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Monday, November 01, 2004

The Fall and Rise of Online Advertising

Today's news that online ad serving company DoubleClick may be mulling a sale comes on the heels of a lukewarm forecast for fourth-quarter earnings and a downgrade to "underperform" by Piper Jaffray analyst Safa Rashtchy. (Or "Sara" Rashtchy as newratings.com referred to "her," although Safa's photo would seem to indicate otherwise.) Once the carrier of the torch for the entire online advertising industry, Doubleclick now limps along with slight profitability on anemic revenues of around $75 million a quarter. That's small potatoes when you've spent most of your life thinking and acting like a "big" company.

Meanwhile, Fastclick, a growing startup in the online ad serving space, has closed a $75 million round of Series A financing. Bob Davis, a partner in Highland Capital Partners and former CEO of Lycos, is one of the heavy hitters behind this financing. Let's hope one of the tough questions asked of Fastclick was "how will your life cycle be any different from Doubleclick's?" Then again, from a VC standpoint, any life cycle that includes going public and trading for above a split-adjusted $100 per share for the better part of a year, as Doubleclick did, has to be considered a "win."

Reviewing Fastclick's product benefits, it looks promising insofar as advertisers would have the ability to control ad delivery based on predetermined metrics like cost per lead, cost per click, cost per order, etc., and to carefully track post-click behavior. Ultimately, though, the achilles heel of the business model is the same one that faced Doubleclick (and which is now awaiting the likes of Google and Overture): publisher-driven disintermediation. Those who control the traffic can squeeze third party ad technology middlemen. Advertiser demand is clearly there, but Fastclick's, or any other intermediary's, ability to deliver big online reach to make the advanced ad serving and tracking worthwhile, is in serious doubt and can change from year to year.

Online advertising is dead. Long live online advertising.

Posted by Andrew Goodman




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