Executives from CMGI Inc. indicated yesterday that their plan to acquire online ad network Flycast Communications could spell trouble for rival DoubleClick Inc. – to the tune of taking away half of its current revenue in two years.
DoubleClick officials refuted such suggestions, saying their own planned mergers will keep the company in step with the competition.
Internet investment giant CMGI, Andover, MA, signed a definitive pact yesterday to acquire Flycast, San Francisco, in a stock swap valued at about $687 million.
The announcement came just 10 days after CMGI said it also plans to spend $500 million to buy ad management firm AdForce Inc., Cupertino, CA. CMGI, which started out as a direct marketing services firm, also owns 83 percent of Alta Vista, and the company plans to expand the search engine into its centerpiece Web property. Currently, No. 1 ad network DoubleClick, New York, has an exclusive pact to deliver ads to Alta Vista’s search pages, a contract that guarantees almost half of DoubleClick’s sales.
Maybe not for long, according to Bill White, CMGI’s executive vice president of marketing, who suggested that Flycast and Adsmart, another ad network owned by CMGI, could benefit from those ad placements as DoubleClick’s contracts with Alta Vista expire.
“Between now and the end of the year 2000, contractually, we’re able to take what represents about 50 percent of the DoubleClick revenue and put it wherever Alta Vista would like to put it,” White said. “It’s CMGI’s perspective that we have a great suite of resources here, including the Adsmart Network and now the Flycast Network.”
DoubleClick officials dismissed such talk, saying that by the end of this year Alta Vista will account for considerably less of its revenue than it does now. The company pointed out that its forthcoming $1 billion merger with cooperative database company Abacus Direct Corp., Westminster, CO, and its acquisition of online advertising firm NetGravity Inc., San Mateo, CA, will expand DoubleClick’s sales base.
“By the end of ’99, Alta Vista will represent 15 percent of gross profit [for DoubleClick] and roughly 10 percent of ads served,” a DoubleClick spokeswoman said. “You’ve got to take into consideration that both of our mergers will be closed at that point. We’re closing early Q4 with NetGravity and Abacus, so it really drops down how much revenue [Alta Vista contributes] to DoubleClick.”
The spokeswoman also contradicted the timing of the contract cited by White, saying DoubleClick and Alta Vista began an agreement in January that runs for three years and is “nonterminable on both sides.” “The acquisition of Flycast by CMGI has really no bearing on the status of our contract with them,” she said.
But that didn’t stop Flycast and CMGI officials from painting the transaction as a trump card likely to push their combined company ahead of rivals DoubleClick and 24/7 Media Inc., New York.
“If you take the revenues of Flycast and Adsmart combined, they’re greater than [24/7 Media] on the ad sales side,” said CMGI CEO David Wetherell. “But when you add to that the sales from Alta Vista … now enjoyed by DoubleClick … and take them away from DoubleClick, we believe that it’s larger than DoubleClick.”
The Flycast acquisition is slated to close in January, subject to shareholder approval. If the deal is terminated, CMGI has a stock option agreement to buy up to 19.9 percent of Flycast. The planned acquisition is the second largest in CMGI’s history, after the Alta Vista transaction.
CMGI also owns the majority of site visitor tracking firm Engage Technologies. The company’s venture capital affiliate, @Ventures, holds stakes in dozens of firms, including search engine and portal Lycos Inc.