final paper - double click

7/29/2019 Final Paper - Double Click

1/14

I. Overview of Case AnalysisII. Growth of Company

A. AcquisitionsB. Abacus Alliance

III. Company FinancialsIV.

Need for Chief Privacy OfficerV. Technology LeadershipA. CookiesB. DARTC. Vision of iTV

VI. Multi-Channel MarketingA. Online MarketingB. E-mail MarketingC. AbacusDirect Mail / Market research

VII. Privacy IssueA. Consumers complaints / lawsuitsB.

Doublclicks reactionsVIII. Recommendations for a Compromise

Overview:

DoubleClick is a company that has taken a leadership role in the new digital media

world. The company claims that without their products and services the online economy

would fail. Leadership often is a result of challenging the status quo, and DoubleClick is

no stranger to pushing the envelope when it comes to internet privacy. This company

introduced controversial practices which in turn, make the internet a highly effective

medium for reaching consumers through target marketing and profiling. DoubleClicks

motto is to allow marketers to deliver the right message, to the right person, at the right

time. The success of this company can be measured by their ability to follow this motto.

However, in this case analysis, we will determine if DoubleClicks technology and

marketing strategy helps or hurts consumers ability to use the internet as a medium for

commerce and pleasure without giving up rights to privacy and being subject to

involuntary consumerism.

Many e-business models have failed because they lack the resources needed to

effectively reach enough online consumers; DoubleClick offers a service to companies

that give them the ability to directly target these once elusive consumers. DoubleClick

derives revenue from their ability to record, analyze, and target online advertisements

based on user data obtained from cookies. Cookies are a unique tag that DoubleClicks


2/14

serversplace on users computers. The use of cookies is discussed in more depth as this

case analysis develops. Furthermore, DoubleClick also has the ability to coordinate entire

marketing campaigns by employing data collected from cookies, online and offline

consumer databases and utilizing different forms of online media. These resources

collectively make up the largest source of information any company would need to

market to consumers online. One way DoubleClick developed such a large pool of

technology and information based resources is through acquisitions and partnerships.

Growth Strategy:

The first major push for DoubleClick to become an online marketing leader was to

initiate an aggressive acquisition campaign that would build a technology and

information arsenal. This strategy also included forming sensible strategic partnerships

with companies to big or to costly to acquire. The long list of acquisitions starts with

NetGravity, a leading software provider for online interactive marketing. NetGravity

produced software that was used to increase advertising response rates by utilizing

customer targeting. In July 1999, DoubleClick purchased this competitor for $530 million

in a stock transaction (Cnet news.com). NetGravity contributed toward DoubleClick's

approach of online target marketing and strengthened its lead among all other online

marketing companies. Their next target was the growing sector of e-mail marketing and

opt-in list management.

Opt-in Email.com was acquired in December of 1999; they were a leader in e-mail

marketing which includes the publishing of opt-in e-mail lists. Opt-in lists are generally

described as consumers who agreed to have their e-mail address published for solicitation

purposes. The controversy here is that many of these individuals do not know exactly

what ads or promotions they are agreeing to receive and they also have no control over

which companies buy their addresses. Opt-in email.com specialized in serving online

retailers, media firms, and software and hardware companies. FloNetwork maintained an

opt-in email address list of 26 million, and was purchased for an undisclosed price of

cash and stock in April of 2001. After the purchase, DoubleClick now managed the

largest opt-in email list of over 40 million addresses. FloNetwork also contributed

expertise in the areas of list building, maintenance, real-time tracking, reporting and

analysis of e-mail campaigns.


3/14

Another interesting strategy that DoubleClick used to expand its exposure to the

online marketing sector was to invest in companies that offered innovative solutions to

some of the problems that the sector was facing. Companies trying to market online

realized that banner ad click-through rates were relatively low across the board.

Valueclick developed a model of performance based banner ads where advertisers only

pay for actual click-throughs. Advertisers like this model of pricing because it was cost

effective and they only paid for motivated, higher quality consumers. DoubleClick that it

was such a good idea they bought a 30% minority equity interest in Valueclick to at least

have exposure to this pricing model in case in became the status quo.

