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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-23709
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DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3870996
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ] Yes [x] No
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 15, 2000 was approximately $10,587,600,000 (based on
the last reported sale price on the NASDAQ National Market on that date). The
number of shares outstanding of the registrant's common stock as of
December 31, 1999 was 112,453,892.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
________________________________________________________________________________
DOUBLECLICK INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business.................................................... 3
ITEM 2. Properties.................................................. 27
ITEM 3. Legal Proceedings........................................... 27
ITEM 4. Submission of Matters to a Vote of Security Holders......... 29
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters Price Range of Common Stock........... 29
ITEM 6. Selected Consolidated Financial Data........................ 31
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
ITEM 7A. Quantative and Qualitive Disclosures About Market Risk...... 41
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 67
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 67
ITEM 11. Executive Compensation...................................... 67
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 67
ITEM 13. Certain Relationships and Related Transactions.............. 70
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 71
2
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. DOUBLECLICK UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading provider of technology-driven marketing and advertising
solutions to thousands of advertisers, advertising agencies, Web publishers and
e-commerce merchants worldwide. We provide a broad range of media, technology
and data products and services. Our products and services for Web publishers are
designed to optimize revenues. For our advertising, advertising agency and
e-commerce merchant customers, our products and services are designed to enhance
the effectiveness of their ad and marketing campaigns on the Internet and
through other interactive media.
Our patented DART technology is the platform for many of our solutions and
enables our customers to use preselected criteria to deliver the right ad to the
right person at the right time. DART is also a sophisticated tracking and
reporting tool that our customers rely on to measure ad performance and provide
dynamic ad space inventory management. We currently serve ads for over 1,800
clients, and in December 1999 delivered nearly 30 billion advertisements to
targeted Internet users.
Our revenues are derived from three principal lines of business:
DOUBLECLICK MEDIA. DoubleClick Media offers advertising and marketing
solutions to both publishers (i.e., AltaVista, the Dilbert Zone, Kelley
Blue Book and Macromedia) and advertisers. We aggregate the advertising
inventory of hundreds of Web sites into one of several domestic and
international networks based on size, traffic and content. We offer Web
publishers outsourced ad sales, ad delivery and related services to
generate advertising revenue. We offer advertisers the ability to advertise
on these networks and to target users on a local, national and
international basis. We deliver advertising on these networks using our
DART technology.
DOUBLECLICK TECHSOLUTIONS. DoubleClick TechSolutions is comprised of
comprehensive service and software solutions designed specifically for the
needs of our three targeted customer segments: advertisers and agencies,
Web publishers and e-commerce merchants. Our solutions include the DART
Service for Publishers, the AdServer family of software products for
publishers and e-commerce merchants, the DART Service for Advertisers, and
the DARTmail Service. We have professional service teams to support these
solutions and provide education, consulting services and around-the-clock
support. We acquired the AdServer family of software products through our
merger with NetGravity, Inc. in October 1999.
DOUBLECLICK DATA SERVICES. DoubleClick Data Services, through our Abacus
division, is a leading provider of information products and marketing
research services to the direct marketing industry. Through Abacus, we have
developed a comprehensive and productive source of information regarding
consumer purchasing behavior by creating a database that includes consumer
purchasing data contributed from over 1,500 alliance members. We use this
proprietary database and our advanced statistical modeling technology to
provide direct marketers with information and analysis which is designed to
increase response rates and profits from their direct mail marketing
campaigns. We merged with Abacus Direct Corporation in November 1999.
The Internet has emerged as an attractive new medium for advertisers due to
the rapid growth in the number of Web users, the amount of time such users spend
on the Web, the increase in electronic commerce, the interactive nature of the
Web, the Web's global reach and a variety of other factors. We believe the
number of U.S. online households will grow from
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39 million in 1999 to 63 million in 2004 and consumer e-commerce will reach $108
billion in 2003. Consequently, we believe that U.S. online advertising spending
will grow from $2.8 billion in 1999 to $22.2 billion in 2004. In addition, we
believe that markets outside the U.S. will become an increasingly important
component of Internet advertising, growing from $500 million in 1999 to $10.5
billion in 2004, accounting for approximately 33% of worldwide Internet
advertising. We believe that we are well positioned to capitalize on this large
market opportunity.
TECHNOLOGY OVERVIEW
We continue to enhance and develop our technology platforms. These include:
DART TECHNOLOGY. Many of our products and services are powered by our
patented DART technology, which enables centralized ad management, delivery
and reporting. In September 1999, we received a U.S. patent covering
fundamental aspects of our DART technology. We use our DART technology to
deliver advertising on Web sites independent from how content is delivered.
Content is delivered through the particular Web site's services, while our
servers contemporaneously select an appropriate advertisement for that Web
page and user based on various targeting criteria and deliver that
advertisement to the user within milliseconds. The following diagram
illustrates the architecture of the DART Service for Publishers:
Diagram illustrating the typical function of the DoubleClick DART service.
Shows a diagram with the following text:
[1. Web user visits a Web site of a Web publisher utilizing the Company's
DART Solutions.]
[Stylized picture of user]
[2. User's browser requests a targeted advertisement from a DoubleClick
ad server.]
[3. DART receives the request and assembles a user profile. The user
profile can include geographic location of the user's server, user
interests, organization name and size, domain type (i.e., commercial,
government, education, network), operating system, server type and
version and keywords.]
[4. DoubleClick DART then compares the user's profile with the targeting
criteria of the hundreds of ads available in its database and delivers a
dynamically targeted ad. This entire process is completed in milliseconds.]
[Stylized picture of user viewing targeted ad]
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Our DART technology dynamically targets and delivers ads to Web users based
on pre-selected criteria, including the Web site category, time of day and
regional geographic location. If the user responds to an advertisement by
'clicking on' the ad, our servers direct the user's browser to the
advertiser's Web site for more information. These methods of data
collection and centralized ad delivery offer a number of advantages to Web
publishers, advertisers and consumers, including system reliability, proven
targeting capabilities, sophisticated ad inventory management, consistent
Web-based reporting and enhanced relevance of the advertising to the user.
Because DART technology is Web-based, continuous enhancements to the
technology can be made without the need for our customers to upgrade or
purchase new equipment or software upgrades.
ADSERVER TECHNOLOGY. We license, and offer consulting and support services
for, the AdServer family of software products for e-commerce merchants and
Web publishers. Using our AdServer software solution, e-commerce merchants
and Web publishers can directly manage their own advertising inventory,
consumer data, mission-critical advertising business processes, and
relationships with advertisers and advertising agencies. The AdServer
family of software products are designed to allow Web publishers to predict
inventory available for sale, to deliver targeted advertisements to
consumers and to provide reports and analysis to advertisers. Additionally,
our AdServer software solution can be integrated with content management,
billing and commerce systems. AdServer is designed to be extensible, fault-
tolerant, scalable and platform-independent to meet the needs of even our
largest customers. Our AdServer software also supports industry standard
operating environments including popular Unix systems, Microsoft Windows
NT, standard relational databases, Web servers from Netscape and Microsoft
and Java-enabled Web browsers.
DATA SERVICE TECHNOLOGY. Our Data Service technology employs modeling
software which uses predictive scoring and analytical techniques to improve
response rates from customer lists. We also use process automation software
that integrates and automates virtually all states of model development and
list production and allows us to quickly and cost effectively generate
dozens of models for a given client.
OUR SOLUTIONS
DOUBLECLICK MEDIA
Solutions for Publishers
DoubleClick Media offers a comprehensive set of media solutions designed to
optimize advertising revenues for Web publisher clients on our worldwide
networks. We pay each Web publisher whose Web sites are on the networks a
service fee calculated as a percentage of the amount we charge advertisers for
delivering advertisements on the networks. In addition, we typically are
responsible for billing and collecting for ads delivered on the networks and
typically assume the risk of non-payment from advertisers. By outsourcing these
functions, Web publishers avoid the need to develop an internal ad sales
capacity, are relieved of ad management requirements, including billing,
tracking and reporting, and do not incur the expense associated with
establishing, maintaining, upgrading and operating ad servers.
