For some of these ad networks primarily operating in the business-to-consumer sector, their limited forays into b-to-b aren't likely to be the panacea that will cure them of their mounting financial ills, analysts say. Layoffs continue, and revenue and profitability are declining at some of these companies, including 24/7 Media and CMGI-controlled Engage. Some analysts predict that by yearend there may be fewer of these outfits standing, with some selling assets to bigger players like DoubleClick, or folding under the pressure of breathless growth followed by rocket-speed declines.
"There's just not enough money in the b-to-b space to save these companies from the size of their losses to date," warns Jim Nail, senior analyst at Forrester Research.
Companies spent a total of $1.6 billion on b-to-b online marketing last year and are projected to boost that level 81% to $2.9 billion for 2001, according to a Forrester report last September. Spending is expected to balloon to $10.1 billion by 2005; Forrester is sticking with those projections in spite of the economic downturn. If ad networks can hang on, the future looks bounteous.
However, that's a big "if" in the wake of the dot-com decline. Internet companies contributed a spurt of growth in the b-to-b sector last year, but that fuel has evaporated in 2001 as dot-coms closed shop while others had their funding clipped. Many traditional companies feel less competitive pressure and have slowed their once-frenetic pace to reach the b-to-b online market, says Richard Kean, executive director of the Business Marketing Association. "Slowdowns in the economy are also pushing companies to maintain flat marketing budgets this year, and they're spending more of those dollars on sure things like trade shows and brochures," he adds.
GIVING IT BEST SHOT
Ad networks, for their part, insist they're diving in and giving it their best shot. They're reshuffling the mix of products in response to b-to-b advertisers shifting away from ubiquitous banner ads and moving toward e-mail, rich media and affiliate programs. However, they face an uphill challenge convincing advertisers to commit more money quickly enough to shore up the ad networks' rapidly declining profitability, observers say.
Unlike the niche carved out by business-to-business specialist B2BWorks, most online ad network companies aren't generating more than 15% of total revenue from the b-to-b arena, and few have plans for growing that area substantially, they say. Meanwhile, some analysts question the soundness of some of these companies' b-to-b strategies.
Engage's media division reorganized its ad network efforts last year by combining its business-to-business and business-to-consumer sales force after suffering financial losses when they were separate. Streamlining efforts also included more than 700 layoffs by January of this year and the departure of CEO Paul Schaut last November. Revenue from the b-to-b side of its business currently represents 10% to 15% of overall sales, and that's expected to remain flat for the near term, says Tom Rothfels, exec VP-worldwide media.
"You've got to have separate sales forces representing business and consumer properties because the sale and scale are so different," says Mr. Nail. "B-to-b marketers don't spend much on branding; they focus on generating qualified prospects for sales so it's a targeting expertise that's needed."
Engage is concentrating its b-to-b sales on a handful of vertical industries, including small office/home office, agriculture, legal, information technology and telecommunications. Those efforts need to pay off soon. The company has limited cash resources and posted a net loss of $695.6 million for the second quarter of fiscal 2001, ended Jan. 31, on revenue of $28.1 million.
GOING WHERE MONEY IS
24/7 Media draws only 15% of its revenue from the b-to-b sector, and CEO David Moore says the company's mix of clients has changed dramatically. "A year ago, 80% of our advertisers were dot-coms in both b-to-b and b-to-c," he says, "but today our focus is on the offline companies because that's where the money is."
The ad network is betting on growing interest in e-mail products for b-to-b advertisers, Mr. Moore says, and it's promoting 24/7 Mail, which offers marketers highly targeted b-to-b lists from industry-specific Web sites.
In fact, e-mail marketing on the b-to-b side is taking off and is expected to eclipse banner ad spending and all other online marketing products in the b-to-b arena in the years ahead. By 2005, spending on e-mail campaigns is anticipated to climb to $3.2 billion, while banner ads are projected to make up $2.1 billion of the total, according to Forrester (see chart below).
