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Profiling is Extremely Valuable
Updated: 23-Feb-00

C.E. Unterberg, Towbin eMarketing Conference
[BRIEFING.COM - Robert V. Green] The C.E. Unterberg, Towbin second annual eMarketing Conference took place yesterday at the New York Palace Hotel. The term eMarketing means, currently, technologies and service companies that provide very refined direct marketing over the internet. Here are some thoughts about trends in this space, taken from the conference proceedings.

Profiling is Extremely Valuable
The internet is a direct marketer`s dream.

It is little wonder that David Wetherell, CEO of CMGI, was so taken by the internet the first time he saw it. As a direct marketer (CMGI started out as a seller of mailing lists of college students), he immediately saw the potential of the internet as a direct marketing tool.

The biggest use of the internet today, for eMarketing, is profiling. Once a profile has been collected on an internet user, extremely targeted direct marketing can be done. The demand, on the part of retailers, for profiles is extremely high.

What is profiling?

Profiling is a means of identifying the interests and characteristics of an individual on the net, by tracking habits and purchase patterns.

Whenever you view a web page, the advertising delivery systems from most of the eMarketers, uniquely identify a visitor. Along with displaying a page, the advertising system records what you are looking at. This "recording" is done in a database at the advertising firm, such as Doubleclick, and not by the web site posting the ad.

As you travel from site to site, where the system records what your "interests" are. If you click on a banner ad, that data is also stored.

Over time, a very detailed composite picture of your surfing habits is collected. This collection is called a profile. As the profile develops, the database grows.

Since nearly every advertising system on the internet tracks this type of data, you can`t avoid it.

Profiling is claimed, by every eMarketing company, to be anonymous. The profile uniquely identifies a web user, but your name is not stored. At least, they claim they do not store it.

However, the eMarketing companies do "rent" their database data, much like mailing lists are rented now, to retailers who want to develop very targeted email direct marketing campaigns. Judging from statements made by companies at the conference, demand for this service is extremely high.

Note: the data obtained from advertising agencies is kept by the advertising agencies, not the web site that displays an ad. Briefing.com does not collect or maintain a profiling database of any kind, nor do we purchase profiling data from anyone.

The Privacy Issue Will Explode
Doubleclick has received a lot of attention about its data collection issues, the most recent being a critical Wall Street Journal article Wednesday morning.

However, Doubleclick is somewhat unfairly being singled out. All of the eMarketing companies, at least those presenting at this conference, are profiling.

Judging from the comments made by members of the Q&A panel, however, the eMarketing industry doesn`t get it. Almost to a person, the companies defended their profiling tactics with one or more of the following arguments:

This type of profiling is already done offline, so what is the big deal? (The online world may awaken the public to the extent of offline profiling. It doesn`t mean the public accepts it.)
It is about trust, not privacy . The companies argue that consumers do not mind if companies they trust compile information about them. (The question is what companies do with the information the customers give them.)
Consumers can always opt-out of profiling, at their option. (This is Doubleclick company line. However, ask yourself, do you know how to opt-out?)
We don`t collect "sensitive" information. Doubleclick stated several times that they will not collect information related to your health interests, sexual interests, or statistics on children. (But why should the company decide what is "sensitive," instead of the consumer?)
Frankly, the degree of resistance expressed by the eMarketing company representative surprised us. The Doubleclick representative, Jonathan Shapiro, admitted that Doubleclick had been "blindsided" by the public reaction to the disclosure of the extent of profiling going on.

When asked whether they expect legislation to regulate eMarketing, most companies replied that they do not expect it, but do expect to generate an industry self-regulatory body, and policies, soon.

Too Many Companies
There is no question that the eMarketing space is only going to explode going into the future.

But it is also clear, based on the success of the eMarketing strategy, that there will be more, and more, eMarketing companies to come.

However, eMarketing is not a technological challenge. Although Doubleclick`s DART system is patented, there really isn`t anything preventing other companies from developing profiling databases. Engage, for example, has an extensive profiling system, as does Net Perceptions.