DoubleClick Media service and product offerings for Web publishers consist
of the following:
DOUBLECLICK SELECT. DoubleClick Select is the advertising solution for Web
publishers of well-known Web sites that wish to completely outsource ad
sales, ad management, ad serving and reporting. Announced in January 1999,
DoubleClick Select features a collection of high quality branded Web sites
on which our experienced sales force and sponsorship specialists sell
advertising on an exclusive basis. Through exclusive representation,
DoubleClick Select positions its sites for high value, premium ad products
such as site specific campaigns and sponsorships.
DOUBLECLICK NETWORK. Web publishers complement their in-house ad sales
efforts with the DoubleClick Network. The DoubleClick Network helps Web
publishers realize revenue from
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their advertising inventory by allowing Web publishers to take advantage of
the global sales force of DoubleClick Media to maximize their Web site's
revenue potential. The largest DoubleClick Media network is the DoubleClick
Network. Our representation of Web publishers is typically on a
non-exclusive basis in the U.S., and on an exclusive basis internationally.
SONAR NETWORK. On January 31, 2000, we announced the launch of the Sonar
Network, our new, separately branded network of small and medium-sized Web
sites and unsold inventory from larger Web sites. The Sonar Network is
focused on providing ad sales services for Web publishers offering reach
and user-based audience-targeting to advertisers looking for lower cost ad
solutions.
To take advantage of the global reach of the Internet, we have established
and continue to establish networks in Europe, Asia and other international
markets. DoubleClick Media currently offers our services and products in
Australia, Canada, France, Germany, the United Kingdom, Benelux (the
Netherlands, Belgium and Luxembourg), Iberoamerica (Spain, Portugal and Latin
America), Ireland and Scandinavia (Sweden, Norway, Denmark and Finland), and
operates through business partners in Japan, Asia (Hong Kong, Taiwan and
Singapore) and Italy. Further, we locate ad servers in foreign locations to
facilitate the rapid delivery of Internet advertising in international markets.
Web publishers seeking to add their Web sites to one of our DoubleClick
Media networks must meet defined inclusion and maintenance criteria. For the
DoubleClick Network and for DoubleClick Select, these factors include:
demographics of the particular Web site's users;
quality of the Web site's content;
brand name recognition of the Web site;
level of existing and projected traffic on the Web site; and
ability to provide sponsorship opportunities on the Web site.
By maintaining these defined criteria, we enhance an advertiser's ability to
have its advertisements seen by the targeted audience which, in turn enhances
the value of a Web publisher's inventory.
We will continue to target Web publishers of high quality directories,
search engines and premium Web sites for addition to the existing categories of
interest in the networks of DoubleClick Media. We will also continue to expand
into additional categories of interest based on advertisers' targeting needs.
Solutions for Advertisers
DoubleClick Media provides advertisers and their agencies with the ability
to reach their desired audience online. Over 4,300 advertisers from a variety of
industries used the DoubleClick Media advertiser solutions during the fourth
quarter of 1999, including many of the leading Internet advertisers. In some
instances, advertisers promote a number of products at one time. In turn, there
may be a number of advertising campaigns being run simultaneously for each
product, each with a number of advertisements. Further, many advertisers use
advertising agencies to place their advertisements. As a result, DoubleClick
Media maintains relationships with, and focuses its sales and marketing efforts
on, both advertisers and advertising agencies. We offer the following media
solutions to help advertisers reach their desired audiences online:
U.S. NETWORKS. The DoubleClick Media networks within the United States
consist of six categories of premium content Web sites grouped together in
the following areas of interest: Auto, Business, Entertainment, Technology,
Travel and Women/Health. Additional sub-categories including sports, youth
and finance allow advertisers to more efficiently reach their desired
audiences. With special programs for mass reach, run-of-category and
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site-specific targeting, advertising placements on the sites in the U.S.
networks can be customized to meet the needs of any advertiser.
INTERNATIONAL NETWORKS. Our international DoubleClick Media operations
allow U.S. advertisers to target users worldwide or in specific countries
and enable overseas advertisers to focus their advertising either in their
own domestic market, the United States market or globally. With over 650
publishers featured in separate networks grouped together by country and
area of interest in Canada and eighteen countries in Western Europe and
Asia, we offer advertisers the ability to run global campaigns with one
media placement.
DOUBLECLICK LOCAL. Launched in July 1998, DoubleClick Local is among the
first Internet advertising solutions for regional and local businesses. By
using the advanced geographic targeting capabilities of our DART technology
in conjunction with our U.S. networks, regional businesses can now reach
their desired regional and local markets on national name-brand Web sites.
DOUBLECLICK SHOPPING. Launched in May 1999, DoubleClick Shopping offers
advertisers the ability to place ads on shopping Web sites we create for
Web publishers in the DoubleClick Media networks using the Web publishers'
premium branded content.
BOOMERANG. Launched in October 1998, the Boomerang feature of our DART
technology allows advertisers to reach users on the DoubleClick Media
networks who have previously visited the advertiser's Web site. Advertisers
can re-market to frequent buyers, to new customers, or to people who
visited a site but have not responded or made a purchase.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions are designed specifically to meet the needs of
advertisers, agencies, Web publishers and e-commerce merchants. These solutions
have been designed to address the rapidly evolving needs of each of the
following online marketing segments:
ADVERTISERS AND AGENCIES. Advertisers and their agencies are interested in
optimizing outbound advertising campaign results by delivering the right
message to the right person at the right time, and in justifying
expenditures through reliable, detailed, post-click campaign performance
reports.
WEB PUBLISHERS. Web publishers are interested in maximizing advertising
profits through advanced inventory management, precision targeting
capabilities, streamlined business processes, and reliable and detailed ad
performance reports to effectively package and sell one site or a network
of sites.
E-COMMERCE MERCHANTS. Online merchants are interested in using information
about their customers to deliver real-time, targeted marketing messages,
acquiring new customers at the lowest acquisition cost possible and
retaining customers to maximize lifetime value.
Our TechSolutions services and products include:
DART SERVICE FOR PUBLISHERS. Since January 1997, our DART Service for
Publishers has provided Web publishers with a comprehensive Web-based
service bureau that enables Web publishers that sell their own advertising
inventory to optimize their ad management, ad serving and reporting
functions through the Web-based DART technology. The DART Service provides
a Web publisher with the dynamic ad matching, targeting and delivering
features of the DART technology. With ad servers located throughout the
world, the DART Service for Publishers offers the scalability, reliability
and power needed to deliver large volumes of ads. Customers using the DART
Service for Publishers include Ask Jeeves, CBS Marketwatch, theglobe.com,
Mail.com and Wall Street Journal Interactive Edition.
DOUBLECLICK ADSERVER. Our AdServer software products offer an online
advertising and marketing management software solution for publishers and
merchants. AdServer software automates critical processes needed to run a
successful online marketing business, including sophisticated inventory and
order management, precision targeting, dynamic delivery, tracking and
detailed campaign reporting. AdServer software enables our clients to
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customize and integrate this solution with other key back-end systems.
Licensees of the AdServer family of software products include CNN
Interactive, KnightRidder New Media, Unicast and the World Wrestling
Federation.
DART SERVICE FOR ADVERTISERS. DART for Advertisers offers effective
campaign planning, management and optimization to allow advertisers to
streamline and control their online ad campaigns, understand their
customers and act quickly on knowledge gained. The DART Service for
Advertisers uses the same globally distributed system architecture and ad
servers that support the DART Service for Publishers. Advertiser and agency
clients of the DART Service for Advertisers product include Beyond
Interactive, CKS/US Web, First USA, MediaSmith and more.com.
