Mail.com to Sell Ad Network, Focus on Messaging

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Mail.com, New York, said last week that it plans to make a clean exit from the online advertising business to concentrate on becoming a pure outsourced messaging firm.


As part of that strategy, Mail.com intends to sell its advertising network -- and the myriad e-mail marketing services that go along with it -- and has hired investment banker SG Cowen to assist in the process. It also decided late last week that it would look to sell off its two international portals, Asia.com and India.com, and its portfolio of domain names, which includes lawyer.com and usa.com, as well. Mail.com officials said they expect the divisions to fetch between $100 million and $200 million, a cash infusion needed to fund the company's outsourced messaging business to profitability.


Simultaneously, Mail.com said it is reorganizing its senior management to reflect the company's new focus and laying off approximately 15 percent of its more than 630 employees.


In moving out of the online advertising and marketing space, Mail.com is abandoning a unit that provided the firm with 40 percent of its total revenues -- which topped $12 million in 1999. But it also is leaving a hotly competitive business that is consolidating around a handful of large players which have considerably more resources than could be provided by a Mail.com balancing its efforts between its ad network and its e-messaging unit.


"A few years ago, 100 percent of Mail.com's quarterly revenues came from our advertising base," said Thomas Murawski, who was promoted to CEO of Mail.com as a result of the reorganization. "Today the balance has shifted away from ad revenues to [e-messaging] business revenues. Now 60 percent of our revenues come from 9,000 corporate customers worldwide using Mail.com's suite of outsourced messaging services." Included in Mail.com's corporate clientele are 107 companies of the Fortune 500.


Chief among the reasons cited by Mail.com as the motivation for selling the ad network was that its senior executives believed that two separate models were required to successfully operate the two businesses.


"If you look at the ad network and the market message required to serve those customers, it is completely different than the market, message and customers needed to serve the business messaging space," Murawski said. "So while Mail.com was trying to present a common face in the market, we were actually in conflict with each other."


After coming to that realization, the company decided that the best course of action would be to merge the ad network with another network, which could then combine Mail.com's inventory and e-mail lists with its own and create appropriate scale. Murawski, as well as Mail.com Chairman Gerald Gorman, refused to say if the company was already in talks with potential suitors. They also declined to speculate which firms might be interested in Mail.com's ad business.


Several online ad firms, including DoubleClick, Engage and 24/7 Media, either declined to comment or did not return phone calls.


What's clearer, however, is what Mail.com is putting up for sale. Media Metrix recently ranked Mail.com's e-mail-based ad network as the industry's fifth-largest advertising network. Partner sites include top-tier firms such as Dell, CBS SportsLine.com, EarthLink, GTE, idg.net and RollingStone.com. In the third quarter 2000, the network served 5.5 billion ads.


Not included in the package is Mail.com's e-mail hosting business. Murawski said the company would continue to manage and maintain the 20 million e-mail boxes, for a monthly fee, in its network.


"It's not an easy thing to do and it's not easy to develop," he said, referring to the hosting of 20 million e-mail accounts. "To offer a potential buyer all the benefits of the ad network, while maintaining the management of the infrastructure, to me adds value [to the buyer]."


Wall Street reacted to the news swiftly, dropping Mail.com's stock 18 percent, from $4.50 per share on Oct. 26, the day of the announcement, to $3.81 the following day. One week later, Mail.com was trading even lower, at $3.625 per share. At this time last year, the stock traded consistently in the low $20s and peaked at $29 per share.


As part of Mail.com's reorganization, which includes the potential ad network sale and the 15 percent staff reduction, Mail.com will take an $8 million to $10 million charge. The work force reduction and corporate restructuring is expected to eventually result in savings of $18 million to $20 million, Murawski said.


Despite the growing pains, Mail.com executives insist that, long term, the outsourced messaging market holds the brightest future for them. Gorman said outsourced messaging -- which can be defined as providing hosted e-mail, fire wall, filtering and other services for enterprises, Internet service providers and Web sites -- is expected to grow from a $3 billion industry to a $10 billion giant.


Mail.com anticipates completing the ad network sale by the end of the first quarter 2001.
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