DoubleClick also owns a majority 60% equity stake in a company called Flashbase.

Flashbase is responsible for most ofthe internets online sweepstakes promotions. These

sweepstakes offer prizes to a lucky few but in order to be considered one must fill out the

entry form. This form includes key indicative data files: name, age, address, e-mail

address, potentially phone numbers. It also offers a general description of ones interests.

For example, if someone entered an online sweepstakes to win a designer bridal dress,

Flashbase would take the entrants information and create a database of people that were

thinking about marriage. This database could be used to effectively deliver pop-ups,

banner ads or even e-mails related to weddings to a targeted group of people with shared

interests. Offering sweepstakes to develop a database of users, only to eventually target

them with ads, fell right in line with DoubleClicks motto of delivering the right message,

to the right person, at the right time.

To diversify their consumer databases, DoubleClick acquired SmartBase, an offline

database that operates a cooperative membership group of catalogers and mail order

marketers. Basically, member companies would collaborate and share transactional data

of their customers for the purpose of consumer modeling. This was a powerful target mail

marketing tool, DoubleClick saw it as an early step to combine information gathered

from users online activities and couple it with offline consumer behavior patterns.

In a highly controversial move, DoubleClick bought Abacus Direct for $1.7 billion

and it drew the attention of Wall Street, consumer rights groups, privacy watchdog

groups, and even the Federal Trade Commission. Abacus maintains the largest database

of consumer, B2B, publishing, and online transactions which is used for both marketing


4/14

modeling and direct target marketing purposes. Their database consists of more than 3.5

billion transactions made by more than 90 million US households. The range of data

includes: geographic, demographic, lifestyle, and behavioral data. This information was

collected from catalog, retail, B2B, e-commerce, and publishing marketers. Abacus

operates by allowing companies to utilize its database for modeling purposes if the

company agrees to share accurate transactional data from their own business practices.

Currently the DoubleClick Abacus Alliance, as it is now referred, consists of 1200

member companies which all contribute and utilize transactional and demographic

information from many oblivious consumers.

Surfing the internet was once an anonymous activity performed within the confines of

ones own home, or at any public computer. This anonymity made it difficult for

marketers to present their products to the right people. DoubleClick developed a

somewhat anonymous database of online surfing trends by placing cookies and tracking

53 billion ads per month. Abacus has over 3 billion consumer offline transactions that

can be linked to personally identifiable information. With the acquisition of Abacus, once

anonymous users, and their hard drive full of cookies, can now potentially be associated

with personally identifiable information and past purchases. Joining the online and offline

databases will provide the most comprehensive consumer profile that marketers have

ever utilized. This greatly improves marketers ability to find the right online consumers

which subsequently saves time and resources.

There are several reasons why consumer rights groups and privacy protection groups

fear the DoubleClick and Abacus entity. The first issue is user consent to be apart of a

tracking and profiling database. The default is that one can be tracked and added to a

DoubleClick or Abacus database. One must be proactive in order to opt-out of these

databases. Opposition groups think the logic here is completely backwards and

DoubleClick should only be allowed to track those users that opt-in first. The second

issue is that online activity looses its anonymity and can be tied to any number of offline

behaviors and demographics. The fear here is that companies will abuse this wealth of

information and invade our personal lives in the name of marketing a product. For

example, DoubleClick has ambitions of using this information to come up with a new

marketing strategy labeled as predictive mail. The general concept with predictive mail


5/14

is to combine past transactional data and consumer demographics from Abacus, together

with online behaviors and very recent signals of a consumers intent to purchase which

are gathered from DoubleClicks resources. All this information can then be compiled to

formulate a direct mailing campaign for a product to reach a highly targeted group of

consumers. Taking the privacy issue standpoint, the DoubleClick-Abacus merger is seen

as a dangerous marriage of consumer profiling information.

