• by Nate Elliott , December 10, 2004

IN LAST WEEK'S COLUMN, WE started to examine the deal that will see Viewpoint buy Unicast for $7.4 million. The acquisition will bring together a pair of vexing companies, neither of which has been able to reach and maintain profitability.

Viewpoint's greatest failing seems to have been a lack of focus. The company switched business models early on, abandoning rich media advertising in favor of rich media retailing, and experienced some success. But just as that business looked promising, Viewpoint cut their rich media staff and started to chase search marketing dollars instead. So far, this change in strategy hasn't led the company to profitability.

If Viewpoint's troubles come from a lack of focus, then Unicast's come from too much focus. Even with an enviable roster of advertisers - including consumer packaged goods firms, Hollywood studios, and auto manufacturers - Unicast simply hasn't been able to achieve the volume needed to make their business work.

The problem is that superstitials and video commercials are incredibly invasive. That's great for advertisers, because it forces consumers to pay attention and helps generate brand lift. But it's not as good for consumers, who don't always enjoy having their browsing interrupted.

Most sites worry about upsetting users, and strictly limit the number of Unicast ads they sell and the pages on which those ads run. Some leading sites, like Yahoo!, don't accept superstitials or video commercials at all. It's hard to build a business when all your customers restrict the number of products they buy.

Other rich media firms also face this problem, of course. Floating ads, like those offered by Eyeblaster, are very invasive in their own right. But Eyeblaster has hedged their position by introducing less-invasive rich media banners that most sites are happy to run on any page, at any frequency. Those banners now represent 75 percent of all the impressions served by Eyeblaster, and nearly half of that company's revenue.

Unicast could have, and likely should have, followed the same path. They certainly had the resources to do so. In 2001, Unicast bought Enliven, an early leader in rich media banners. But while Unicast has kept that product in the market, they've only accepted buys from existing Enliven advertisers, and have repeatedly said that they have no plans to pitch the product to any new advertisers. As such, a crucial opportunity for Unicast to increase their volume and diversify their product line has gone untapped.

It's likely that Unicast had product diversification in mind when they agreed to this deal. Viewpoint, after all, once focused its efforts on selling rich media banners. But Viewpoint hasn't actively sold rich media banners for a long time. If they start pushing 3D banners again, it'll be a tough sell. Remember, the Viewpoint plug-in still doesn't have enough downloads to make it attractive to most advertisers.

Despite such obstacles, the company must start aggressively pushing banners and other less-invasive rich media units. They should downplay proprietary formats - such as the Enliven java code and the Viewpoint plug-in - and focus on serving and tracking plain Flash banners instead. Those regular Flash banners account for the vast majority of all rich media ads online, and they offer the easiest and best opportunity for the company to grow their volume.

Unicast's sales staff also must play a leading role in the new company. Remember that Viewpoint all but eliminated their agency sales team a year ago, and that industry relationships are one of the Unicast's key strengths. If the combined company offers a wider range of products to their existing advertiser base, they're in position to add a lot of new business quickly.

Viewpoint and Unicast have spent the last week pushing the notion that their merger will create an industry leader, that the combined company will rise above the other rich media players and challenge the larger adserving firms. I don't believe that at all.

I believe this deal happened because Unicast's investors finally decided to stop pouring money into an unprofitable company and because Viewpoint figured out that search isn't as easy as they'd hoped, and that the rich media industry offers easy money.

While both companies have significant flaws, this deal is a sign that the firms are trying to address those flaws. And while it pairs two companies with strange pasts, in the long run this marriage could work out for both sides. If Viewpoint has the courage to hand control to Unicast staffers, who have the agency connections, and to focus on Flash ads rather than proprietary formats, then we could see the revitalization of two struggling firms. But if not, and if the companies continue their vexing ways, we could be witnessing the slow death of a pioneer.