of click rates for a basic banner ad. This has been a disaster in terms of convincing offline advertisers to move some of their budgets online—an effect that everyone has seen on the Nasdaq. In talking about these low clickthrough rates, I am referring to run-of-the-mill ads; I will discuss targeting later.
Because of this lower perceived effectiveness, a few other models are gaining greater prominence, such as “cost per click.” Instead of paying for the presentation of your product in a banner advertisement, you pay for the actual clickthrough on the ad. This is less popular and more difficult to negotiate, because Internet networks are reluctant to accept these deals. They say, “If you pay us only on a conversion, on a move, on a redirection to your site, then we cannot forecast what the revenue from this deal is going to be.” Advertisers (i.e., ad space owners) are looking for guaranteed payments—generally targeted banner ads.
Cost per lead is a slightly different model. A lead is a conversion so that someone agrees to provide a service or to accept to further direct mail or e-mail—roughly analogous to the response card in a magazine that says, “Circle here for more information.”
The revenue share, as I mentioned earlier, is also a popular type of deal. The problem with revenue share deals is that you are depending on actual commerce to pay the bill. If there is no transaction at the end of the day, then revenue does not flow back to the advertising presenter, who is thus not happy about the way the ad space has been used.
In discussing advertising-based business models, it’s important to note that the big players—America Online, Excite@Home, Yahoo—sell many of their own ads but not all of them, which is important. We have an ad sales force that spends a lot of time going to large advertisers and saying, “For x million dollars, you can get this many impressions on our network. They will be on these particular channels on the network.” Smaller players and some of the big ones outsource that type of ad sales to ad networks. The biggest one is Double Click. Other large ones are MatchLogic, a wholly owned subsidiary of our company; Engage; and 24/7 Media. These are third-party networks that operate on a variety of sites across the Internet. Double Click has 2,500 to 3,000 sites from which it serves ads across the Internet. Match Logic has about 1,000 sites. A big concern is the placing of cookies on user’s browsers and computers, to track behavior across those different sites.
Targeting is, in many ways, the Holy Grail of the industry. Most ad targeters use profiles based on your behavior across a number of sites within an hour. If you visit 10 or 20 of the 2,500 sites within a Double