The partners have been picked, and now the competition begins in the online ad sales business. Zulu-tek, a Newport, Rhode Island, holding company formerly known as Netmaster Group, announced on Monday its purchase of a controlling interest in Softbank Interactive Marketing, the Number Two player in the networked ad sales arena.
In December, Petry Interactive and Interactive Imaginations merged to form 24/7, and industry leader DoubleClick filed for a public offering. What's still unclear is whether there's room for all three.
"How big will the market be for companies that sell ads into Web sites, and how much room is there for how many players?" asked Evan Neufeld, an advertising analyst at Jupiter Communications. "What kind of room is there between DoubleClick at the top and someone like Link Exchange at the bottom, placing ads on personal homepages and things like that?"
Neufeld and other analysts praised Zulu-tek's purchase of 65 percent of Softbank Interactive Marketing for an undisclosed sum. Jim Nail of Forrester Research said that Zulu-tek is "putting together a portfolio of different advertising companies, and I expect there to be more acquisitions in the near future to achieve more synergies." Indeed, Zulu-tek's Web site brags about a US$20 million acquisition fund just waiting to be spent in 1998.
Zulu-tek's primary subsidiary is a company called EchoMedia, which makes software that can deliver appropriate ads - from low-bandwidth graphics to TV-style commercials - based on a user's platform. EchoMedia is allied with Prodigy, USA Today, and AltaVista - which also happens to be DoubleClick's bread-and-butter customer. Softbank Interactive Marketing represents a network of sites that include Netscape, HotMail, and Playboy.
Caroline Vanderlip, president of Softbank Interactive Marketing, said the match between Zulu-tek and Softbank (which will soon be changing its name to distance itself from Softbank Holdings, its former parent) is a good one.
"They bring a number of things," Vanderlip said. "The first is enthusiasm, the second is capital - but the most important is the strategic fit. EchoMedia has some terrific, state-of-the-art banner technology that we plan to introduce to our network within the next 45 to 60 days. And our sales staff can work to get their technology out there to other clients."
Vanderlip said Zulu-tek's deep pockets will be used to expand the company's 35-person sales force by about 20 percent, with a focus on New York, Chicago, and Dallas.
The Zulu-tek/Softbank combination makes Softbank a stronger second-tier competitor to DoubleClick, analysts say. "Initially, the pairing could let Softbank offer more creative advertising formats, which can give them an early leg up on DoubleClick," said Nail at Forrester.
"It'll be interesting to see how much Zulu and Softbank ape DoubleClick's model of having multiple revenue streams - selling sites a la carte outside of the network, and selling tracking technology alone," said Jupiter's Neufeld, who emphasized that the Zulu-tek purchase strengthens Softbank's traditionally weak technology capabilities. "They weren't a technology company," he said, "and this thing called the Internet is all about technology. If you're charging 40 percent off the top for ad placement, you better deliver some technological value."
A spokesman for Zulu-Tek said the company's new name was pulled from a hat after it was discovered that another company had been using Netmaster as part of its name. Netmaster Group went public in August on the OTC Bulletin Board, and has been a frequent topic of discussion on online bulletin boards where investors discuss penny stocks. Sources say Zulu-tek is interested in moving to the American Stock Exchange or Nasdaq, and Vanderlip said the company would eventually be headquartered in San Francisco.
But despite giving Softbank some new capital and renewed momentum, the Zulu-tek purchase doesn't answer the biggest question about the business of building networks of Web sites and then selling ads into them. As Neufeld puts it, "Is there a future to this? Can you make money doing it?"
