• by Mark Walsh  @markfwal, October 16, 2008

Online ad network AdBrite is laying off 40% of staff, or about 40 employees, as it restructures amid an economic slowdown chilling both online and offline ad spending.

AdBrite is the second company backed by Sequoia Capital to make significant employee cutbacks following the now-famous meeting the venture firm held last week with portfolio company CEOs, stressing the need to control costs and become profitable to survive the downturn.

Sequoia-backed Jive Software cut about one-third of staff, or about 40 employees, last week. Confirming the AdBrite layoffs first reported on TechCrunch, CEO Ignacio "Iggy" Fanlo said he took the Sequoia "R.I.P. Good Times" meeting as "a call to action."

Started in 2002 by FuckedCompany.com founder Philip Kaplan, AdBrite was ranked by comScore in August as the 27th-largest ad network, with its ads seen by 81.3 million unique visitors and 43% of U.S. Internet users. The company says it serves some 384 million impressions a day across more than 83,000 sites.

Rather than making a series of smaller cuts over time, Fanlo said he opted to make one large reduction at one time. "It's exceedingly painful, so I wanted to have a cut where, after this, I can say 'we won't cut anymore.'" Among the highest-level executives exiting are Bob Feller, vice president of finance, and Paul Levine, vice president of marketing.

With the layoffs, Fanlo said the company would now be profitable and cash flow free. He added that AdBrite also expects to exceed its 2007 revenues of $32 million, although he declined to provide further details.

What some ex-employees might find hard to swallow is that AdBrite is having a record month revenue-wise in October, according to Fanlo. He attributes the strong sales to AdBrite running a mostly performance-based ad network and benefiting from the shift toward direct-response advertising during tougher economic times.

Performance-based advertising increased to 52% of all online ad dollars in the first half of 2008, up from 50% a year ago, while CPM-based spending fell to 44% from 46%, according to the Interactive Advertising Bureau's latest online ad report. "Performance-based stuff is working out," said Fanlo.

Overall, online advertising has dipped slightly since the start of the year, and could end up growing less than 10% for the first time since 2002 if current conditions continue. "It's a very tough market," said Fanlo. "We have to prepare for difficult times and you have to have a really sharp pencil out about which investments you make today and which you can't."

To date, AdBrite itself has received a total of $35 million in funding from Sequoia and other investors. Fanlo said the company had not come close to burning through that amount--but isn't counting on getting any additional outside investment, given the economic climate.

In recent months, AdBrite had rolled out network enhancements including rich media units, behavioral targeting and its Open Targeting Exchange (OTX).

With the proliferation of ad networks over the last year in particular, AdBrite is not likely to be the last to be scaled back or shut down altogether as ad spending contracts. Maybe it's time for founder Kaplan to revive his old site chronicling Internet company woes for the Web 2.0 era.