Doubleclick Inc

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DOUBLECLICK INC.

DoubleClick Inc. is a pioneer in providing Internet advertising services, both to those seeking to advertise on the World Wide Web and to Web publishers who want to attract advertisers. Founded in January 1996 in New York City, DoubleClick created the first Internet advertising network, a group of Web sites that the firm represented to advertisers. It was a model that other Internet advertising agencies would emulate. Over the course of its first five years, DoubleClick expanded the network of Web sites it represented, segmented it to match the needs of Internet advertisers, and reorganized it to reflect changing market conditions. In March 2001 the company announced it would offer two distinct networks in the United States. One, the DoubleClick Brand Network, consisted of branded Web sites that had substantial brand recognition, a significant amount of traffic, and a marketable inventory of advertising opportunities. The other network was the DoubleClick Audience Network, which emphasized audience reach, targeting, and optimization in specific vertical categories. Outside of the United States, DoubleClick would continue to offer networks based on the local content of each country.

Another innovation credited to DoubleClick is its proprietary Dynamic Advertising Reporting and Tracking (DART) software technology, which enables the company to determine within 15 milliseconds which banner ad should be presented to the current user, based on pre-selected criteria. In order for DART to match ads to target audiences within milliseconds, it uses the controversial "cookie" technology that creates a user profile and monitors an Internet browser's movements through Web sites in DoubleClick's media network. Using this technology, DoubleClick created a database of user profiles that enabled it to better target banner ads to users who visited Web sites in the DoubleClick network.

DoubleClick's information-gathering practices put it at the center of Internet privacy concerns, and privacy advocates have closely monitored how DoubleClick obtains and uses information about Internet users. At issue is the fact that cookies obtain information about a user's hardware and software as well as their Internet connections without obtaining permission. Privacy advocates are most concerned that the technology could be used to obtain confidential information against the wishes of individual users. Another key issue involves combining online and offline information to create even more comprehensive user profiles that might include individual names, addresses, and telephone numbers. DoubleClick has maintained that it uses the information in aggregate form only, and does not reveal information on an individual basis. In March 2001 the Federal Trade Commission (FTC) ended its investigation into DoubleClick's privacy practices without saying that any violations had or had not occurred.

OFFERED REAL-TIME TARGETING

DoubleClick had its roots in the New York advertising firm Poppe Tyson, a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt Inc. It was established by Poppe Tyson, Kevin O'Connor, and Dwight Merriman. O'Connor and Merriman had enjoyed success with Intercomputer Communications Corp., a software company that O'Connor sold for $25 million when they were in their early twenties. In 1995 Tyson's interactive unit was trying to find ways to place online advertising. The firm contacted O'Connor, who was in charge of the Internet Advertising Network at the time. He was in the process of developing software to position ads on the World Wide Web for maximum effect. O'Connor and Tyson then joined forces to create a network of Web sites that they could represent to potential advertisers.

DoubleClick launched its network in January 1996, representing about 30 Web sites. O'Connor and Merriman developed software for DoubleClick that could match online banner ads to a user's demographic and psychographic profile in a matter of milliseconds. This gave the firm a powerful tool to deliver targeted ads to highly segmented audiences. In its first year of operation DoubleClick quickly built a database of some 10 million user profiles. Among the first sites represented by the DoubleClick Network were Travelocity, excite.com, and AltaVista.

Investors were attracted to DoubleClick's business model. Initially, the company raised more than $2 million from Bozell, Jacobs, Kenyon & Eckhardt. In mid-1997 it raised another $40 million from six venture capital firms. At the end of 1997 the company filed for an initial public offering (IPO), which took place in February 1998 and raised $62.5 million. Its IPO filing revealed that DoubleClick had $30.6 million in revenue for the first nine months of 1997, 43 percent of which was accounted for by AltaVista. Advertisers accounted for about 30 percent of the company's revenue. DoubleClick also had begun to expand internationally, opening sales offices in the United Kingdom, Canada, and Australia. DoubleClick Japan was formed in September 1997 as a joint venture with three other Japanese firms.

Another innovation credited to DoubleClick was introduced in mid-1998. DoubleClick Local was a new service that allowed advertisers to target Internet users on a regional and local basis by tracking their IP addresses. The new service used the geographic targeting capabilities of DoubleClick's DART technology. DoubleClick had mapped out the individual points of presence for major national Internet service providers (ISPs), but not for America Online users.

Later in 1998, DoubleClick launched a new business unit, Closed-Loop Marketing Solutions, that offered three new services for advertisers. One service, DART for Advertisers, helped them to manage and traffic ads and easily change their creative content. DataBank was a reporting service that anonymously tracked shoppers' patterns and provided the information to advertisers. A third service called Boomerang gave advertisers the ability to create distinct lists of people on their site and what they did, and to continue the relationship after they left the site.

EXPANDED THROUGH ACQUISITIONS IN 1999

In an effort to expand its reach in January 1999, DoubleClick began representing the ad inventory of Web sites on a non-exclusive basis. Sites whose ads were sold only by DoubleClick became part of the DoubleClick Select group. While DoubleClick remained selective about which sites it would represent, the move to represent some sites on a non-exclusive basis gave the firm greater flexibility in meeting the needs of advertising buyers. In early 1999 DoubleClick claimed to have ads placed on 6,400 Internet sites worldwide. It delivered 5.6 billion ads in December 1998 and represented ad sales for about 60 Web sites on an exclusive basis. Internationally, DoubleClick had 27 sales offices in 17 countries.

