July 2, 2004

Internet advertising and online marketing, once heavily criticized for its aggressive, repetitive use of banner ads is making a comeback, with rekindled interest in the industry triggering some deals.

"What you're finding is a lot of undervalued assets in some of these firms," said Don Scales, president and chief operating officer of Agency.com Ltd., a Chicago online ad firm that on Tuesday, June 29, acquired rival Exile On Seventh LLC of San Francisco for undisclosed terms.

"As the market picks up, people recognize the assets are undervalued and are acquiring them for future growth."

In a related deal, e-mail marketing company Return Path Inc. of New York on Tuesday bought NetCreations Inc., also of New York, a provider of permission-based e-mail acquisition and sampling services, for undisclosed terms.

Those transactions come a day after Seattle online media firm aQuantive Inc.bought Web services firm SBI.Razorfish from Salt Lake City-based SBI Group Inc. for $160 million and a June 24 deal by New York-based Time Warner Inc.'s America Online Inc. to purchase Baltimore-based Advertising.com Inc. for $435 million.

"Online advertising is bouncing back," said Gary Stein senior analyst with JupiterResearch. "Surviving companies have money in the bank and want to further strengthen their positions, and there are a lot of new companies doing interesting and clever things that can be bought at a good price."

According to a May report by the Interactive Advertising Bureau and PricewaterhouseCoopers, Internet advertising totaled nearly $2.3 billion in the first quarter, the highest quarterly total since the two firms began tracking online ad revenue in 1996. That figure also represents a 39% increase from the $1.6 billion in advertising in the first quarter of 2003, though only a 4% increase from the $2.2 billion reported in the fourth quarter.

Denise Garcia, an analyst with Stamford, Conn.-based Gartner G2, expects Internet ad sales to total $10 billion in 2004. Although that remains a fraction of the $250 billion ad market, online advertising is growing at a 15% clip after years of single-digit growth, she said.

"Whenever an industry starts to mature, you start to see companies becoming more full service because their customers want to go to one company," Garcia said. "They don't want to go to one place for rich media, another for e-mail marketing. They want it all in one place."

To expand its range of service offerings, online marketing firm DoubleClick Inc. of New York acquired Chicago-based Performics Inc., a provider of search engine marketing services, for $65 million in a deal that closed June 24.

Search engine marketing firms help companies develop programs to drive traffic to their Web sites through search engines such as Google Inc. of Mountain View, Calif., and Overture Services Inc. (Nasdaq:OVER - news) of Pasadena, Calif., which Yahoo! Inc (Nasdaq:YHOO - news). of Sunnyvale, Calif., bought last year for $1.9 billion.

Stein said other search engine marketing firms that could draw acquisition interest include iProspect Inc. of Watertown, Mass.; Fathom Online Corp. of San Francisco; Did-it.com Inc. of Rockville Centre, N.Y.; icrossing inc. of New York; and Enquiro Search Solutions Inc. of Kelowna, British Columbia.

Garcia said she expects larger online marketing companies such as DoubleClick and Internet giants such as like Microsoft Corp.'s MSN, AOL, Yahoo! and Google to pick off other small, creative or specialty shops.

"The smaller guys who realize they just can't compete with the larger holistic approach to advertising are more likely to say, 'Buy me,' " she said.

Source: Yahoo News

        

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