DoubleClick Financials:

No case analysis would be complete without an examination into the financial

health and stresses of a company. DoubleClicks financial condition should be prefaced

with a brief historical review of the overall economic environment in which DoubleClick

grew as a company and as a leader of an emerging market. When DoubleClick was

incorporated on January 23, 1996, the potential for e-commerce was seen as speculative.

However, throughout the late 90s and early 2000 the sentiment for e-commerce shifted

from purely speculative to overly optimistic. Ultimately, with the bursting of the internet

bubble many took the view that internet companies may be considered grossly

overvalued. During this period of uncertainty, DoubleClick went through difficult

financial events especially issues surrounding acquisitions of companies that turned out

to be overvalued themselves. Following is a detailed description of the financial health of

the company both past and present.

DoubleClick has been plagued by severe financial issues since 1999. Their

annual reports for 2000, 2001, and 2002 all report operating losses. It appears that these

losses arose, in part, from their aggressive acquisition policy. The notes to the

consolidated financial statements for these years all report restructuring charges which

are be associated with their many acquisitions. These charges are as follows:

2000 Restructuring Chargeso $2.4 million charge to operationso Reportedly taken to better align its sales, development, and

administrative organization

o Involved terminating 180 employeeso These costs arose from:

Severance Packages


6/14

Outplacement Services Continued benefits to terminated personnel

2001 Restructuring Chargeso $84.2 million charge to operationso Reportedly taken to increase operational and bring costs in line with

revenues

o These costs included: $10.4 million in severance payments to 605 terminated

employees

$51.7 million for accrued future lease costs $19.5 million write-off of fixed assets $2.6 million in other exit costs

2002 Restructuring Chargeso $98.4 million charge to operationso Reportedly taken to better align its sales, development, and

administrative organization and reduce corporate overhead

o These costs included: $5.7 million in severance packages to 250 terminated employees

$77.0 million for accrued future lease costs $15.7 million write-off of fixed assets

According to the 2002 Notes to the Consolidated Financial Statements,

effective January 1, 2002, DoubleClick changed its estimate of the useful lives of

its production equipment and software. Although DoubleClick does not define

production equipment in this note, Note 10 in the 2002 Notes to the Consolidated

Financial Statements entitled Property and Equipment contains a category

entitled Computer Equipment and Purchased Software. Given DoubleClicks

industry and these notes, we believe that it is safe to assume that production

equipment means computer equipment. DoubleClick extended the estimated

useful life of these assets from three years to four years based on an analysis

performed by their operations department, which is not an independent entity.

Due to the fact that depreciation of computer equipment and software occurs


7/14

primarily because of obsolescence and that the analysis on the assets useful lives

was conducted in-house, it is difficult to accept DoubleCicks assertion that the

useful lives of these assets should be extended. In addition, DoubleClick points

out in the same note that 2002s net loss was reduced by approximately $8.3

million because of this change. It appears that DoubleClick is using questionable

accounting practices in order to mitigate their operating loss for the year ended

December 31, 2002.

Need for a Chief Privacy Officer:

Acting as a leader of an emerging e-commerce sector required a change in the

executive structure of DoubleClick. A relatively new position, the Chief Privacy Officer

(CPO) has emerged among privacy conscious organizations. The primary reasons that

this position has come about is due to new regulatory requirements, the need to augment

consumer and governmental scrutiny, and the realization that privacy will play a role in

differentiating them from their competitors.

PricewaterhouseCoopers (PWC) conducted a survey of 66 organizations that

employ CPOs in order to determine the positioning of CPOs. Although the survey found

that the functions of the CPO is still evolving and many other characteristics vary from

company to company, the positioning of the CPOs were as follows:

Legal Department (47%)

Engineering (4%) Ethics Office (4%) Government Affairs (6%) Marketing (6%) Senior Management (6%) E-Business (7%) Other (11%)

PWC also found that 8% of those companies created a separate and independent Privacy

Department headed by the CPO.

PWCs survey found that regardless of the placement of the CPO within the

organization, there are certain characteristics of the placement that are common. The first

is that in order for the CPO to be successful, the position must be granted the appropriate


8/14

level of authority and oversight. The second is that role of the CPO must me

incorporated to allow the CPO to effectively coordinate the development,

implementation, and maintenance of the corporate privacy strategy. Finally, the optimal

location is where the privacy policy will best be enforced.

