Ad Firm Still Sees Internet As Growth Opportunity

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The economy may be crimping revenue at Internet giants such as Yahoo and Google, but several local companies remain bullish on online advertising.

In fact, they’re so bullish they’re putting out new products. Last week, Rubicon Project, a Santa Monica ad technology company, rolled out an automatic ad buying software program. Clients who want to start an Internet ad campaign tell Rubicon’s new program the demographics and number of people they want to reach. The software program then automatically buys ads on Web sites that match the criteria.

In addition, OpenX Technologies, a Pasadena ad technology company, introduced a service that lets Web site owners hold real-time auctions for ad space on their Web sites.

The new products come as the health of online advertising remains suspect.

Screen Digest, a United Kingdom-based analytics firm, released a report earlier this month that said online ad revenue would drop 5 percent in 2009. Meanwhile, Google Inc., the largest and most successful online advertising company, reported first quarter revenue grew 6 percent, the first time its revenue did not grow by double digits. Last week, Yahoo Inc. announced layoffs due to weak earnings.

But local chief executives remained optimistic.

Tim Cadogan, the chief executive at OpenX, said one of the biggest challenges facing online advertising today has nothing to do with the economy. Instead, the marketplace is so fragmented that it’s difficult for advertisers and publishers to reach a wide audience effectively.

Companies that can solve some of that fragmentation will still grow even in a down economy, Cadogan said. “There are problems, but there are also solutions. I do think there is a lot of potential in a true renaissance in online advertising.”

Frank Addante, chief executive at Rubicon, pointed out that online advertising has been growing at such a torrid pace in recent years that even if it slows, it would still generate significant revenue.

“Twenty percent growth in previous years meant online advertising was going up by $10 billion,” he said. “If it slows to 5 or 10 percent, you’re still talking about billions of dollars entering the market.”


Taxing Problem

A local chief executive is helping to lead the opposition to a proposed Internet tax bill.

Loren Bendele, chief executive at Santa Monica-based Savings.com, was in Sacramento last week to lobby legislators to reject AB 178.

The bill, which the Assembly could vote on this year, would close a tax loophole for online retailers. Currently, Internet retailers such as Amazon.com and Overstock.com don’t charge California customers sales tax because the companies are not based in California; Amazon is in Seattle and Overstock is in Salt Lake City. That means the state doesn’t collect an estimated $50 million a year in tax revenue from sales by out-of-state Internet retailers.

AB 178 would tax out-of-state online retailers this way: It would define any California-based Web site that either advertises or links to an out-of-state retailer as an office of that company for tax purposes. That would allow the state to make the out-of-state retailers collect sales tax on their transactions.

But opponents said the bill would lead out-of-state retailers to pull their ads and cut their links instead. Then they wouldn’t have to collect sales tax, but it would also take away ad revenue from California Web sites.

Bendele points to his site as an example. Currently, Savings.com has partnerships with numerous online retailers based in other states, and it collects sales commissions and fees from these retailers. If AB 178 passes, he estimated his company would see profits fall 20 percent to 25 percent, which could force layoffs. He also said other companies might have to move out of state or simply go out of business.

“It’s really ridiculous,” he said. “The bill is well intentioned but it goes about this the wrong way.”

Bendele supports the concept of making out-of-state Internet retailers pay sales tax, but said it should be done by all 50 states with a consistent method.


Face Time

Ever wanted to look like Conan the Barbarian?

Under a deal with online gaming community GGL Global Gaming, Big Stage Entertainment Inc., a Pasadena startup that creates 3-D images of people’s faces, Big Stage users can put a 3-D copy of their face onto characters from the adventure video game “Age of Conan: Hyborian Adventures.”

Big Stage’s technology creates a 3-D image of someone’s face by using three digital photos of that person. Users can then put the image into movie clips, photos and other digital content.

Big Stage recently announced it closed a $2.7 million fundraising round. The company is trying to become a market leader in the 3-D image space.


Staff reporter Charles Proctor can be reached at [email protected] or at (323) 549-5225, ext. 230.

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