*Engage Consolidates, Lays Off 175 Employees

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Internet marketing services firm Engage Inc. announced earlier this week that it has consolidated its five business divisions into two -- Engage Media and Engage Software -- and laid off 175 employees, representing 13 percent of its work force.


"One hundred percent [of the layoffs] were due to redundancies within Engage," said Betsy Zikakis, vice president of marketing at Engage, Andover, MA, which is 87 percent owned by CMGI Inc.


However, she conceded, "We are feeling a softness [slowed spending] in interactive advertising just as everybody else has."


The Engage Media division combines the current media buying and user profiling concern Engage Media with business-to-business network Engage Business Media, measurement-and-analysis concern AdKnowledge and auditing division I/PRO. Engage Software includes the Engage Enabling Technologies division and the recently acquired software firm MediaBridge.


Engage estimated in a press release the move will save $21 million annually, and "accelerate its path profitability" without estimating a time frame.


"The financial market shifted on us in April," said Zikakis. "And it wasn't just enough to grow the business anymore ... We now have a very balanced business both in terms of the financial picture where we have higher margins and a different business cycle with software ... and a more balanced portfolio in terms of solutions we can offer marketers."


This marks the latest in a series of significant transformations that Engage has undergone during the past year.


Last October, the company announced its Engage Knowledge database of anonymous profiles of Internet users was commercially available through a collection of Web sites dubbed AudienceNet.


Then in January it signed an agreement to acquire ad network Adsmart, Andover, MA, and ad placement firm Flycast Communications Corp., San Francisco, from CMGI Inc. for $2.46 billion in stock.


The acquisitions were combined with Engage Knowledge and AudienceNet to form Engage Media, an ad placement company that primarily would represent media buyers.


The deal was positioned to differentiate Engage from competitors DoubleClick and 24/7 Media which primarily represent Web publishers and, as a result, try to sell premium space and keep rates up.


This latest move would apparently be an attempt to take the rest of the pieces under the Engage umbrella and create a strong central brand in the marketplace.


"There are a lot of disparate tools [at Engage] that have their own brands," said former Adsmart executive John Denny, who is now vice president of marketing and business development at online ad rep firm Winstar Interactive Media, New York. "The challenge is to find cohesion and make it gel," he said.


And that may be far easier said than done.


"This is a company that has rolled up five acquisitions with disparate geographies, and disparate cultures to deal with," said Dana Serman, research analyst at Lazard Freres Co. LLC, New York. "It has been through several business models, even in the time they've been public ... Now they're trying to rationalize and focus, but I can't imagine what morale would be like when people see 200 of their buddies get the ax when you don't see that happening across the industry yet.


"Maybe some shareholders are seeing that as proactive, and maybe it's not inappropriate, but maybe it just puts an exclamation point at the end of the sentence that says, 'this was a confused company for a while, and probably a little bloated,' " he said.
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