DARTMAIL SERVICE. Our DARTmail Service offers advertisers and merchants a
full service advertising campaign management solution for direct e-mail
marketing. Our DARTmail Service enables marketers to deliver highly
personalized e-mail communications to their customers for the purposes of
building long-term, profitable relationships with their existing customers
and acquiring new customers. We first offered our DARTmail Service in early
December 1999, immediately following the acquisition of Opt-in E-mail.com.
Our DARTmail Service clients include iWon.com, Mail.com,
Metro-Goldwyn-Mayer, Microsoft and ShopNow.com.
DoubleClick TechSolutions are backed worldwide by support teams offering
service twenty-four hours a day, seven days a week. Through our professional
services group, we provide comprehensive education and consulting services that
help enable our customers to maximize the value of our TechSolutions services
and products. These services include customizing and extending existing
TechSolutions products and services in order to capitalize on additional revenue
opportunities, integrating DoubleClick TechSolutions into existing
infrastructure and data assets, and training employees on maximizing online
advertising effectiveness.
DOUBLECLICK DATA SERVICES
DoubleClick Data Services is a leading provider of information products and
marketing research services to the direct marketing industry through our Abacus
division. Through Abacus, we have developed a comprehensive and predictive
source of information regarding consumer purchasing behavior by creating a
database that includes consumer purchasing data contributed from over 1,500
alliance members. We use this proprietary database and its advanced statistical
modeling technology to provide direct marketers with information and analysis
which is designed to increase response rates and profits from their direct mail
marketing campaigns.
Abacus has addressed the need for a comprehensive source of information on
purchasing behavior by forming the Abacus Alliance. Our Abacus Alliance is a
cooperative arrangement through which direct mail marketers and offline
retailers contribute their customers' purchasing histories to our database in
exchange for the right to purchase the full range of Abacus's information and
market research services.
Our Abacus database contains over 88 million buyer profiles compiled from
records of over 3 billion purchasing transactions. This database includes a
combination of transactional, geographic, demographic, lifestyle and behavioral
profile data, enabling marketers to gain a better understanding of consumer
behaviors and conduct more effective marketing campaigns. Abacus's products and
services support the direct mail marketing of Alliance participants.
During the fourth quarter of 1999, we formed the Abacus Online Alliance to
extend the Abacus relationships, data and tools to the Internet and other
interactive media. This will enable our customers to deliver personally tailored
advertising to those users who have received prior notice of and an opportunity
to opt-out from this type of targeting. We are currently adding participants,
including e-commerce merchants, to our Abacus Online Alliance, and developing
our Abacus Online products and services. We do not currently offer any Abacus
Online products or services.
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We offer the following services and products to our Abacus customers:
PROSPECT LISTS. Our prospect lists service provides a client with a list of
prospective consumers ranked according to the likelihood that the consumers
will respond to a particular direct marketing campaign. The criteria for
ranking include recency, frequency, time of year and dollar amount of
catalog purchases. This service helps enable catalog companies to expand
their business base and offset consumer attrition.
HOUSEFILE SCORING. Our housefile scoring service offers our clients a
ranking of the consumers contained on each client's own customer list
according to the probability that an individual consumer will make a repeat
purchase. This service also allows our clients to identify inactive
customers who are most likely to respond to a renewed sales initiative. Our
housefile program helps enable our client companies to profitably manage
promotional programs targeted at their existing customers and cost
effectively determine when to solicit customers who have not made recent
purchases.
LIST OPTIMIZATION. Our list optimization service eliminates unresponsive
names from lists that a client has purchased from or exchanged with other
companies, enabling the client to identify and target the most likely
buyers. This process not only increases the potential profitability of
lists a client currently uses, but permits the client to use lists that
were previously considered unprofitable.
MARKETING INFORMATION REPORTS. Our marketing information reports service
offers our clients detailed information regarding the catalog industry,
which was not previously available to catalog companies. Our Data Services
group uses the data contributed by our Abacus Alliance members to create
comprehensive reports that accurately describe catalog market size, share,
activity and other key marketing data that allow clients to develop their
strategic marketing initiatives. The marketing information reports provide
our clients information on: (1) seasonality, to help identify optimal mail
dates; (2) cross-category catalog purchasing behavior, to allow the
refinement of the catalog's merchandise mix; and (3) transaction histories
and demographics, to aid in planning, advertising, promotions and mail
frequency.
SALES AND MARKETING
UNITED STATES
We sell our solutions in the United States through a sales and marketing
organization which consisted of 505 employees as of December 31, 1999. These
employees are located at our headquarters in New York, and in our offices in
Atlanta, Boston, Broomfield (CO), Chicago, Dallas, Detroit, Los Angeles, San
Francisco, San Mateo, and Seattle. Our sales organization is divided into
dedicated groups that separately sell our service and product offerings, and
within these groups, our sales representatives are further divided into separate
teams to serve the needs of our diverse client base.
To support our direct sales efforts and to actively promote the DoubleClick
brand, we conduct comprehensive marketing programs, including public relations,
print advertisements, online advertisements over our DoubleClick networks and
our newly introduced Sonar Network and, on the Web sites of Web publishers
unaffiliated with our DoubleClick Networks, Web advertising seminars, trade
shows and ongoing customer communications programs.
INTERNATIONAL
Our international operations are based out of our Irish subsidiary located
in Dublin, Ireland. We sell our services and products through our directly and
indirectly owned subsidiaries in Australia, Canada, France, Germany, the United
Kingdom, Benelux (the Netherlands, Belgium and Luxembourg), Iberoamerica (Spain,
Portugal and Latin America), Ireland and Scandinavia (Sweden, Norway, Denmark
and Finland), and operate through business partners in Japan, Asia (Hong Kong,
Taiwan and Singapore) and Italy. We sell our services and products
internationally in
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a number of countries including France, Germany, Japan, Norway, Sweden and the
United Kingdom through our global sales organization. Our international sales
and marketing organization consisted of 209 employees as of December 31, 1999.
CORPORATE HISTORY; RECENT MERGERS, ACQUISITIONS AND INVESTMENTS
We were incorporated in Delaware on January 23, 1996, as DoubleClick
Incorporated and changed our name to DoubleClick Inc. on May 14, 1996. On
February 25, 1998, we completed our initial public offering of common stock,
receiving net proceeds of approximately $62.5 million. On December 10, 1998, we
received net proceeds of approximately $93.7 million in connection with our
follow-on offering of common stock. On March 16, 1999, we completed the sale of
our 4.75% Convertible Subordinated Notes due 2006 through a private offering
under Rule 144A, and received approximately $244.7 million in net proceeds. On
April 2, 1999, we paid to stockholders of record on March 22, 1999 a stock
dividend of one share of common stock for each share held. On January 10, 2000,
we paid to each stockholder of record as of December 31, 1999 a stock dividend
of one share of common stock for each share held. Our service and product
offerings are grouped into three lines of business: DoubleClick Media,
DoubleClick TechSolutions and DoubleClick Data Services. See Note 12 to the
Consolidated Financial Statements for revenues and gross profit attributable to
each of our lines of business and revenues and long-lived asset information by
geographic area.
We have recently completed the following mergers and acquisitions:
On October 26, 1999, we merged with NetGravity, Inc., a leading provider of
interactive online advertising and direct marketing software solutions.
On November 4, 1999, we acquired the remaining 90 percent of the
outstanding shares of DoubleClick Iberoamerica that we did not previously
own.
On November 23, 1999, we merged with Abacus Direct Corporation, a leading
provider of specialized consumer information and analysis for the direct
marketing industry.
On November 30, 1999, we merged with Opt-In E-mail.com, a leader in
Internet e-mail marketing, publishing and list management.