NO SILVER BULLET
However, some critics aren't sure 24/7's e-mail efforts will provide the silver bullet it needs. "24/7 is rallying around its e-mail business, and while they say [the e-mail products are] close to profitability, it still accounts for less than a third of [24/7's] overall business," says Dana Serman, an independent consultant who follows ad networks. 24/7 would "have to abandon their spending on staffing and everything else in other areas, and I haven't heard about plans for those kinds of cuts."
New York-based 24/7 did trim its staff by about 300 late last year and into this year, but not enough to reverse its worsening financial picture. Fourth-quarter revenue of $38.6 million was down substantially from $48.1 million in the third quarter. Fourth-quarter 2000 results also included a $677.1 million net loss, vs. a $13 million loss for the same period in 1999. The full-year net loss was $780 million, vs. $39 million in 1999. Revenue, however, more than doubled last year to $185.2 million. 24/7 says it has secured an equity credit line enabling the company to raise up to $50 million of additional financing, depending on the performance of its stock, gradually over the next two years.
Los Angeles-based L90 expects only 5% to 10% of its projected $70 million in revenue this year to come from b-to-b, but sales from that segment of its business are growing at a faster pace than other areas, says John Bohan, president-CEO. He points to its longtime reliance on such targeted b-to-b products as e-mail and co-registration, which enables an advertiser to acquire permission-based information when a person registers on a Web site, as evidence L90 has been ahead of the curve.
At privately held B2BWorks, there are plans to increase its staff of 75 by 25% this year, says CEO Bill Furlong. With 500-plus Web sites in its network representing 60 vertical industries, Chicago-based B2BWorks has been credited by analysts with pushing up cost-per-thousand rates for ad placements. B2BWorks has been charging advertisers CPMs of between $100 and $900 for many of its e-newsletters, says Mr. Furlong.
Although B2BWorks' revenue has been flat recently, Mr. Furlong points to new partnerships in other parts of the globe that will help bolster cash flow.
"Bill Furlong is the only guy betting long on b-to-b, and his company will be successful because they're totally focused on that sector," says Mr. Nail.
ISSUE OF TOTAL VISITORS
Still, even B2BWorks will have to convince advertisers to boost their b-to-b activity. Client Nextel Communications, a wireless technology provider, allocates less than 10% of its marketing budget toward b-to-b online efforts, says Ted Moon, senior manager of interactive media at the company. "The benefit of the b-to-b side is the ability to target better, but the jury is still out on whether that overcomes the issue of fewer visitors to those sites," he says.
Overall ad network leader DoubleClick, while not a huge player in the b-to-b field, is drawing advertisers to that sector by touting its strengths in data tracking and research capabilities to pinpoint a qualified audience, says Bill Wise, VP-U.S. media networks. "Our strategy isn't necessarily to just find the right b-to-b sites to place ads, but to find the right audience wherever they may be," he explains.
The New York-based company casts a wide net for tracking down those eyeballs. It has exclusive agreements with a total of 1,100 Internet sites (b-to-b or b-to-c), which are segmented into seven broad verticals-including technology, travel and healthcare-and broken down further into 35 niches.
A recent reorganization of DoubleClick's U.S. media business into two separate pieces, a brand network and an audience network, plays well to the b-to-b space since the latter group will focus on audience reach and targeting, Mr. Wise says.
Also, last week DoubleClick acquired the intellectual property assets of ad tracking company Sabela Media from 24/7, which acquired the Sydney-based company last year.
DoubleClick hasn't been immune from the market slowdowns affecting its competitors. The company recently announced it would cut staff by 10% and warned its media revenue would be down between 25% and 30% this year. Despite the anticipated revenue drop, DoubleClick has about $900 million in cash reserves, which should help it ride out the tough months ahead, Mr. Serman says.
"It's too late for most of these companies to diversify further into the b-to-b sphere because cash positions are dwindling and profitability is already way down," Mr. Serman says. "I'll bet companies like DoubleClick and L90 will survive and take market share as other second-tier companies wither away."