But these are just the best known names. There were numerous private companies at the conference, all of whom had additional features, or "angles" for developing eMarketing campaigns.

Eventually, the eMarketing space will have many players. For investors, this means more risk, as competition makes it harder for any company, no matter how good, to continue the revenue growth curve they have had, when there were few competitors.

The following companies each made 5 minutes (yes, 5 minutes) presentations at this conference: AdForce, DoubleClick, 24/7 Media, Engage, B2B Works, eGain, Modem Media, Agency.com, Responsys.com, T3 Media, L90, Bigfoot Interactive, E.phiphany, Vignette, NetPerceptions, MarketFirst, Accrue, Verbind, YesMail, Post Communications, Digital Impact, Exactis.

Agencies Are Not Internet Companies
Another observation from this conference is that many of the eMarketing companies are not really internet companies.

For example, Agency.com`s (ACOM) primary business model is hourly billing. Although the company is completely focused on the internet, it isn`t really an internet company.

Agency.com provides strategy, creative development, design work, and implementation for clients. But all of its services are done through hourly billing.

In this respect, it is no different than a regular advertising agency. Although Agency.com currently has valuations of an internet stock, with a price/sales ratio of 14, that valuation is completely unjustified, even with a revenue growth rate of 50%. To service higher revenue rates, Agency.com needs more people. Without a scalable business model, there is no reason why Agency.com should have any higher valuation than any other advertising agency, despite its internet only focus.

This reasoning applies to all hourly billed eMarketers, for example Modem Media, not just Agency.com.

Direct Marketing, Not Branding
Finally, the most interesting observation of the day came from Chan Suh, CEO and founder of Agency.com.

When asked about how branding can be done on the internet, Mr. Suh replied that branding has not yet been fully realized on the internet. "Branding," he explained, "is best told through stories. People like telling stories, they like hearing stories. And the internet, so far, hasn`t been good at telling stories."

That should all change, however, when broadband becomes widespread. Then, branding campaigns over the internet will begin in full force.

Another sign that the internet is still in its infancy.

Comments can be emailed to the author, Robert V. Green, at [e-mail].


Content provided by Briefing.com, a leading Internet provider of Live market analysis. Copyright

[investor_007]

OT:THE DAY AHEAD: Engage, DoubleClick square off on privacy issue

By Larry DignanTDAIN ZDII


E-marketing titans Engage Technologies (Nasdaq: ENGA) and DoubleClick (Nasdaq: DCLK) teed off in a friendly debate Wednesday on the privacy vs. profit issue, but one question remains. Does DoubleClick`s privacy woes make Engage look better to Wall Street?

You`d think so judging from recent stock performance (comparison chart). Engage has gained at DoubleClick`s expense ever since regulators started poking around at DoubleClick for privacy violations. The Federal Trade Commission launched an informal probe of DoubleClick last week.




Engage: Better than DoubleClick?
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The C.E Unterberg Towbin eMarketing 2000 investment conference in New York pitted Jonathan Shapiro, senior vice president at DoubleClick`s Abacus unit, against Paul Schaut, CEO of Engage.

The two execs are friends so it was hardly a battle royal, but they do disagree on whether anonymous consumer profiles are the equal to having personal data. DoubleClick comes down on the "more data is better" side. The company bought Abacus last year to combine offline personal information with its Internet profiles. DoubleClick`s thinking makes a lot of business sense, but has become nightmare for the company. Shapiro admitted the company was surprised by the privacy uproar.

Engage, playing the role of privacy champ, maintains anonymous profiles are just as good if not better than having all the information. We discussed the privacy issue last week and noted Engage would try to benefit at DoubleClick`s expense.

Sitting in on this face-off, I couldn`t help but wonder if Engage would even be making its anonymous profile argument if it had access to personal data.

Nevertheless, the line has been drawn over anonymous Internet consumer profiles.

Here`s where DoubleClick and Engage stand on the issues.