On December 29, 1999, we acquired the remaining 90.7 percent of the
outstanding shares of DoubleClick Scandinavia AB that we did not previously
own.
In addition, on January 11, 2000, we entered into an agreement to make a cash
and stock investment in ValueClick, Inc., a provider of cost-per-click Internet
advertising solutions, in exchange for a 30% equity interest in ValueClick.
Under the terms of the agreement, ValueClick will receive $75.7 million in our
common stock and $10 million in cash. ValueClick will also have registration
rights covering these shares. In addition, we will receive a warrant to purchase
additional equity, which will enable us to own up to 45 percent of the equity of
ValueClick and will be exercisable until 15 months following the consummation of
our investment. We intend to consummate this investment once we receive
Hart-Scott-Rodino regulatory clearance. ValueClick filed a registration
statement on Form S-1 for its initial public offering of its common stock on
October 12, 1999.
COMPETITION
The market for interactive marketing solutions is intensely competitive. We
expect this competition to continue to increase since there are low barriers to
entry. Competition may also increase as a result of industry consolidation.
We believe that our ability to compete depends on many factors both within
and beyond our control, including the following:
the timing and market acceptance of new solutions and enhancements to
existing solutions developed by either us or our competitors;
customer service and support efforts;
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sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
DoubleClick Media competes for Internet advertising revenues with large Web
publishers and Web portals, such as America Online, Excite@Home, Microsoft,
GO.com and Yahoo!. We also compete with the traditional advertising media of
television, radio, cable and print for a share of advertisers' total advertising
budgets. Furthermore, our DoubleClick networks compete with a variety of
Internet advertising networks, including 24/7 Media, AdSmart and Flycast. We
also encounter competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies, and other companies which facilitate Internet advertising.
DoubleClick TechSolutions competes with providers of ad server software and
related services, including Accipiter and Real Media. We also face competition
for outsourced ad services by AdForce, AdKnowledge, AvenueA, Excite@Home
(through its MatchLogic unit), L90 and Sabela Media. 24/7 Media has recently
announced an agreement to acquire Sabela Media. Additionally, we face sales
challenges from the internal capabilities of some potential customers, as some
large and popular online content publishers use internally developed interactive
marketing and advertising solutions rather than the commercial solutions offered
by DoubleClick and our competition. Our DARTmail Service competes with providers
of e-mail delivery and list management services, such as Exactis and
MessageMedia.
DoubleClick Data Services, through the Abacus database and services,
competes with companies such as Z-24, which is a subsidiary of Experian, and
marketing intermediaries such as Junkbusters, as well as list brokers and
individual companies that sell their customer lists. Our Abacus Online Alliance
will compete with providers of profiling technology, such as MatchLogic and
Engage. A number of DoubleClick's competitors, including Engage, AdForce,
AdKnowledge, AdSmart and Flycast, are affiliates of CMGI.
PRIVACY
The growth of our business and of the Internet depends on user trust in the
integrity of the Internet. We believe that fostering user confidence in online
privacy is an integral component of our mission to deliver the right message to
the right user at the right time. We have been a leader in providing notice and
choice to users about our use of non-personally identifiable information
collected about them in the delivery of Internet advertising. With the
development of our Abacus Online division, we are developing ways to provide
notice to users about the marketing uses of personally identifiable information
collected online and the choice not to participate.
In associating online and offline information about a user, we believe we
have an obligation to the user community to protect their privacy. Therefore, in
connection with our Abacus Online services and products, which are currently
under development, we will not associate any personally identifiable information
about a user with his or her Internet browser unless that user has first been
provided with notice about the collection and use of personally identifiable
information about that user, and the choice not to participate. In addition, we
believe that some sensitive information, such as health-related information, is
inappropriate for advertising targeting, and we will not make that sensitive
information part of our targeting systems.
We built our DART technology with user privacy concerns in mind. Since 1997,
we have offered users a selective opt-out that makes it impossible for us to
associate any online behavior with the user's browser or to associate any
personally identifiable information with a browser that has opted out. This
opt-out is available to all users, whether or not we have any personally
identifiable information linked to that person's browser. We call this opt-out
selective because, unlike deleting cookies, our opt-out only impacts our ability
to recognize a user. None of the user's other personalization efforts (e.g.,
customized home pages) are affected.
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As a founding member of the Network Advertising Initiative, we are
developing industry self-regulating principles for the collection and use of
user information by network advertising companies like DoubleClick. As a member
of the Online Privacy Alliance, we encourage our business alliances and
customers to adopt the principles of the Online Privacy Alliance. Further, we
actively monitor privacy laws and regulations, and seek to comply with all
applicable privacy requirements.
We are a defendant in several pending class action lawsuits alleging, among
other things, that we unlawfully obtain and sell Internet users' personal
information. We believe that these lawsuits are without merit and intend to
vigorously defend ourselves against them. We are also the subject of a Federal
Trade Commission inquiry concerning our collection and maintenance of
information concerning Internet users and a request for information from the
New York Attorney General's office relating to our collection, maintenance and
sharing of information concerning, and our disclosure of those practices to,
Internet users. Further, the press has reported that the Michigan Attorney
General commenced legal proceedings against us under Michigan's consumer
protection laws. We may receive additional regulatory inquiries and intend to
cooperate fully. Class action litigation and regulatory inquiries of these
types are often expensive and time-consuming and their outcome is uncertain.
We cannot quantify the amount of monetary or human resources that we will be
required to use to defend ourselves in these proceedings. We may need to spend
significant amounts on our legal defense, senior management may be required to
divert their attention from other portions of our business, new product launches
may be deferred or canceled as a result of these proceedings, and we may be
required to make changes to our present and planned products or services, any
of which could materially and adversely affect our business, financial condition
and results of operations. If, as a result of any of these proceedings, a
judgment is rendered or a decree is entered against us, it may materially and
adversely affect our business, financial condition and results of operations.
SEASONALITY AND CYCLICALITY
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. Our revenue could be
materially reduced by a decline in the economic prospects of advertisers and
direct marketers or in the economy in general, which could alter current or
prospective advertisers' and direct marketers' spending priorities or budget
cycles or extend our sales cycle.
PROPRIETARY RIGHTS
We protect our proprietary technologies through a combination of patent,
copyright, trade secret, unfair competition and trademark law, as well as
contractual agreements. In September 1999, the U.S. Patent Office issued to us a
patent that covers the DART technology. We have filed a patent infringement suit
against each of L90, Inc. and Sabela Media, Inc. in order to enforce our patent.
We have also filed patent applications in the United States and internationally
for our DART technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK, DART, and ABACUS. We have applied to
register our trademarks in the U.S. and internationally. We have received
registrations for the marks DOUBLECLICK and ABACUS, among others. We cannot
assure you that any of our current or future patent applications or trademark
applications will be approved. Even if they are approved, these patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our
12
licensees may take actions that could materially and adversely affect the value
of our proprietary rights and reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business alliances, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We collect and compile information in databases for the product offerings of
all our businesses. Individuals have claimed, and may claim in the future, that
our collection of this information is illegal. Although we believe that our
ability to do so will remain lawful, and that we have the right to collect, use
and compile the information in our databases, we cannot assure you that any
trade secret, copyright or other intellectual property protection will be
available for our databases, or that statutory protection that is or becomes
available for databases will enhance our rights. In addition, others may claim
rights to the information in our databases. Further, pursuant to our contracts
with Web publishers using our solutions, we are obligated to keep certain
information regarding each Web publisher confidential and, therefore, may be
restricted from further using that information in our business. In addition,
some of our contracts with Web publishers prevent us from developing profiles of
users of their Web sites. The current debate about data collection practices may
cause additional Web publishers to seek similar contractual provisions in their
agreements with us. Computer users may also use software designed to filter or
prevent the delivery of advertising to their computers. We cannot assure you
that the number of computer users who employ filtering software will not
increase or that additional Web publishers will not seek contractual provisions
barring us from developing profiles of users of their Web sites, either of which
could materially and adversely affect our business, results of operations and
financial condition.