As indicated by PWCs survey, the vast majority of companies chose to locate the

CPO in the Legal Department. While there are certainly many reasons for this, the

survey indicated that the primary reasons for this placement are that initiatives under

government authority are taken seriously, a significant amount of interpretation is

required to understand the implications of a privacy policy on organizational procedures

and potential litigation, and the interpretation of laws and regulations require the

expertise of legal counsel. For the remainder of the companies, it appears that the

placement of the CPO outside the Legal Department is due too the privacy authority

residing in the department with the highest risk of breaching the privacy policy.

Bennie Smith serves as DoubleClick's Chief Privacy Officer. According to

DoubleClick he is responsible for guiding privacy policies and practices across the

company's business units and geographies. According to DoubleClicks Executive Bios

website, Mr. Smith holds a B.A. Degree in History from Georgetown University. It does

not indicate whether Mr. Smith has any legal or IT experience nor does it indicate where

the company placed their CPO.

Technological Leadership:

Multi-Channel Marketing:

Privacy Issue in Depth:

DoubleClick doesnt have any issues with the use of technology, but they are

skirting the fringes of the law when it comes to Internet privacy issues. Since there arent

many laws in the United States to protect consumers and how their personal information

is used once it has been collected, there is a going concern on how this information is

used by Privacy Groups and individual who understand what is going on.

Although not specifically stated in the US constitution the US Supreme Court has

found the concept of "privacy" to be protected by a number of Amendments. Thus,


9/14

privacy is known as a "penumbra right." It is the essence of the Bill of Rightsand thus a

guaranteed right. So many Internet users believe these rights protect them. In addition,

most individual believe something done in the privacy of their own home is their personal

busy plus that fact that it is done in the privacy of their home leads to a false sense of

security and privacy.

However, Internet privacy issues arise because companies like DoubleClick and

others use cookies, web-bugs, spyware, harvested email addresses from chatrooms, and

the sharing of websites user registration data. All this information once collected and

correlated in a database helps to create an identifiable consumer profile. The depth of

information collected for a user profile maybe such that the user is not personally

identifiable, but more that likely the users personal identity is known.

This tracking of individuals is done to obtain direct marketing information so a

consumer can be targeted for personalized ads when surfing the Internet. However, this

personal data is also sold to other marketing companies for use in direct mailings or for

telemarketing. The big concern though is that most Internet users dont understand that

they are being tracked and a profile built up on them as the surf the Internet looking for

information and entertainment. Then the more disturbing concern is that you dont have

any legal rights to see this profile thats been compiled on you or the right to correct any

errors that might exist.

However, once general Internet users are informed about how this profiling and

tracking information is used they become very concerned about their privacy. These

general Internet users also dont believe a company has the right to sale their personal

information for a profit without their permission. Although, most disturbing is the fact

that over 64% on Internet users dont do anything to protect themselves once they find

out about these practices. The current feel seems to be nothing bad has happened to me

yet so why worry. Although most Internet users do believe there should be more laws to

protect them and their privacy when on the Internet.

An example of what Internet users are looking for in the way of Internet privacy

can be found in Europe where there are many laws and regulations protecting privacy.

The European Directive on Data Protection 1995, Article 10 states that the collectors of

personal data must provide their identity, the purpose for collecting the data, and disclose


10/14

any third party recipients. Its also illegal to harvest email addresses form chatrooms or

collect information for one purpose and then use it for another purpose. Also unlike the

US, websites cant put in their term and conditions a statement that the use of this website

constitutes permission to use personal data collected for marketing purposes.

In the US though, most Internet users feel that private institutions and large

companies wont voluntary protect personal data they collected unless forced to by law.

However when asked if they believe that the US government would protect their personal

data most individual didnt thing the US government could be trusted either.