Profiling: Engage`s Schaut said anonymous profiles can be better than DoubleClick`s plan. Schaut argued that Engage`s profiles change in real-time and put behavior in context of the medium. Engage can track what you did three clicks ago and what you did, but DoubleClick marriage of online and offline data may not be the best indicator because the data is old.

Shapiro said that anonymous profile theory is baloney and that`s why DoubleClick bought Abacus in the first place. "Twenty years of direct marketing experience shows the best indicator of future purchases is past purchases," he said. Shapiro said DoubleClick can reach 90 million U.S. households with its profiles.

And through Abacus` 1,600 merchant partners, DoubleClick is building a real-time database anyway, said Shapiro. To illustrate his point, Shapiro took an show-of-hands poll. He asked everyone who bought something online to raise his/her hand. He then told everyone who has never bought from a catalog to lower his or her hand. Just a handful of people did.

"It`s not offline vs. online," said Shapiro. "It`s remote vs. hands on. Companies are driving e-commerce traffic from catalogs."

Advantage: DoubleClick.

On where to draw the line: Schaut acknowledged more data is better, but said Net companies have to strike a balance. He said the Internet is different and folks are less willing to give up their vital statistics.

As for DoubleClick`s "opt-out" theory -- as long as consumers can opt DoubleClick can collect their whole life history -- Schaut didn`t think that was enough. Schaut suggested an opt-in theory might be necessary, which would counter direct marketing tradition. The Engage chief also questioned whether consumers would fork over personal data given full disclosure and an opt-in practice.

Shapiro said DoubleClick doesn`t use sensitive data, but added that targeting and personal identification can be good for both marketers and consumers. He reiterated DoubleClick eventually intends to meld offline data with online data. "We thought this would be met well, but clearly it hasn`t been met will," said Shapiro. "We`re committed to using the information with consent."

Shapiro reiterated that DoubleClick must do a better job of educating consumers -- the equivalent of a public relations blitz.

Advantage: Engage.

On business abroad: Europe, Asia and the rest of the world is much more vigilant about privacy issues.

Schaut said Engage`s anonymous profiles give it an edge overseas because its system is more palatable to regulators. "The privacy issue is a worldwide issue," he said. "We don`t have it (data) and won`t use it."

DoubleClick said it doesn`t gather personal data overseas because of regulators. If an international customer gives personal information to DoubleClick, the company wipes the record from the database, said Shapiro. "We don`t want to use it before we`ve done the legwork," said Shapiro.

Advantage: Engage. International regulators aren`t likely to trust DoubleClick because it can combine personal and anonymous profiles if it wants to. And Shapiro`s legwork comment indicates the company is hoping to eventually build complete profiles abroad.

On regulation: Finally, some agreement. Shapiro and Schaut said they didn`t expect privacy laws in the next year, but laws are likely to be passed.

Schaut said the key thing is to keep new laws rational. If Congress were to outlaw cookies for instance, the Web would wither, he said.

"We have to do a good job of self regulation," said Shapiro.

Advantage: It`s a draw.

Notes from the other players

Adforce financial chief John Tanner said the privacy flap is overblown. Tanner said offline entities have been "collecting information with impunity" and it hasn`t led to congressional inquiries. As the medium evolves, consumers won`t sweat privacy issues.

Of course, Tanner was sure to mention that Adforce uses anonymous profiles. On other issues, Tanner said Adforce has garnered a big boost from being in the CMGI (Nasdaq: CMGI) network. CMGI acquired Adforce last year. Tanner said ad impressions have soared in the first quarter courtesy of CMGI synergy.

24/7 Media (Nasdaq: TFSM) financial chief Andy Johns also had his take on the privacy issue. Johns said part of the privacy flap was because the Net is the "next new thing" and folks are worried. But Johns had a different take to Tanner`s. Johns said the privacy issue is a big one for the industry and its bottom line.

"If cookies were every shut down, the Web would be shut down," he said.



(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)