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ENTREPRENEUR PROFILES

11.18.98  
One Biz Owner Auctions Prime Web Ad Space to Other Owners
When a competitor flopped, Adauction.com stepped in to the breach

In July, 1997, David Wamsley was wandering the booths at an Internet conference when he came across Adbot, a small company that auctioned advertising space on Web sites. "Good idea, poor execution," Wamsley thought. Then a light bulb clicked on in his head.

Two weeks later, he put together a business proposal, rounded up $300,000 from a few "angels," and Adauction.com was born. The idea: to sell unused prime ad space on the Web at a fraction of the full price. The model: real-time auctions on the Internet.

Adauction.com's goal was twofold -- to market space for sites that couldn't sell through their own ad staffs and to target small businesses that couldn't afford to advertise on prime Web "real estate." Wamsley's idea differed from Adbot's in several ways. For starters, Adauction.com would run automated auctions online, whereas Adbot's auctions were live with bidding done by fax and recorded on chalkboards. Adbot also generally sold space on less-known sites on an ongoing basis. Wamsley planned to sell from top-brand sites at the end of each month, so publishers could sell as much inventory as possible at full price. (Web ads are generally sold each month for the following month.)

Three months after it was founded, Adauction.com was about to pound its first virtual gavel, when it had an amazing stroke of luck. Adbot, its prime competitor, went out of business amid U.S. Securities & Exchange Commission charges of fraud and embezzlement. "That left us wide open to show how this model could work," says Neil Cohen, vice-president for sales and marketing at Adauction.com.

This advantage has served Adauction.com well. As the only company auctioning residual ad space on the Web now, they fill a real need, says Jim Nail, senior analyst at the market researcher Forrester Research Inc. "An average of 50% of a site's potential ads go unsold," says Nail. "I think [Adauction.com's] model of last-minute expiry is a good way for sites to maximize ad sales in an industry where you always have remnant inventory."

BLEEDING EDGE. Adauction.com's officials admit they can't rest on their laurels. They compete with full-service Web ad networks, and other auction houses are likely to enter the fray. Still, with about $500,000 a month in revenue, Adauction.com has met or exceeded projections, Wamsley says. The number of buyers coming in to look at inventory is increasing by 45% a month, and the average sale in dollars rose 400% to 500% in the last two end-of-month sales. "We're on track to make a projected $18 million in sales by the end of 1999, and another $74 million by the end of 2000. By the beginning of the first quarter next year, we should start discussing going public," Wamsley says.

Adauction.com works this way. The main auctions are held in the morning and afternoon on the third Thursday of every month. Registration is free, but buyers undergo a credit check. Bidding is conducted online for several hours. At the end of the period, the best price wins the space. In October, the company added two specialized auctions that take place at least once a week.

Internet Travel Network sells 7% to 11% of its space each month through Adauction.com. "As part of our overall advertising strategy, it's a cost-effective way for us to generate revenue and get people to try our site," says Henry Harteveldt, ITN's director of marketing. Harteveldt says ITN has attracted more than 10 new advertisers, which first bought auctioned space but now deal directly with the company.

Wamsley says his goal is to sell space only to the top 100 Web sites, of which ITN is one. However, by his own admission, Adauction.com is still far from its goal -- although business is growing. "We now have 3 to 4 of the top 10 sites and about 15 of the top 50," adds Wamsley. "That wasn't the case four months ago." Since the company's first auction in February, 1998, which included 30 media buyers and 30 publishers, Adauction.com's stable of advertisers has grown to more than 600 registered advertisers -- 60% of which are small businesses -- and 100 publishers, including the Web portal Netscape, Wired Digital's search engine HotBot, and ChickClick, a site for young women.

TOP 100 VS. TARGETED ADS. One criticism of Adauction.com's strategy is that small businesses don't need to advertise on hot, brand-name space, even at a discount. Says Forrester's Nail: "More important than cost is content, and I think small businesses would probably benefit more from finding niche content that really targets their specific audience."

Wamsley concedes that advertisers want targeted ads. That's why Adauction.com has added two specialized auctions, one offering packages of related sites and the other offering heavier exposure. Besides, notes Wamsley, "We also don't want all of a publisher's ad budget. We just want 10% to 15%."

Michael Morgan, CEO and founder of the three-month-old, online bond brokerage TaxFreeBond.com in Idaho has used Adauction.com to test both ad strategies -- targeted and big-name sites. With only about $12,000 per month to spend on advertising, "price is a big factor -- we want to get the most bang for our buck with branding and click through," says Morgan. "And Adauction gives us Nordstrom service with Wal-Mart prices."

Morgan said he "lurked" on Adauction.com for a couple of months before bidding on space. Now, he spends about 20% of his overall budget on auctions and has "won" space on sites such as RagingBull.com and the financial trade publication Nando Business Times. "What we've learned is that targeting finance-related sites is better than targeting by demographics," says Morgan. "Getting our name out there is still important at this time, but it's not as important to be in front of just any eyes."

As for publishers' interests, Wamsley says that he's committed to getting them a good price for their space. Still, Adauction.com may have trouble overcoming the association between auctions and unwanted leftovers. Netscape and HotBot are registered publishers with Adauction.com, yet both companies remain wary. "It's an intriguing concept we would like to explore more, but we haven't really participated consistently," says Mark Evans, senior manager of advertising planning at Netscape. "In the short term, it doesn't provide enough yield for us to make it an important channel at this point. But it's still too young as an idea to rule out."

Given the strength of the online auction boom and the need for Net publishers to sell space, Adauction.com sounds like an idea that's maturing fast.

By Stefani Eads in New York
stefani_eads@businessweek.com

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