Buyouts, portals, wild IPOs highlight an action-filled '98

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Aside from, online auctions were the sweetheart of Wall Street in '98. Onsale, whose stock lingered between $10 and $30 since last January, flew to $108 a share in November, then settled back between $35 and $40. UBid went public in December, hitting a first-day high of $60.50 a share. Today it trades around $35. However, eBay was by far the favorite. As the most-trafficked auction site, it went public Sept. 24, with a 163% one-day gain, watching its stock reach a high of $234 before settling down in the vicinity of $200. The trend wasn't overlooked by the portals. Yahoo! brokered a deal with Onsale to create Yahoo! Auctions, one of the few free auctions sites, and Excite began auctions in Excite Classifieds.


Wall Street fell in love with Internet stocks in '98, propelling relatively unknown companies to record initial public offerings. To date, online community achieved the highest first day of trading for an Internet company, closing at $63.50 after opening at $9. wasn't far behind, opening at $18 and closing at $62.75. Many were unable to maintain IPO excitement. By mid-December was trading around $30.


Internet incentive programs made good in '98 on some goals outlined in '97. The biggest shakeout came in November when Intellipost Corp., San Francisco, which runs BonusMail, bought rival MotivationNet, Schaumburg, Ill. Intellipost plans to expand MotivationNet's MyPoints` services. Netcentives moved in the same direction in December in buying Panttaja Consulting Group. Using the systems integrator to build customized loyalty programs is a trend likely to be echoed across the industry.


While '97 was seen as the year electronic commerce became a reality, '98 was the year it exploded into the mainstream. Retailers from Toys "R" Us to Victoria's Secret launched major Web stores, while search engines, community sites and Internet service providers established free or inexpensive e-commerce services for members. In one of the most dramatic e-commerce efforts, Levi Strauss & Co. announced in November it would sell jeans and other merchandise online, a move that sets up direct channel conflict with retail stores. The issue of channel conflict will only intensify as manufacturers try to capitalize on Web commerce while figuring out whether to circumvent or go head-to-head with their established distribution partners. Online holiday sales are expected to reach $2.3 billion this year, according to Jupiter Communications, compared with $1.1 billion in 1997. And in the weeks preceding Christmas, traffic at many shopping sites more than doubled from '97.


Score one for competition. America Online's acquisition of Netscape Communications Corp. and a related alliance with Sun Microsystems debunk any notions Microsoft Corp. gets to walk away with ownership of the Net. AOL in November agreed to buy Netscape for $4.2 billion in a stock swap set to close in the spring. AOL gets powerful browsing software and the Netcenter portal, while Netscape's enterprise software greatly enhances AOL's play in the business market. At the same time, AOL and Sun signed a three-year alliance: Sun will help sell Netscape software and give AOL more than $350 million in licensing, marketing and advertising fees; AOL will buy Sun systems and services worth $500 million. In its antitrust case, Microsoft latched onto AOL's deal as proof that competition reigns. In the case of AOL, Netscape and Sun, the sum could be greater than the parts.


The year 1998 saw a rash of agency consolidations as interactive shops merged with companies to broaden their range of services. The largest merger, creating Modem Media-Poppe Tyson, was the result of last year's acquisition of Poppe parent Bozell Worldwide by Modem parent True North Communications. Other big mergers included USWeb and CKS Group; Sapient Corp.'s acquisition of Studio Archetype; U.S. Interactive's merger with Digital Evolution; Razorfish's acquisition of Avalanche Solutions; Agency.-com's purchase of Spiral Media; and iXL's acquisition of at least eight Internet design and specialty shops.


One of the biggest problems for Web marketers trying to gauge the effectiveness of online advertising is the variety of ways to measure audience activity on Web sites from companies with different recruiting, data collection and reporting methods. In October, two of the leading audience measurement companies, Media Metrix and RelevantKnowledge, announced plans to merge. Also in October, Nielsen Media Research said it would take an equity stake in competitor NetRatings to offer a combined measurement service called Nielsen NetRatings. Industry players, such as agencies and Web publishers, applauded the moves, saying they will simplify the measurement process.


In August, Procter & Gamble Co. brought together close to 400 marketers, ad agencies, Web publishers and technology companies at its Cincinnati headquarters for the Future of Advertising Stakeholders summit. The FAST summit was seen as a watershed event for online advertising, because for the first time major Web spenders, including P&G's own competitors, joined the online industry to try to figure out how to make Web advertising work. The result of the summit was a new industry coalition called FAST Forward, made up of the Internet Advertising Bureau, the Association of National Advertisers, the American Association of Advertising Agencies and the Advertising Research Foundation. FAST Forward, through various task forces, is now working to resolve four key issues: creating effective ad models, making online media buying easier, simplifying measurement and encouraging consumer acceptance of Internet advertising.


Portal became a catchphrase in 1998 as a way to describe search engines stacked with community-building applications. Offerings range from free e-mail and weather data to Web page-building tools, chat and interactive games. The atmosphere teemed with acquisitions and constant deal-making. AltaVista fell into the hands of Compaq Computer Corp. when it bought the search engine's parent, Digital Equipment Corp. Other big changes: Walt Disney Co. took a 43% stake in Infoseek Corp., with warrants to buy a majority interest. Just recently, Disney and Infoseek launched a beta version of the Go Network. Excite was also on a buying spree, snatching up ad measurement company MatchLogic and Classifieds2000. It also dished out $70 million to Netscape in a complex two-year deal involving ads, distribution and Excite's supply of search technology. Leveraging its stock, Lycos bought home-page site Tripod, Wired Digital and Who-

Where CNET portal Snap picked up speed after NBC took a 50% stake in the site. Yahoo!, which still leads the competition with traffic, gobbled up permission marketing company Yoyodyne and expanded its content at breakneck speed.


To attract traditional marketers who want to deliver audio and video commercials on the Internet, rich-media ad delivery solutions sprang onto the scene, from companies such as RealNetworks, Unicast Communications, Narrative Communications and others. RealNetworks released its G2 Player, which delivers high-quality video ads over slow network speeds; Narrative released Enliven 3.0, including a larger ad format for interactive ads. Intel Corp., to showcase its Pentium II chip, backed a research effort by @Home Networks to test the effectiveness of rich-media ads for itself and six other big advertisers: AT&T Corp., Bank of America, First USA, Johnson & Johnson, Levi Strauss & Co. and Toys "R" Us. The first set of results found rich-media ads increased brand awareness and purchase intent. But Web site publishers are resisting, citing format variety, complexity and slow downloads.

Copyright December 1998, Crain Communications Inc.

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