EMPLOYEES
As of December 31, 1999, we employed 1,386 persons, including 714 in sales
and marketing, 209 of whom serve international markets, 225 in engineering and
product development, 249 in business operations, consulting and customer
support, and 198 in general administration. We are not subject to any collective
bargaining agreements and believe that our relationships with our employees are
good.
13
RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks occur, our business, results of operations and financial
condition could be harmed, the trading price of our common stock could decline,
and you could lose all or part of your investment.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in January 1996 and have a limited operating history.
An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet advertising market. Our risks include:
ability to sustain historical revenue growth rates;
relying on our DoubleClick networks;
managing our expanding operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining our current, and developing new, strategic relationships with
Web publishers;
dependence on a continuing relationship with AltaVista;
ability to anticipate and adapt to the changing Internet market; and
attracting and retaining a large number of advertisers from a variety of
industries.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. Please see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' for detailed information on our limited
operating history.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES
We incurred net losses of $4.0 million for the year ended December 31, 1996,
$7.7 million for the year ended December 31, 1997, and $18.0 million for the
year ended December 31, 1998. For the year ended December 31, 1999, we incurred
a net loss of $55.8 million and, as of December 31, 1999, our accumulated
deficit was $109.8 million. We have not achieved profitability and expect to
continue to incur operating losses in the future. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenues to achieve and maintain profitability. Although
our revenues have grown in recent quarters, we cannot assure you that we will
achieve sufficient revenues for profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM WEB SITES OF A LIMITED
NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS CUSTOMERS COULD
HARM OUR BUSINESS
We derive a substantial portion of our DoubleClick Media revenues from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
Over 20% of our revenues for each of the years ended December 31, 1999 and 1998
resulted from ads delivered on the Web sites of the top four Web publishers on
our DoubleClick networks. Our business, results of operations and financial
condition could be materially and adversely affected by the loss of one or more
of the Web publishers that account for a significant portion of the revenues
from our DoubleClick networks or any significant reduction in traffic on these
Web publisher's Web sites.
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The loss of these Web publishers could also cause advertisers or other Web
publishers to leave our networks, which could materially and adversely affect
our business, results of operations and financial condition. Typically we enter
into short-term contracts with Web publishers for inclusion of their Web sites
in our DoubleClick networks. Since these contracts are short-term, we will have
to negotiate new contracts or renewals in the future, which may have terms that
are not as favorable to us as the terms of the existing contracts. Our business,
results of operations and financial condition could be materially and adversely
affected by such new contracts or renewals.
WE RELY HEAVILY ON OUR RELATIONSHIP WITH ALTAVISTA AND ANY CHANGE IN THIS
RELATIONSHIP COULD HARM OUR BUSINESS
Approximately 10.8% and 26.9% of revenues for the years ended December 31,
1999 and 1998, respectively, resulted from advertisements delivered on or
through the AltaVista Web site. On June 29, 1999, CMGI, Inc. acquired a
controlling interest in AltaVista from Compaq. Compaq and its wholly owned
subsidiary, Digital Equipment Corporation, contributed the assets and
liabilities comprising AltaVista's business, including the Advertising Services
Agreement, which governed our relationship with AltaVista, to AltaVista Company,
a new company of which CMGI owns approximately 83%, with the remainder owned by
Compaq. Recently, CMGI acquired several Internet advertising and marketing
companies, including AdForce, AdKnowledge and Flycast Communications. As a
result of these transactions, CMGI now owns several companies, including AdSmart
Network and Engage Technologies, that compete with DoubleClick's Internet
advertising solutions, and Engage Technologies, which is majority owned by CMGI,
has announced an agreement to acquire AdSmart and Flycast. In November 1999, we
entered into an Interim Advertising Services Agreement with AltaVista, as
successor to Compaq, which temporarily suspends until January 2001 the
Advertising Services Agreement we entered into with Compaq in January 1999. The
Interim Advertising Services Agreement allows for us to continue to sell
advertisements throughout AltaVista's network and provides for AltaVista to
maintain and service some advertising accounts previously serviced by us. The
loss of AltaVista as a customer or any significant reduction in traffic on or
through the AltaVista Web site would materially and adversely affect our
business, results of operations and financial condition.
OUR BUSINESS MAY BE SIGNIFICANTLY ADVERSELY AFFECTED BY RECENTLY FILED LAWSUITS
RELATED TO PRIVACY AND OUR BUSINESS PRACTICES
As explained in detail in the Legal Proceedings section of this report, we
are a defendant in several pending class action lawsuits alleging, among other
things, that we unlawfully obtain and sell Internet users' personal information.
We are also the subject of a Federal Trade Commission inquiry concerning our
collection and maintenance of information concerning Internet users, and a
request for information from the New York Attorney General's office relating to
our collection, maintenance and sharing of information concerning, and our
disclosure of those practices to, Internet users. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings
against us under Michigan's consumer protection laws. We may receive additional
regulatory inquiries and intend to cooperate fully. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings against
us under Michigan's consumer protection laws. We may receive additional
regulatory inquiries and intend to cooperate fully. Class action litigation
and regulatory inquiries of these types are often expensive and time-consuming
and their outcome is uncertain. We cannot quantify the amount of monetary or
human resources that we will be required to use to defend ourselves in these
proceedings. We may need to spend significant amounts on our legal defense,
senior management may be required to divert their attention from other portions
of our business, new product launches may be deferred or canceled as a result
of these proceedings, and we may be required to make changes to our present and
planned products or services, any of which could materially and adversely
affect our business, financial condition and results of operations. If, as a
result of any of these proceedings, a judgment is rendered or a decree is
entered against us, it may materially and adversely affect our business,
financial condition and results of operations.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM ADVERTISEMENTS WE DELIVER
TO WEB SITES ON OUR DOUBLECLICK NETWORKS AND A DECREASE IN TRAFFIC LEVELS COULD
HARM OUR BUSINESS
We derive a large portion of our revenues from advertisements we deliver to
Web sites on our DoubleClick networks. We expect that our DoubleClick networks
will continue to account for a substantial portion of our revenues for the
foreseeable future. Our DoubleClick networks consist of Web sites of Web
publishers with which we have short-term contracts. We cannot assure you that
15
these Web publishers will remain associated with our DoubleClick networks, that
any DoubleClick network Web site will maintain consistent or increasing levels
of traffic over time, or that we will be able to timely or effectively replace
any existing DoubleClick network Web site with other Web sites with comparable
traffic patterns and user demographics. Our failure to successfully market our
DoubleClick networks, the loss of one or more of the Web publishers that account
for a significant portion of our revenues from our DoubleClick networks, or the
failure of the Web sites on our DoubleClick networks to maintain consistent or
increasing levels of traffic would materially and adversely affect our business,
results of operations and financial condition.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include:
advertiser, Web publisher and direct marketer demand for our solutions;
changes in fees paid by advertisers;
changes in service fees payable by us to Web publishers in our networks;
the introduction of new Internet advertising services by us or our
competitors;
variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and
general economic conditions.
For the foreseeable future, our revenues from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. These future revenues are
difficult to forecast. In addition, we plan to significantly increase our
operating expenses so that we can increase our sales and marketing operations,
continue our international expansion, upgrade and enhance our DART technology
and expand our product and service offerings, and market and support our
solutions. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenues in relation to
our expenses, or if our expenses precede increased revenues, then our business,
results of operations and financial condition could be materially and adversely
affected. These results would likely affect the market price of our common stock
in a manner which may be unrelated to our long term operating performance.
