• by January 4, 2001

Stifled gasps spread across the media industry this morning after Engage announced their plans for massive workforce cuts in the upcoming months. The employee headcount will be reduced by 550 (about 50%) and the company now intends to increase its focus on software, since that area typically produces higher gross margins than Engage's media business.

As I read the nearly hysterical media coverage of the story, I remembered a conversation I had with Jeff Dickey, Advertising.com's Chief Strategy Officer back in June, when he said that advertising networks in their current configuration are soon to be a thing of the past. And this came from a man who helped kick off the Internet revolution as former VP of Business Development at DoubleClick.

At the time, it cost about 30 cents to serve an ad and many predicted that number would drop to about 8 cents within a year. Dickey pointed out that there's "nothing special about serving an ad," and that the situation was equivalent to a set-up where CBS would charge 15% of their revenue to get the signal from their tower to your house. "The costs of ad delivery are way too high relative to the dollars in the marketplace," he said, "and this means that if you're making your living by serving ads, you've got a problem."

And he was right. Just this Monday, 24/7 Media missed its fourth quarter revenue estimates and said it will cut 100 jobs, bringing the total of positions eliminated since last month to 300. And, earlier this month, DoubleClick lopped 8% to 10% off its fourth quarter revenue forecast and said it would lay off an estimated 150 to 170 workers.

And none of this should surprise anyone. This is only natural. Granted, the Big 3 fighting for survival is not exactly evolutionary, but we couldn't have expected the ad networks to forever exist in their original form, could we?