

The Focus of Controversy in 2000

DoubleClick was clearly caught off guard by what turned into a public relations nightmare. Despite continuing to grow at an accelerated clip, generating $258.3 million in revenues for 1999, DoubleClick watched the price of its stock fall from a high of $135 in January 2000 to $81 in mid-February, when on top of private law suits the company found itself the subject of a Federal Trade Commission probe, as well as investigations from the states of New York and Michigan. By early March 2000, O’Connor was contrite, telling the press, “I made a mistake in moving ahead with these plans with no privacy standards in place.” He announced that DoubleClick would not move forward with linking consumer names to Web activity, at least until the establishment of government and industry privacy standards. Consumers were also promised an “opt-out” mechanism to allow them to maintain privacy of their records. Furthermore, O’Connor appointed the former New York Consumer Affairs Department commissioner, Jules Polonetsky, to serve as DoubleClick’s chief privacy officer. Rival firms followed suited, naming their own CPO’s.

DoubleClick’s changes did little in the short run to improve the company’s public image, with critics maintaining that DoubleClick had instituted cosmetic changes, that opt-out provisions were mere window dressing, and DoubleClick was simply delaying its long-term plans to marry Abacus information with Web usage. In fact, DoubleClick, other Internet firms, and individual Web sites were already gathering consumer names on a voluntary basis, through product and site registration as well as contests that offered an inducement to reveal desirable information. Whatever DoubleClick’s long-term plans may have been for Abacus, in the short run results for the unit were disappointing, accounting in large part to a free fall in the company’s stock price. By mid-October 2000 DoubleClick shares traded at $12, down from a 52 week high of $135.25.

In the midst of its travails in 2000, O’Connor relinquished his role as chief executive officer, retaining the chairmanship of the corporation while Kevin Ryan, president and chief operating officer, became CEO. Ryan, a former investment banker, had previous media experience at United Media Inc. DoubleClick was not alone among Internet start-ups in transferring power from visionary founders to more seasoned executives, although DoubleClick’s change appeared to be a more logical, fluid transition of power. Ryan maintained that he would continue to work closely with O’Connor, who would now focus on the future direction of DoubleClick, making sure it adapted to the ever-changing new-technology world.

In December 2000 DoubleClick cut staff for the first time in its history, laying off more than 150 employees. Although revenues grew to $505.6 million in 2000, almost double the $258.3 million generated the year before, DoubleClick’s loss increased to $156 million, a significant increase over the $55.8 million the company lost in 1999. Moreover, there was no certain date at which the company would finally become a profitable venture. Nevertheless, DoubleClick was in a much stronger position than its competitors, which did not have DoubleClick’s $900 million in the bank to see it through a difficult period in which the economy soured, investments dried up, and the Internet continued to search for its place among the mass media.

Key Dates:

1995:: Advertising agency Poppe Tyson forms Double-Click as a division of its company.
1996:: DoubleClick is spun-off and merged with Internet Advertising Network.
1998:: The company goes public.
1999:: Abacus is acquired.
2000:: Kevin Ryan is named CEO.
2001:: The company’s European division is sold off.

After enduring another round of layoffs in 2001, DoubleClick began to reposition itself as an online advertising infrastructure company. It established Diameter, a research unit designed not only to service Internet advertisers and marketers but to also compete against the audience measurement businesses of Nielsen NetRatings and Media Metrix. To bolster this endeavor, DoubleClick acquired@plan, an online market research Company, and signed a deal with comScore Networks to develop Web measurement tools. Through a series of acquisitions, DoubleClick also established a presence in email marketing, a field that held great promise. To improve the bottom line, DoubleClick sold off its European operation, which had accounted for a major portion of the company’s operating losses. By the end of 2001, DoubleClick had shifted its emphasis away from banner and pop-up ads, the effectiveness of which had severely eroded as more consumers chose to ignore them, to become a full-service Internet marketer. There were few certainties in the new media world, and although the Internet was clearly established, many observers believed it would eventually converge with television. DoubleClick was betting that the Internet would remain a separate medium and, given its market share and cash in hand, the company hoped to be the last one standing among online advertising firms and finally emerge as a highly profitable business.