These facts are quite unsettling for privacy advocates. However, if federal laws

requiring full disclosure of how personal user information is collected and used were to

be passed better-educated Internet users would then force tighter control over how

personal data is collected and used. Until then many privacy advocates have been using

existing laws and lawsuits to test companies rights to use personally identifiable

information. To that end DoubleClick continues to defend itself while this legal void

exists.

Past and Present Legal Issues:

In the Notes to the 2001 Financial Statements, DoubleClick reported that they

were a defendant in twenty lawsuits, mostly class-action lawsuits, concerning Internet

user privacy, their data collection and other business practices. More specifically, these

lawsuits allege that they unlawfully obtained and used Internet users personal

information and that their use of cookies violates various laws. They were also the

subject of an inquiry involving the attorneys general of several states relating to their

practices in the collection, maintenance, and use of information about and their disclosure

of these information practices to Internet users. In addition to legal issues arising from

the DoubleClicks core business, the company and some if its officers and directors were

named in a suit pursuant to Section 11 of the Securities Act of 1999 and in a claim under

Section 10(b) of the Securities Act of 1934. As of December, 31, 2001, DoubleClick

recorded a provision of $1.8 million relating to the settlement of the pending privacy

lawsuits.

In April, 2002, a consolidated amended class action complaint alleging violations

of the federal securities laws was filed in the United States District Court for the Southern


11/14

District of New York in connection with DoubleClicks follow-up offerings. The

company and some of its officers and directors were named in the suit pursuant to

Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange

Act of 1934. The basis of this suit was the alleged failure to disclose the underwriters'alleged compensation and manipulative practices. A motion to dismiss the action was

filed by DoubleClick in July, 2002 and was subsequently denied in February, 2003,

however, in October, 2002, the action against DoubleClicks officers and directors was

dismissed with the action against the company remaining.

Most recently, on July 10, 2003, a class action lawsuit naming DoubleClick as a

defendant was filed in Allegheny County, Pennsylvania. There are five main allegations

in this action. The first allegation is deceptive business practices by using advertising

bannersdisguised as computer alerts or system warnings and these practices mislead the

members of the class. The second allegation is that DoubleClick fraudulently and

intentionally misrepresented material facts regarding these advertising banners and their

privacy policy. The third allegation is that DoubleClick created a nuisance, both public

and private, by interfering with the class members use and enjoyment of their property

by the use of deceptive advertising banners. The fourth allegation is that the creation of

the aforementioned nuisance was intentional and unreasonable. Finally, the fifth

allegation is that DoubleClick intentionally and wrongfully invaded the class members

right of privacy and right of association and non-association.

Protecting your own Privacy:

In the mean time Internet users are left to fend for themselves when it comes to

protecting their privacy. There are several companies that make software to eliminate

tracking cookies and spyware from peoples computer. The 2 most popular freeware

programs are Ad-aware and Spybot-S&D which can be downloaded for the CNET

website.

These free tools let a user scan their computer for unwanted tracking agents and

then allows a user to eliminate them. However, any user of these tools must constantly

update their data files with the latest privacy threats. Also, these tools provide an after

the fact protection scheme since until a threat becomes well known it wont be part of

database of know items to scan for and eliminated. So you first have to be tracked before


12/14

you can eliminate the tracking agent threat. Not the best scheme for protecting ones

privacy, but tracking agents are similar to viruses in that it has to be known before you

can guard against it.

To that end some of these companies that offer the freeware tools also sell

products to prevent known tracking agent from getting onto your computer. The ides is

to install active software filters to prevent tracking agents from getting onto your

computer in the first place. A good concept, but once again flawed by the fact that the

tracing agents have to be discovered first before you can be protected yourself from them.

Another alternative is to use firewalls to prevent access to unwanted websites.

Firewalls can be setup to block unwanted outside accesses from getting into your system.

Firewalls can also prevent programs on your system from accessing blocked sites so they

dont send or receive unwanted information. However, firewalls require a very

sophisticated user and someone who understands how the Internet data flow works in

great detail.