As a result, we believe that period-to-period comparisons of our results of
operations may not be meaningful. You should not rely on past periods as
indicators of future performance.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL
AND INFORMATION SYSTEM RESOURCES
In recent years, we have experienced significant growth, both internally and
through acquisitions, that has placed considerable demands on our managerial,
operational and financial resources. To continue to successfully implement our
business plan in our rapidly evolving markets requires an effective planning and
management process. We continue to increase the scope of our operations both
domestically and internationally, and we have grown our workforce substantially.
As of December 31, 1998, we had a total of 482 employees (without giving effect
to our acquisitions) and, as of December 31, 1999, we had a total of 1,386
employees. In addition, we plan to continue to expand our sales and marketing
and customer support organizations both domestically and internationally. The
anticipated future growth in our operations will continue to place a significant
strain on our management systems and resources. We expect that we will need to
continue to improve our financial and managerial controls and reporting systems
and procedures, and will need to continue to expand, train and manage our
workforce. We cannot assure you that if we continue to grow, management will be
effective in attracting and retaining additional qualified personnel, expanding
our physical facilities, integrating acquired businesses or otherwise managing
growth. We also cannot assure you that our information systems, procedures
16
or controls will be adequate to support our operations or that our management
will be able to achieve the rapid execution necessary to successfully offer our
services and implement our business plan. Our future performance may also depend
on our effective integration of acquired businesses. Even if successful, this
integration may take a significant period of time and expense, and may place a
significant strain on our resources. Our inability to effectively manage our
growth could materially and adversely affect our business, financial condition
and results of operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL
A significant part of our business model is to generate revenues by
providing interactive marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for this business model is unproven. To be
successful, both Internet advertising and our solutions will need to achieve
broad market acceptance by advertisers, ad agencies and Web publishers. Our
ability to generate significant revenues from advertisers will depend, in part,
on our ability to contract with Web publishers that have Web sites with adequate
available ad space inventory. Further, these Web sites must generate sufficient
user traffic with demographic characteristics attractive to our advertisers. The
intense competition among Internet advertising sellers has led to the creation
of a number of pricing alternatives for Internet advertising. These alternatives
make it difficult for us to project future levels of advertising revenues and
applicable gross margin that can be sustained by us or the Internet advertising
industry in general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services, including our new products and services
such as the Sonar Network, Abacus Online Alliance and the DARTmail Services.
Enterprises may be reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing direct marketing systems. In addition,
since online direct marketing is emerging as a new and distinct market apart
from online advertising, potential adopters of online direct marketing services
will increasingly demand functionality tailored to their specific requirements.
We may be unable to meet the demands of these clients.
Market acceptance of our new solutions will depend on the continued
emergence of Internet commerce, communication and advertising, and market demand
for our solutions. We cannot assure you that the market for our new solutions
will develop or that demand for our new solutions will emerge or become
sustainable.
DISRUPTION OF OUR SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES COULD HARM
OUR BUSINESS
Our DART technology resides on a computer system located in our New York
City offices and in our data centers in New Jersey and California and in Europe,
Asia and Latin America. This system's continuing and uninterrupted performance
is critical to our success. Customers may become dissatisfied by any system
failure that interrupts our ability to provide our services to them, including
failures affecting our ability to deliver advertisements without significant
delay to the viewer. Sustained or repeated system failures would reduce the
attractiveness of our solutions to advertisers, ad agencies and Web publishers.
Slower response time or system failures may also result from straining the
capacity of our deployed software or hardware due to an increase in the volume
of advertising delivered through our servers. To the extent that we do not
effectively address any capacity constraints or system failures, our business,
results of operations and financial condition could be materially and adversely
affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, interruptions in our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. Our business, results of
17
operations and financial condition could be materially and adversely affected by
any damage or failure that interrupts or delays our operations.
COMPETITION IN THE MARKETS FOR INTERNET ADVERTISING AND RELATED PRODUCTS AND
SERVICES IS INTENSE AND LIKELY TO INCREASE IN THE FUTURE, AND WE MAY NOT BE ABLE
TO SUCCESSFULLY COMPETE
The market for Internet advertising and related products and services is
intensely competitive. We expect competition to continue to increase because
this market poses no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. We believe that our ability to
compete depends upon many factors both within and beyond our control, including
the following:
the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
customer service and support efforts;
sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
We compete for Internet advertising revenues with large Web publishers and
Web portals, such as America Online, Excite@Home, Microsoft, GO.com and Yahoo!.
Further, our DoubleClick networks compete with a variety of Internet advertising
networks, including 24/7 Media. In marketing our DoubleClick networks and DART
Service to Web publishers, we also compete with providers of ad servers and
related services. Recently, CMGI acquired several Internet advertising and
marketing companies, including AdForce, AdKnowledge and Flycast. As a result of
these transactions, CMGI now owns several companies, including AdSmart Network
and Engage Technologies, that compete with our Internet advertising solutions,
and Engage Technologies, which is majority owned by CMGI, has announced an
agreement to acquire AdSmart and Flycast. We also encounter competition from a
number of other sources, including content aggregation companies, companies
engaged in advertising sales networks, advertising agencies, and other companies
which facilitate Internet advertising.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. These factors may allow them to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. It
may also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers and Web publishers. We cannot assure you that our competitors will
not develop products or services that are equal or superior to our solutions or
that achieve greater market acceptance than our solutions. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective advertising,
ad agency and Web publisher customers. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share. We cannot assure you that we will be able to compete
successfully or that competitive pressures will not materially and adversely
affect our business, results of operations or financial condition.
WE MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print (traditional advertising media) for a
share of advertisers' total advertising
18
budgets. Advertisers may be reluctant to devote a significant portion of their
advertising budget to Internet advertising if they perceive the Internet to be a
limited or ineffective advertising medium.
OUR REVENUES ARE SUBJECT TO SEASONAL FLUCTUATIONS
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. Our revenue could be
materially reduced by a decline in the economic prospects of advertisers and
direct marketers or in the economy in general, which could alter current or
prospective advertisers' and direct marketers' spending priorities or budget
cycles or extend our sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES
We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding our acquiring, or investing in, their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms. If we buy a company, we could have
difficulty in integrating that company's personnel and operations. In addition,
the key personnel of the acquired company may decide not to work for us. If we
make other types of acquisitions, we could have difficulty in integrating the
acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations
due to accounting requirements such as amortization of goodwill. Furthermore, we
may incur debt or issue equity securities to pay for any future acquisitions.
The issuance of equity securities could be dilutive to our existing
stockholders.
WE ARE DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND RECRUITING FOR
OUR FUTURE SUCCESS
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, in particular,
Kevin O'Connor, our Chief Executive Officer and Chairman of the Board of
Directors, Kevin Ryan, our President and Chief Operating Officer, and Dwight
Merriman, our Chief Technical Officer. We have no employment agreements with any
of these executives. The loss of the services of Messrs. O'Connor, Ryan or
Merriman, or certain other key employees, would likely materially and adversely
affect our business, results of operations and financial condition. Our future
success also depends on our continuing to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications.
