BtoB

Engage fires 175, closes biz media unit

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In a dramatic turnabout last week, Engage Inc. said it will consolidate its Engage Business Media unit under the Engage Media banner.

The closure of Engage Business Media as a stand-alone entity comes just four months after the ad-server company formed the b-to-b division. Last week’s move was part of a general consolidation, which included pink slips for 175 Engage employees, or about 13% of its work force.

‘‘We’re going to keep [Engage Business Media] as a marketing name, and a very specific business network,’’ said Paul Schaut, president-CEO of Engage. ‘‘We’re reining in or centralizing some of the things that should be centralized so the business media network can tap into the other resources of the market.’’

Despite these assurances, Engage customers--publishers and advertisers--expressed concern.

Keith Dawson, publisher of The Call CenterNews Service, said Engage Business Media has been key to his business, selling more advertising than an in-house sales staff free-lancer.

‘‘Because we’re a specialty site, it is not a question of numbers for us but the ability to target advertisers with greater finesse than we could ourselves,’’ Dawson said.

But he expressed concern about whether consumer-oriented sales representatives will be able to position his site in the right light. Dawson was among those customers who received an explanatory e-mail from Engage to buttress its business relationships in the aftermath of the consolidation announcements.

Voicing similar worries was Mark Myers, manager-marketing and communications for the subscrition-based legal service Loislaw.com, which generates about $3.3 million in quarterly revenue by charging $39 to $139 monthly for access to its Internet database. It recently signed with Engage Business Media to supplement that income with advertising.

‘‘If they start trying to be everything to everybody, that will dilute what they are doing in the b-to-b space,’’ Myers said. ‘‘We deliver all our content to professionals. We don’t have consumers who want to pay on a monthly basis. We will be concerned if the guys selling consumer space are also selling b-to-b space.’’

But one of Engage Business Media’s top clients was bullish on the consolidation. Linda Rigano, publisher of Thomas Food Industry Register, said her company plans to continue to work with Engage to buy advertising for its directory of 30,000 companies and 6,000 suppliers.

‘‘What they are on to is very good, and I haven’t seen anyone else do it very well,’’ Rigano said. ‘‘Engage was able to get us into the specific restaurant sites that drive traffic. We’re in the business to get as many page views as possible from exactly the right audience, and to get traffic for our advertisers. The ultimate goal is to get advertisers business, and Engage is providing that vehicle.’’

‘‘So far, they’ve done far and away a better job than any other solution we’ve approached,’’ agreed David Morken, president of Bandwidth.com, a telecommunications marketplace for enterprise customers and carriers, which used DoubleClick Inc.’s Sonar Network and About.com’s Luna Network prior to joining Engage Business Media about three months ago. But, he added, "They intend to make a seamless transition, and we’re hoping there aren’t any bumps in the road.’’

Big savings forecast

Engage expects savings of about $21 million annually by sharing back-office operations across b-to-c and b-to-b advertising, Web site traffic measurement and profiling businesses. Engage CEO Schaut said the goal is to reach break-even on a cash basis by the third quarter of fiscal 2001, or nine months sooner than previously expected.

Engage has been the ad-server industry’s most high profile acquisition company. The company itself reports a cash burn in the fourth quarter of 2000 of $29 million, down from $49 million in the previous quarter. It holds cash equivalents of $136 million as the downsizing begins.

More broadly, Engage’s move highlights the difficulties Internet b-to-b companies, especially advertising service companies, are experiencing on Wall Street, said Dana Serman, research analyst at Lazard Freres & Co.

‘‘The company’s attempting to rationalize and focus its operations, and has an interesting underlying platform in which to do it,’’ Serman said. ‘‘But we’re in a tough environment when you consider what’s going on with dot-com ad spending. Basically, that has fallen off a cliff.’’

Engage, which has spent millions to buy such companies as I/Pro, MediaBridge, Flycast Communications Corp. and Adsmart Corp., is having difficulty rolling those entities into a compelling story for investors, Serman said.

Other observers, however, think Engage will achieve its hoped-for economies. David Doft, marketing services analyst for ING Barings, New York, said the efficiencies Engage gains by centralizing its operations might win the day. Prior to the consolidation, Doft projected that Engage would need an additional $150 million in cash to make all of its businesses operate profitably as stand-alone units.

By combining operations, Doft calculates, the company will need no additional cash and could prove that sales of consumer advertising and b-to-b advertising on the Internet can go hand-in-glove. The growth of the business unit, which went from about 85 clients to more than 250 in the last three months, signals that Engage has a future in b-to-b, he said.

‘‘Engage Business Media has been a nice growth area for them and an area where they’ve been able to differentiate themselves from their competition,’’ Doft said. ‘‘There will still be people focused on business media, just under the broader umbrella. I don’t think it will have a negative effect. If anything, they’ll be able to present a more coordinated effort, and present it better or more strategically.’’

Rival reacts

With Engage Business Media in a state of flux, B2BWorks Inc. emerges as the lone b-to-b specialist in the Internet advertising arena. A path is also opened for DoubleClick Inc., which has been attempting to establish its e-mail based Sonar Network as a major b-to-b ad network.

Reacting to last week’s news from its prime competitor, B2BWorks President and CEO Bill Furlong said there was nothing broken about b-to-b Internet advertising or the companies who supply these services.

‘‘This is not a reflection of the Engage Business Media unit as much as it is the overarching CMGI strategy,’’ Furlong said. ‘‘It is clear that [CMGI CEO] David Wetherell and his lieutenants have to look for ways to better manage the companies in its portfolio than they are today. This is about cutting cost. Being a more nimble, singular-focus company that isn’t tied to a larger operating company will allow them to grow.’’ (CMGI Inc. is the parent holding company of Engage.)

Engage moved swiftly to make sure the consolidation didn’t drain it of its top talent. In the effort to stabilize the organization, Schaut and other top executives held town meetings at its offices in Raleigh, N.C.; Andover, Mass.; San Francisco; New York; and in Asia and Europe.

Debra McWhinney, president of Engage Media, will take control of the b-to-b unit, which had been set up in separate office space and administrative operations from the consumer division. Engage will also operate a software unit headed by Dean Wiltse.

However, the company lost at least one key executive: Joanne Currie, general manager of Engage Business Media and the company’s most ardent speaker on the promise of b-to-b. Currie did not return telephone calls by press time, but sources said she will be pursued by other companies because of her profile in the industry.

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