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Online Ad-Server Hopes to Stimulate Its Growth

A company in a crowded market for online advertising services is hoping to help accelerate its growth with investments totaling $57 million from sources that include major agency and media companies like the WPP Group, the Reuters Group and America Online.

Advertising.com in Baltimore, which was founded in 1998, plans to announce the additional investments today. The total eclipses the $12 million the company raised in four previous rounds of financing. The investors will receive equity stakes in the privately held Advertising.com, which began under a more colorful moniker, TeknoSurf.com; among the other investors are Credit Suisse First Boston Private Equity, a unit of the Credit Suisse Group and the Grotech Capital Group. The investments come as the field in which Advertising.com competes, known as online ad-serving, grows increasingly competitive as pitching goods and services on the Web becomes more difficult. Ad-serving involves developing systems that send ads to Web sites so they can be shown to computer users. Other companies in the category include AdForce, part of CMGI; AdKnowledge; DoubleClick, the largest; and Engage Technologies.

"The ad-serving business is a commodity business, so differentiation is achieved on price and customer service," said Patrick Keane, senior analyst and director for online advertising strategies at Jupiter Communications in New York.

"Since they're all pretty competitive on price, that's where customer service comes in," he added, in the form of "better targeting of ads to reach specific consumers through better technology."

Advertising.com promotes its technology under the name AdLearn, which is billed as performing automated assessments of the past preferences of computer users to serve them the ad messages deemed most appropriate and effective. The company now delivers ads to more than 5,000 Web sites and also offers an e-mail marketing network and the ability to deliver ads to wireless devices.

"We formulated the Internet advertising industry as a mathematical problem," said Scott Ferber, chief executive at Advertising.com, who founded the company with his brother, John, "and produced a real-time system that makes truly optimal decisions."

Revenue for Advertising.com last year totaled $11 million, Mr. Ferber said, which represented an increase of 1,600 percent from 1998; revenue for the first quarter of 2000 totaled $12 million. However, the estimated four billion ads served by Advertising.com in June is about as many as AdForce serves in eight days.

Still, Advertising.com has its fans.

Investing in the company "makes a lot of sense," said Sir Martin Sorrell, chief executive at WPP in London, which owns Ogilvy & Mather Worldwide, the J. Walter Thompson Company and soon, Young & Rubicam Inc. WPP has been making investments in the Internet through a division, Wpp.com, which now owns stakes in more than 30 companies.

"We have looked at a number of companies in this space before we decided on Advertising.com," said another new investor, John Taysom, founder and co-chief executive at the Reuters Venture Capital unit of Reuters in London, which under the name the Greenhouse Fund has spent about $300 million to invest in 62 companies like Infoseek and Yahoo in addition to Advertising.com.

Reuters is seeking "adjacent category businesses" to its primary mission of "news delivery," Mr. Taysom said, "and advertising is certainly one."

As for the recent rough times for dot-coms -- which have caused ad-servers to suffer because fewer ads are delivered when Web sites go dark -- Mr. Taysom said: "We saw it as an opportunity. A lot of things out there were very first generation. Advertising.com is very much about 'What is the problem and how do you solve it using current technology?' "

Yesterday, David Moore, chief executive at 24/7, said that revenue for the third quarter would be lower than expected because Internet companies are buying fewer ads, partly because many were husbanding money for the important fourth-quarter holiday season.

Mr. Keane at Jupiter suggested that the performance of ad-servers could be improved if they would expand their tracking services from "looking at successes" in terms of which ads attract the attention of Web surfers to include "looking at negative successes."

"Knowing why ads aren't being clicked on," Mr. Keane said, is just as important "as tabulating and understanding click rates."

Mr. Ferber described himself as optimistic about the outlook for online advertising.

"Accountability is the ultimate opportunity for the Internet," he said, "because it's a trackable medium. That's the benefit of it, so let's capitalize on it."


Stuart Elliot, The New York Times. August 2, 2000

Copyright © 2000 The New York Times. All rights reserved.