DoubleClick's Endurance Test

SAN FRANCISCO (05/01/2000) - Few companies have endured more pummeling in recent months than DoubleClick Inc. First, privacy advocates made the online advertising firm the whipping boy for intrusive data-gathering; then Internet stocks lost the affection of investors. If the Net is in trouble, post-market crash thinking goes, online advertising and firms like DoubleClick will suffer most.

DoubleClick President Kevin Ryan waves off such speculation. "At the end of the day, the most important metric to me is demand for Internet usage, and that's been rising," he says. "We've seen an increase in traffic on our networked sites." Ryan adds that privacy-rights challenges are making DoubleClick stronger.

Even if the online advertising market gets shaky, Ryan argues that DoubleClick's ad sales will not be threatened. Only about 15 percent of the company's first-quarter revenue came from dot-coms, he notes. The US$60.2 million in overall first-quarter revenue represents a more than three-fold increase from the $16.4 million from the same period a year ago, and even a healthy increase over the usually high fourth quarter. Ryan says DoubleClick has not seen a drop-off in ad sales since the stock market took a downturn last month.

On the privacy front, DoubleClick is moving forward with industrywide talks on standardized privacy rules. With a chief privacy officer and a privacy advisory board chair now on staff, DoubleClick has been negotiating with federal and state government officials to settle lawsuits against the company. Executives have also been active in the Network Advertising Initiative's attempt to draft an agreement on privacy policies that will appease the U.S. Federal Trade Commission (FTC), which is looking into DoubleClick's business activity.

"The conversations overall are going well," Ryan says. "These things take a long time because they involve industry groups and government."

Though DoubleClick may survive the privacy tumult, the economic turmoil is hard to avoid. Since Jan. 11, DoubleClick's stock has dropped 40 percent from $117 to $69.75. And last week, the company announced it had cut Chief Executive Officer Kevin O'Connor's 1999 cash compensation -- which doesn't include his considerable options package -- by 10 percent.

"If the economy continues to be slow, it's going to affect dot-com spending," Ryan adds, noting that DoubleClick has survived more than one market slide.

"Within the Internet community, there is a feeling that this has happened before."

Indeed, Ryan claims, if a shakeout comes, it will help his business. He argues that DoubleClick won't have to compete for the business of smaller dot-coms once they're acquired by its largest clients. What's more, Ryan says, clients will increase their Internet advertising to regain the market share seized by newer Net companies.

Though this scenario seems too rosy, several industry executives agree that the market correction will actually benefit online firms -- but not for the reasons Ryan gives. They say tighter budgets will push most companies, which now view Net advertising as highly effective, to invest greater resources online.

Jonathan Nelson, CEO of Organic, a San Francisco-based Web shop, concurs. "You will see fewer dot-coms spending VC (venture capital) money on advertising," he says. "But that's likely to be offset because there are a lot of companies with a lot of money to spend that are going to put that money to work in online advertising."

As for DoubleClick's stock price, the company seems to understand that to succeed, it must allay concerns about online privacy regarding Internet advertising and commerce. So it's studying focus groups of Internet surfers and reaching out to the government to gauge its regulatory leanings.

DoubleClick plans to use what it learns to push for a privacy standard that quells public criticism and allows it to move ahead with plans to sell products that merge online and offline data. If this works, DoubleClick may have done the industry a favor.

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