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Web advertising grows up

Ad network DoubleClick is not the only Internet ad firm pursuing profits from the considerable unsold advertising inventory of Web publishers.

Ad network DoubleClick's (DCLK) wildly successful IPO today gives investors an opportunity to take a stake in a company that is 100 percent involved in Internet advertising. But the company is not the only Internet ad firm pursuing profits from the considerable unsold advertising inventory of Web publishers.

Analysts estimate that 70 percent to 80 percent of all ad banners go unsold outside of the 25 most popular Web sites. This creates revenue problems for smaller ad-supported sites, but opportunities for companies like DoubleClick.

DoubleClick takes unsold inventory from various client sites, sells them to ad agencies as packages of targeted sites, serves up the ad packages, and then collects a commission on sales.

"DoubleClick's ability to deliver targeted ads to specific demographic audiences could make a significant difference in the razor-thin margins found in online advertising revenue models," Internet analyst firm Zona Research wrote to clients today, noting that targeted ads also can improve a user's experience by presenting ads that actually may interest them.

As the Web advertising business matures, various ways to target ads to Web surfers with specific interests are emerging, which is just what many advertisers want in order to be able to market the right product to the right person. To date, the most successful ad-supported Web sites, which include search engines like Yahoo (YHOO), have relied solely on high volumes for financial success.

But that formula hasn't worked for smaller sites, and special-interest publishers could benefit from new businesses built on targeted ads.

Yesterday, for example, start-up Adauction conducted its first end-of-the month auction, drawing 30 publishers who sold excess March inventory to about 35 advertising bidders.

"We exceeded our revenue projections," said Adauction CEO David Wamsley. He predicted that the March 19 auction will involve 60 publishers, up from 35 this month, and anticipated the participation of 50 ad buyers, up from 30.

Adauction is designed to attract Web publishers who want to auction off banner space they haven't sold as the end of the month nears. Although these Web publishers won't get the premium price they ordinarily would receive for the space, it does provide revenue for unused ad space that they otherwise would have to eat.

But Jupiter Communications has warned publishers not to auction off all their unsold ad space, because it will undermine efforts to sell at regular rate-card prices.

"The scary thing for publishers is that, if they dump all their inventory to Adauction and let the market command the price, it will bring down their CPMs [ the cost for each 1,000 times an ad banner is shown to a visitor, a standard method for pricing Internet ads]," said Jupiter's Marc Johnson.

To guard against such a scenario, Adauction set a minimum bid of $5 per CPM lot. The lots yesterday fetched an average of $6, while the standard rates for participating sites ranged from $25 to $35 per lot.

Ad network LinkExchange plans to debut a new program on Monday that bundles unsold ad space and targets ads by language.

LinkExchange counts more than 200,000 Web sites among its members. The member sites swap banners amongst themselves to boost traffic, and LinkExchange manages these transactions, receiving payment in ad banners, which it can then sell to generate revenue.

During its beta, LinkExchange serviced Web sites in 50 countries and in 30 languages, underlining the extent to which the Web has become an international medium. It expects to add languages and new countries on a weekly basis.

But, Zona notes, the benefits of targeting today remain theoretical. "Sooner or later," the analyst firm warned, "DoubleClick will have to deliver results to advertisers."

So will others.