Now that Internet advertising firm
is renegotiating terms with its business partners, some of those Web sites are talking about, well, breaking off their engagement.
Smaller Web sites on whose behalf Engage sells advertising are miffed at the company's decision, announced in an email they received last week, that Engage will soon start taking a much larger cut of the money it garners from selling banner ads on their sites.
"My profit margin has been slashed," says Glenn Hauman, president of
BiblioBytes, an Engage-represented site where Internet users can read books online for free. Hauman, who has run BiblioBytes since 1993, says he'll have to find a new advertising network, cut the money he pays the authors whose work he carries or fold his business.
The conflict between Engage and the sites it represents illustrates the shortage of easy solutions for companies caught in the Internet advertising downdraft. On one hand, Engage -- which said Thursday it was
cutting half its staff to streamline the company -- needs to raise its commissions to make its media business profitable. But on the other hand, if it takes too large a bite out of the money it's feeding to the Web sites it represents, Engage runs the risk of driving them out of its network.
Shares of Engage, a publicly traded subsidiary of Internet empire
, were up 3 cents Monday morning to trade at $1.16. Engage traded as high as $94.50 in early 2000.
Engage disclosed in a filing with the
Securities and Exchange Commission
last month that it was terminating unprofitable contracts with some Web sites and renegotiating agreements with others to increase the percentage of revenue it retains. But those words perhaps don't convey the full flavor of what Engage is doing: Hauman, who says he's been paying a 30% commission on advertising revenue to the company, learned in an email from Engage last week that its cut was jumping to 60%. Another publisher contacted by
says Engage raised its commission to 60% from 40%. Both Hauman and the other publisher, who spoke on condition of anonymity, didn't quite see the emails they received from Engage, addressed "Dear Valued Publisher," as examples of what the company itself terms "renegotiating agreements."
"What a nice little euphemism," Hauman says. "What they're really trying to do is apply a very tight squeeze."
Says an Engage spokeswoman, "We want to make sure that we're making our media business as profitable as it can be." She says that not every publisher represented by Engage, which lists
and the music site
among its clients, is getting the same terms. In fact, application materials on Engage's Web site last week indicated that the company was receiving a 50% sales commission from sites in its network. The spokeswoman said she couldn't address the apparent discrepancies between that number and the different commission figures the two publishers cited.
Where to Go?
Web sites as small as BiblioBytes don't have many places to turn for advertising help.
accepts sites with as few as 100,000 page views per month and takes a 50% commission.
represents sites with as few as 150,000 page views per month, but says it rejects 90% of the sites that apply to join the network. Other companies that sell advertising on behalf of networks of smaller sites include privately held
Though smaller Web sites might complain about the new terms, the truth is that they're at the very bottom of a food chain at a time when nourishment is scarce. More than 90% of U.S. Internet advertising revenues go to sites operated by the largest 50 publishers -- companies such as
, which reported about 23 billion page views for the month of September. By comparison, Hauman says his site receives fewer than a million page views per month. That's somewhere around 4 thousandths of 1% of Yahoo!'s traffic.
As the advertising market has slowed over the past few months, these smaller sites have suffered more than the larger ones. With the supply of Internet advertising real estate far outstripping advertisers' demand, Hauman says he's seen declines in both the number of ads trickling down to his site and the money per ad that Engage can get for him. In the third quarter of 1998, Hauman says he received $2,500 from
, the company that launched the ad network business that Engage now owns. But Hauman earned less than $1,000 from Engage in the latest quarter, he says -- a trend perhaps exacerbated by Flycast's ownership transition.
Stephen Gielda, who runs a computing reference site called the
Church of the Swimming Elephant, tells a similar story: His monthly page views have grown over the past year, but his monthly revenue from Flycast/Engage fell to about $25 late last year from $1,400 about a year ago. Gielda says he dropped out of Engage's network before receiving any renegotiation letter, as well as Burst! Media's, because revenues from both companies were no longer big enough to make affiliation worthwhile.
The money at issue, even during Internet advertising boom times, reveals another facet of the small Web sites' relationship with Engage: As little as they may get from Engage, these companies would probably not be able to make any more on their own. It costs money to feed and clothe an advertising salesperson, advertisers prefer one large advertising purchase to many smaller ones, and it's not easy for a salesperson representing a dust speck relative to Yahoo! to get an advertiser's time, attention and money.
The anonymous publisher vows to find another network to replace Engage. But in the meantime, says the publisher, "they're still bringing in most of my revenue, so they can't be all that bad."
As originally published, this story contained an error. Please see
Corrections and Clarifications.