The Internet ad industry is entering a new period: the era of the anonymous user profile.
DoubleClick decided earlier this month to suspend matching personally identifiable information with users' Web habits. That answers, for now, the question of whether the best way to target ads at users is by numbered Net profile or by name and other personal data.
The only question that remains: Who is best at profiling Web users anonymously?
David Wetherell, Internet investor extraordinaire, is betting that Engage will win in this game. That company, 80% owned by Wetherell's CMGI, has been developing statistical models to analyze anonymous profiles for more than four years, longer than any other major player in the category.
Through 1998, DoubleClick and Engage seemed to be in different businesses. DoubleClick served ad banners on a huge network of Web sites, while Engage focused on its user profiling methodology.
But in 1999, the business models began to converge.
DoubleClick, which was already serving ads targeted at Web surfers based on profiles, purchased Abacus, a database of consumers' offline catalogue purchasing behavior, for $1.7 billion in stock. The idea was that by identifying users and matching their online surfing habits with their actual off-line purchases and other information, DoubleClick would have the best user analysis tool on the Web.
Meanwhile, profiler Engage, with the support of CMGI, moved to acquire ad-serving capabilities. The company acquired AdKnowledge, and CMGI bought AdSmart and Flycast. In January, CMGI then announced that AdSmart and Flycast would be folded into Engage.
When the dust settled, DoubleClick, the industry giant, no longer dwarfed the newly bulked-up Engage. And as the public outcry over DoubleClick's use of personally identifiable information on surfers mushroomed in February, investors battered DoubleClick's stock. Announcement of a Federal Trade Commission probe, state investigations and a handful of consumer privacy lawsuits sent shares down from the $113 level to below $80 at one point. Once DoubleClick backed away, its shares rebounded completely, closing at $116.19 on Friday.
At the same time, shares of Engage, though more thinly traded, rose steadily following the January consolidation, and then surged during DoubleClick's troubles, hitting $185 a share in early March before settling back and closing last week at $148.06.
''Privacy was an issue for DoubleClick's stock,'' says Tara Long of C.E. Unterberg Towbin. ''Engage was the beneficiary of all this. The run-up was also based on the fact that the stock is illiquid.''
On March 1, at the height of the price divergence between the two stocks, their market capitalizations were resting between $9 billion and $10 billion.
DoubleClick's market capitalization may have returned to its robust former size, but Engage CEO Paul Schaut still thinks the turmoil shows clearly that the future belongs to his company and its methods.
''We're defining the future,'' Schaut says. ''Anonymous profiling continues to be the correct way to strike a balance between the power of marketing and the consumer's right to privacy. Now that people are recognizing the importance of anonymous profiling, people should know that we've mastered it. It's something we wrestled with since we started, and we have an 18-month lead over anybody who's trying to do what we're doing.''
In recent weeks, like a politician who knows he's got the high ground on an important issue, Schaut has kept emphasizing both the importance of privacy issues and the strength of Engage's anonymous profiling approach to the game.
At a recent industry conference, before DoubleClick pulled back for now on its personally identifiable information stance, Schaut kept hammering away.
''We believe in profiling and we believe in privacy,'' he told analysts who gathered at a C.E. Unterberg Towbin forum on Internet marketing. ''The Internet can be powerful, but you don't need to know who the user is.''
Greg Farrell, March 13, 2000 USA TODAY
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