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

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?

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 a 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 faceoff, 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, but DoubleClick's 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 or 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 that 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 that DoubleClick eventually intends to meld offline data with online data. "We thought this would be met well, but clearly it hasn't been met well," 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 are 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 ever shut down, the Web would be shut down," he said.