19
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES
Our success and ability to effectively compete are substantially dependent
on the protection of our internally developed technologies and our trademarks,
which we protect through a combination of patent, copyright, trade secret,
unfair competition and trademark law as well as contractual agreements. In
September 1999, the U.S. Patent Office issued to us a patent that covers the
DART technology. We have filed a patent infringement suit against each of L90,
Inc. and Sabela Media, Inc. in order to enforce our patent. 24/7 Media has
recently announced an agreement to acquire Sabela Media. We have also filed
patent applications for some of our other technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK, DART, and ABACUS. We have applied to
register our trademarks in the U.S. and internationally. We have received
registrations for the marks DOUBLECLICK and ABACUS, among others. We cannot
assure you that any of our current or future patent applications or trademark
applications will be approved. Even if they are approved, these patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our licensees may take actions that could
materially and adversely affect the value of our proprietary rights and
reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We cannot assure you that any of our proprietary rights will be viable or of
value in the future since the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related industries is uncertain and
still evolving. Furthermore, third parties may assert infringement claims
against us. From time to time we have been, and we expect to continue to be,
subject to claims in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties by us or the Web publishers with Web sites in our DoubleClick
networks. Such claims and any resultant litigation, should it occur, could
subject us to significant liability for damages, and we could be restricted from
using our ad delivery technology or other intellectual property. Any claims or
litigation from third parties may also result in limitations on our ability to
use the intellectual property, including our ad delivery technology, which are
the subject of such claims or litigation unless we enter into arrangements with
the third parties responsible for such claims or litigation which may be
unavailable on commercially reasonable terms, if at all. In addition, even if we
prevail, such litigation could be time-consuming and expensive to defend, and
could result in the diversion of our time and attention, any of which could
materially and adversely affect our business, results of operations and
financial condition.
20
OUR RIGHT TO KEEP INFORMATION COLLECTED IN OUR DATABASES MAY BE CHALLENGED IN
THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS
We collect and compile information in databases for the product offerings of
all our businesses. Individuals have claimed, and may claim in the future, that
our collection of this information is illegal. Although we believe that we have
the right to use and compile the information in these databases, we cannot
assure you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our business.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. Our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions and
services to address our customers' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions and services. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors. Our
failure to successfully design, develop, test and introduce new services, or the
failure of our recently introduced services to achieve market acceptance, could
prevent us from maintaining existing client relationships, gaining new clients
or expanding our markets and could materially and adversely affect our business,
financial condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO SUCCESSFULLY EXPAND OUR
INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established our DoubleClick networks in
Australia, Brazil, Canada, France, Germany, Benelux (Belgium, the Netherlands
and Luxembourg), Scandinavia (Sweden, Norway, Finland, and Denmark), Spain and
the United Kingdom. In Asia (Taiwan, Singapore, and Hong Kong), and under
separate agreement, Japan and Italy, we are working with our business partners
to conduct operations, establish local networks, aggregate Web publishers and
coordinate sales and marketing efforts. Our success in such markets is directly
dependent on the success of our business partners and their dedication of
sufficient resources to our relationship.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER INHERENT RISKS, INCLUDING:
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive privacy regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
21
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may materially and adversely affect our business, results of
operations or financial condition.
WE HAVE INCURRED SIGNIFICANT DEBT OBLIGATIONS WHICH COULD HARM OUR BUSINESS
We incurred $250 million of indebtedness in March 1999 from the sale of our
4.75% Convertible Subordinated Notes due 2006. Our ratio of long-term debt to
total equity was approximately 70.6% as of December 31, 1999. As a result of the
sale of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our debt service obligations will depend on our future performance, which will
be subject to financial, business, and other factors affecting our operations,
many of which are beyond our control.
IF WE DO NOT SUCCESSFULLY INTEGRATE ABACUS AND NETGRAVITY OR THE MERGERS'
BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE
MARKET PRICE FOR OUR COMMON STOCK MAY DECLINE
We entered into merger agreements with Abacus and NetGravity with the
expectations that these mergers will result in significant benefits. We have
virtually no experience in Abacus's business and little direct experience with
NetGravity's primary business model. Furthermore, Abacus's principal offices are
located in Broomfield, Colorado, and NetGravity's principal offices are located
in San Mateo, California, while our principal offices are located in New York,
New York. There are currently no plans to relocate any of these principal
offices. We will need to overcome these significant issues in order to realize
any benefits or synergies from the mergers. Our successful execution of these
post-merger events will involve considerable risk and may not be successful.
The market price of our common stock may decline, and we may lose key
personnel and customers as a result of our mergers if:
we do not successfully integrate operations and personnel of the
businesses;
we do not achieve the perceived benefits of the mergers as rapidly or to
the extent anticipated by financial or industry analysts; or
the effect of the mergers on our financial results is not consistent with
the expectations of financial or industry analysts.
IF WE FAIL TO SUCCESSFULLY CROSS-MARKET THE PRODUCTS OF DOUBLECLICK MEDIA,
DOUBLECLICK TECHSOLUTIONS AND DOUBLECLICK DATA SERVICES OR TO DEVELOP NEW
PRODUCTS, WE MAY NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUES
We intend to initially offer the respective products and services
historically offered by DoubleClick, Abacus and NetGravity to our collective
customers. We cannot assure you that any company's customers will have any
interest in the other company's products and services. The failure of our
cross-marketing efforts may diminish the benefits we realize from the mergers.
In addition, we intend to develop new products and services that combine the
knowledge and resources of DoubleClick Media, DoubleClick TechSolutions and
DoubleClick Data Services. We cannot assure you that these products or services
will be developed or, if developed, will be successful or that we can
successfully integrate or realize the anticipated benefits of the mergers. As a
result, we may not be able to increase or maintain our customer base. We cannot
assure you that the transactions or other data in Abacus's database will be
predictive or useful in other sales channels, including Internet advertising. To
date, we have not thoroughly investigated the obstacles, technological,
market-driven or otherwise, to developing and marketing these new products and
services in a timely and efficient way. We cannot assure you that we will be
able to
22
overcome the obstacles in developing new products and services, or that there
will be a market for the new products or services developed by us after the
mergers. An inability to overcome such obstacles or a failure of such a market
to develop could materially and adversely affect our business, financial
condition and results of operations or could result in loss of key personnel. In
addition, the attention and effort devoted to the integration of the acquired
companies will significantly divert management's attention from other important
issues, and could seriously harm our business, financial condition and results
of operations.
IF THE COSTS ASSOCIATED WITH THE MERGERS EXCEED THE BENEFITS REALIZED, WE MAY
EXPERIENCE INCREASED LOSSES
We have incurred one-time charges related to the Abacus and NetGravity
mergers. If the benefits of the mergers do not exceed the costs associated with
them, including any dilution to our stockholders resulting from the issuance of
shares in connection with the mergers, our financial results could be adversely
affected.
IF THE ABACUS OR NETGRAVITY MERGER FAILS TO QUALIFY AS A POOLING OF INTERESTS,
WE WOULD BE REQUIRED TO TAKE CHARGES AGAINST EARNINGS IN FUTURE PERIODS, WHICH
WOULD INCREASE THE AMOUNT OF OUR LOSSES
If we cannot account for one or both of the mergers as a pooling of
interests, a significant portion of the purchase price for the merger will be
allocated to goodwill and other intangible assets, which we would amortize over
their estimated useful lives. The availability of pooling of interests
accounting treatment for the mergers depends upon circumstances and events
occurring both before and after each merger's completion. For example, no
significant changes in the business of the combined company may occur, including
significant dispositions of assets, for a period of two years following the
effective time of the merger. If pooling is not available, we would take charges
against our earnings in the future, which could materially and adversely affect
our reported financial results and, likely, the price of our common stock.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY
Some of the provisions of our certificate of incorporation, our by-laws and
Delaware law could, together or separately:
discourage potential acquisition proposals;
delay or prevent a change in control;
impede the ability of our stockholders to change the composition of our
board of directors in any one year; and
limit the price that investors might be willing to pay in the future for
shares of our common stock.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our common stock at or above the purchase price.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
23
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
As of December 31, 1999, we had 112,453,892 shares of common stock
outstanding, excluding 23,110,571 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $124.56 per share. On February 14, 2000, we filed with the
Securities and Exchange Commission a preliminary prospectus which was part of
Amendment No. 1 to our registration statement on Form S-3 relating to the
proposed sale of an aggregate of 7,500,000 shares of our common stock, including
5,733,411 shares to be sold by us and 1,766,589 shares to be sold by selling
stock, and up to an aggregate of 1,125,000 additional shares by us which may be
sold in connection with the underwriters' over-allotment option. Additionally,
we intend to file one or more registration statements in compliance with these
registration rights. We cannot predict the effect, if any, that future sales of
common stock or the availability of shares of common stock for future sale, will
have on the market price of common stock prevailing from time to time. Certain
holders of our common stock have registration rights with respect to their
shares. Sales of substantial amounts of common stock (including shares included
in such registration statements, issued upon the exercise of stock options or
issued upon the conversion of our Convertible Subordinated Notes), or the
perception that such sales could occur, may materially and adversely affect
prevailing market prices for common stock.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE MARKET FOR INTERNET ADVERTISING
FAILS TO GROW AS PREDICTED OR DIMINISHES
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. The adoption of Internet
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business, exchanging information and advertising products and
services. These customers may find Internet advertising to be less effective for
promoting their products and services relative to traditional advertising media.