Recommended Courses of Action:

These ongoing litigations if successful though present a major item of concern for

companies like DoubleClick. If any of these lawsuits find the current Internet tracking

practices illegal or laws are eventually passed prevent tacking, and then DoubleClicks

business model could be rendered invalid. This is an item of great concern for

DoubleClick as Internet users become more aware of how the data flow between their

computer and Internet markets is actually working.

References:

Internet Privacy Law

http://www.netatty.com/privacy/privacy.html

Howstuffworks: How Internet Cookies Work

http://computer.howstuffworks.com/cookie.htm

DoubleClick: Electronic Commercial Communicationspermission is the key
http://www.netatty.com/privacy/privacy.htmlhttp://www.netatty.com/privacy/privacy.htmlhttp://computer.howstuffworks.com/cookie.htmhttp://computer.howstuffworks.com/cookie.htmhttp://computer.howstuffworks.com/cookie.htmhttp://www.netatty.com/privacy/privacy.html


13/14

http://www2.doubleclick.com/emea/downloads/permission-eng.pdf

Bugnosis Web Bug Detector

http://www.bugnosis.org/

Internet Privacy Resources

http://www.privacyrights.org/netprivacy.htm

Georgetown Internet Privacy Policy Study

http://www.msb.edu/faculty/culnanm/gippshome.html

Americans & Online Privacy: The System is Broken

A Report from the Annenburg Public Policy Center of the University of Pennsylvania

By Joseph Turow, Ph.D.

http://www.appcpenn.org/04_info_society/2003_online_privacy_version_09.pdf

PricewaterhouseCoopers Article

http://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B660

0617BF7

Doubleclick 2002 Annual Report

http://media.corporate-ir.net/media_files/NSD/DCLK/reports/DCLK02AR.pdf

Doubleclick 2001 Annual Report

http://media.corporate-ir.net/media_files/NSD/DCLK/reports/0110k.pdf

Network Advertising Initiative

http://www.networkadvertising.org/default.asp

Lawsuit

http://www.ferencelaw.com/doubleclick/
http://www2.doubleclick.com/emea/downloads/permission-eng.pdfhttp://www2.doubleclick.com/emea/downloads/permission-eng.pdfhttp://www.bugnosis.org/http://www.bugnosis.org/http://www.privacyrights.org/netprivacy.htmhttp://www.privacyrights.org/netprivacy.htmhttp://www.msb.edu/faculty/culnanm/gippshome.htmlhttp://www.msb.edu/faculty/culnanm/gippshome.htmlhttp://www.appcpenn.org/04_info_society/2003_online_privacy_version_09.pdfhttp://www.appcpenn.org/04_info_society/2003_online_privacy_version_09.pdfhttp://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B6600617BF7http://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B6600617BF7http://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B6600617BF7http://media.corporate-ir.net/media_files/NSD/DCLK/reports/DCLK02AR.pdfhttp://media.corporate-ir.net/media_files/NSD/DCLK/reports/DCLK02AR.pdfhttp://media.corporate-ir.net/media_files/NSD/DCLK/reports/0110k.pdfhttp://media.corporate-ir.net/media_files/NSD/DCLK/reports/0110k.pdfhttp://www.networkadvertising.org/default.asphttp://www.networkadvertising.org/default.asphttp://www.ferencelaw.com/doubleclick/http://www.ferencelaw.com/doubleclick/http://www.ferencelaw.com/doubleclick/http://www.networkadvertising.org/default.asphttp://media.corporate-ir.net/media_files/NSD/DCLK/reports/0110k.pdfhttp://media.corporate-ir.net/media_files/NSD/DCLK/reports/DCLK02AR.pdfhttp://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B6600617BF7http://www.pwcglobal.com/Extweb/industry.nsf/docid/676BA6D02F9AA27285256B6600617BF7http://www.appcpenn.org/04_info_society/2003_online_privacy_version_09.pdfhttp://www.msb.edu/faculty/culnanm/gippshome.htmlhttp://www.privacyrights.org/netprivacy.htmhttp://www.bugnosis.org/http://www2.doubleclick.com/emea/downloads/permission-eng.pdf


14/14

final paper - double click

Documents