In spite of losing $18 million on revenue of $80 million in 1998, DoubleClick was in a strong financial position to expand through acquisition. It renewed its contract with AltaVista for three years, which represented about 40 percent of DoubleClick's revenue. The company raised $95 million in December 1998 through a secondary stock offering, followed by another $250 million in March 1999. In the second half of 1999 DoubleClick made three significant acquisitions. In June the company announced it would acquire Abacus Direct Corp. in a transaction valued at $1 billion. Abacus Direct was an information and research provider for direct marketing and maintained databases of customer buying histories from catalogs and retailers. When announced, the acquisition alarmed privacy advocates, who envisioned Double-Click would combine its online data with the offline data collected by Abacus Direct to create customer profiles with complete contact information, including home addresses and telephone numbers.

The second major acquisition of 1999 involved NetGravity Inc., which was DoubleClick's biggest competitor. DoubleClick acquired the firm for $530 million. As a result, DoubleClick pulled away from its competitors to assume leadership in the online advertising business. Before the year was over, rumors were flying that DoubleClick would acquire another leading competitor, 24/7 Media, but nothing came of it.

The third major acquisition of 1999 gave DoubleClick a better position in e-mail marketing. In December 1999 the company announced it would acquire Opt-In Email.com, an Internet provider of e-mail marketing, publishing, and list management. The acquisition coincided with DoubleClick's introduction of its suite of e-mail products, called DARTmail, with DARTmail for Publishers and DARTmail for Advertiser set to launch in the first half of 2000.

Late in 1999 DoubleClick reorganized its DoubleClick Network into six vertical divisions: automotive, business, travel, women and health, entertainment and youth, and technology. The company retrained its sales representatives to be experts dedicated to only one field. The DoubleClick Network consisted of premium branded sites. To be represented by the DoubleClick Network, a site had to have at least 1 million page views per month. In January 2000 DoubleClick established a second network, called Sonar, to serve smaller sites. The Sonar network initially was divided into 16 categories and was expected to expand to about 40 categories throughout 2000. Web sites generating as few as 100,000 page views per month were eligible to become part of the Sonar network.

PRIVACY CONCERNS DOMINATED 2000

Privacy concerns again took center stage for DoubleClick in 2000. In January 2000 a Marin County, California, woman filed a lawsuit against Double-Click, claiming that the firm violated consumers' privacy by improperly using the information it collected about the Web sites they visited. Following the acquisition of Abacus Direct, with its huge database of information on millions of consumers, it became known that DoubleClick planned to link its own online data with the offline data in Abacus's database. The lawsuit asked DoubleClick to change its information-gathering policy so that it would have to ask for a consumer's explicit permission before collecting data on them. At the time, DoubleClick only had an "opt-out" policy in effect, whereby a consumer could visit the company's Web site and request that the company refrain from gathering information on them. Many critics claimed this placed an unfair burden on consumers.

Further action on privacy issues was taken by the Electronic Privacy Information Center (EPIC), which filed a complaint with the FTC. The complaint argued that it was illegal for DoubleClick to track Internet users' online activity and then combine that information with offline data to create a national marketing database. The complaint led to an FTC investigation into DoubleClick's practices. In March DoubleClick announced it would halt its plans to merge names with anonymous user activity until the Internet industry and the federal government established firm guidelines to protect the privacy of Internet users. Later in the year the company convened a privacy panel to study the issue and appointed a chief privacy officer.

CONTINUED TO EXPAND IN 2000

Although DoubleClick cut back on its acquisitions in 2000, it continued to expand. A strategic partnership with e-mail network Topica gave DoubleClick a stronger position in e-mail marketing. The firm's new DARTmail service would manage Topica's opt-in e-mail lists, which numbered some 5 million unique users. Topica also agreed to buy a half-billion impressions on DoubleClick's Sonar network to promote its opt-in lists. In October 2000 DoubleClick introduced the DoubleClick eMail Network, which aggregated e-mail newsletters into six content categories so that advertisers could run banner and text ads across multiple newsletters with a single media buy.

Internationally, DoubleClick was preparing for a roll-out in Asia, where it established offices in seven regional markets and hoped to break into China's online market. In October 2000 DoubleClick announced a partnership agreement to provide ad management services to China's top Web site, Sina.com. In the United Kingdom, DoubleClickacquired @plan.inc, a market research planning provider. The company's U.K. ad network was reorganized into five specific market sectors: technology, automotive, business, consumer, and leisure.

AD REVENUE EXPECTED TO DECLINE IN 2001

DoubleClick ended 2000 with total revenue of $505.6 million, up from $258.3 million in 1999. The company, which had not turned a profit in its five-year history, reported a net loss of $156 million for 2000, compared to a net loss of $55.8 million in 1999. Nevertheless, the company was optimistic about its financial position. It achieved its first-ever profitable quarter in the third quarter of 2000 and broke even in the fourth quarter. Its market capitalization was $1.75 billion in December 2000, and the company said it had close to $900 million in cash.

For 2001 DoubleClick projected that advertising revenue, which accounted for about half of the firm's revenue, would decline 25 to 30 percent in 2001. The firm lost its AltaVista account, and the Internet economy in general was expected to experience a downturn. DoubleClick's remaining revenue came from its data and technology divisions. As a cost-cutting measure, DoubleClick laid off about 200 workers, or 10 percent of its workforce, in March 2001. Meanwhile, the company was planning to invest heavily in e-mail marketing. In March 2001 DoubleClick announced it would acquire Toronto-based FloNetwork Inc., a rapidly growing e-mail marketing technology provider that delivered more than 540 million e-mail messages for 125 clients in the fourth quarter of 2000. The acquisition positioned DoubleClick to become a leader in e-mail marketing. Prior to the acquisition DARTmail had scaled to deliver more than 150 million e-mail messages a month.