In addition, most of our current and potential Web publisher customers have
little experience in generating revenues from the sale of advertising space on
their Web sites. We cannot assure you that current or potential advertising
customers will continue to allocate a portion of their advertising budget to
Internet advertising or that the market for Internet advertising will continue
to develop to sufficiently support Internet advertising as a significant
advertising medium. If the market for Internet advertising develops more slowly
than we expect, then our business, results of operations and financial condition
could be materially and adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising and standard measurements may need to be developed to
support and promote Internet advertising as a significant advertising medium.
Our advertising customers may challenge or refuse to accept our or third-party
measurements of advertisement delivery results, and our customers may not accept
any errors in such measurements. In addition, the accuracy of database
information used to target advertisements is essential to the effectiveness of
Internet advertising that may be developed in the future. The information in our
database, like any database, may contain inaccuracies which our customers may
not accept.
24
A significant portion of our revenues are derived from the delivery of
advertisements placed on Web sites which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if we
are unable to deliver the features or measuring capabilities requested by
advertisers, the long-term growth of our online advertising business could be
limited and our revenue levels could decline. Also, there are 'filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUES AND INCREASE OUR
COSTS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the United States Congress and state
legislatures. Any legislation enacted or restrictions arising from current or
future government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be materially and
adversely affected by the adoption or modification of laws or regulations
relating to the Internet.
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit our
collection and use of information regarding Internet users in Europe. At this
stage, our DART technology targets advertising to users through the use of
'cookies' and other non-personally-identifying information, with the exception
of advertising delivered to German Web sites where we do not currently use
cookies. We are developing new capabilities that would permit our DART
technology to target users through the use of personally identifiable
information collected with prior notice and the opportunity for a user to
opt-out of such targeting and collection. The effectiveness of our DART
technology could be limited by any regulation limiting the collection or use of
information regarding Internet users. Since many of the proposed laws or
regulations are just being developed, we cannot yet determine the impact these
regulations may have on our business.
In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the direct marketing industry and to increased federal and
state regulation. The Direct Marketing Association, or DMA, the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of this information which it recommends participants, such as us, through
DoubleClick Data Services, in the direct marketing industry follow. We are also
subject to various federal and state regulations concerning the collection,
distribution and use of information regarding individuals. These laws include
the Federal Drivers Privacy Protection Act of 1994 and state laws which limit or
preclude the use of voter registration and drivers license information, as well
as laws which govern the collection and release of consumer credit information.
Although our compliance with the DMA's guidelines and applicable federal and
state laws and regulations has not had a material adverse
25
effect on us, we cannot assure you that the DMA will not adopt additional, more
burdensome guidelines or that additional, more burdensome federal or state laws
or regulations, including antitrust and consumer privacy laws, will not be
enacted or applied to us or our clients, which could materially and adversely
affect the business, financial condition and results of operations of
DoubleClick Data Services.
CHANGING REQUIREMENTS FOR FAIR INFORMATION COLLECTION PRACTICES AND POTENTIALLY
HEIGHTENED SCRUTINY OF OUR PRODUCTS OR SERVICES COULD REQUIRE OR CAUSE ADVERSE
CHANGES IN THE WAY WE CONDUCT OR PLAN TO CONDUCT OUR BUSINESS
There has been public debate about how fair information collection practices
should be formulated for the online and offline collection, distribution and use
of information about a consumer. Some of the discussion has focused on the fair
information collection practices that should apply when information about an
individual that is collected in the offline environment is associated with
information that is collected over the Internet about that individual. Following
our announcement of the Abacus merger, we have seen a heightened public
discussion and speculation about the information collection practices that will
be employed in the industry generally, and specifically by us. We have publicly
committed that no personally identifiable offline information about a consumer
will be associated with online information about that consumer for the delivery
of personally-targeted Internet advertising without first providing the consumer
with notice and an opportunity to opt out of the targeted advertising. In
addition, some of our contracts with Web publishers prevent us from developing
profiles of users of their Web sites. The current debate about data collection
practices may cause additional Web publishers to seek similar contractual
provisions in their agreements with us. Computer users may also use software
designed to filter or prevent the delivery of advertising to their computers. We
cannot assure you that the number of computer users who employ filtering
software will not increase or that additional Web publishers will not seek
contractual provisions barring us from developing profiles of users of their Web
sites, either of which could materially and adversely affect our business,
results of operations and financial condition. Also, as a consequence of
governmental legislation or regulation or enforcement efforts or evolving
standards of fair information collection practices, we may be required to make
changes to our products or services in ways that could diminish the
effectiveness of the product or service or its attractiveness to potential
customers, which could materially and adversely affect our business, financial
condition or results of operations.
OUR BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO EFFECTIVELY
SUPPORT THE GROWTH IN DEMAND PLACED ON IT
Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. These outages and delays could
impact the Web sites of Web publishers using our solutions and the level of user
traffic on Web sites on our DoubleClick networks.
DOUBLECLICK DATA SERVICES IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING
INDUSTRY FOR ITS FUTURE SUCCESS
The future success of DoubleClick Data Services is dependent in large part
on the continued demand for our services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to us. Most of our Data Services clients are
large consumer merchandise catalogs operators in the United States. A
significant downturn in the direct marketing industry generally, including the
catalog industry, or
26
withdrawal by a substantial number of catalogs operators from the Abacus
Alliance, would have a material adverse effect on our business, financial
condition and results of operations. Many industry experts predict that
electronic commerce, including the purchase of merchandise and the exchange of
information via the Internet or other media, will increase significantly in the
future. To the extent this increase occurs, companies which now rely on catalogs
or other direct marketing avenues to market their products may reallocate
resources toward these new direct marketing channels and away from
catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for our data services. In addition, the effectiveness of
direct mail as a marketing tool may decrease as a result of consumer saturation
and increased consumer resistance to direct mail in general.
INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA SERVICES
The direct marketing activities of our Abacus Alliance clients are adversely
affected by postal rate increases, especially increases that are imposed without
sufficient advance notice to allow adjustments to be made to marketing budgets.
Higher postal rates may result in fewer mailings of direct marketing materials,
with a corresponding decline in the need for some of the direct marketing
services offered by us. Increased postal rates can also lead to pressure from
our clients to reduce our prices for our services in order to offset any postal
rate increase. Higher paper prices may also cause catalog companies to conduct
fewer or smaller mailings which could cause a corresponding decline in the need
for our services. Our clients may aggressively seek price reductions for our
services to offset any increased materials cost. Any of these occurrences could
materially and adversely affect the business, financial condition and results of
operations of our Abacus business.
ITEM 2. PROPERTIES
Our principal executive offices are currently located in a facility in New
York, New York consisting of an aggregate of approximately 240,000 square feet.
On January 26, 1999, we entered into a lease agreement with an initial term of
eleven years with an option to renew for an additional five years. We lease
approximately 75,000 square feet of office space in Broomfield, Colorado, under
a lease that terminates in April 2006 and is renewable for two consecutive five
year terms. This facility was the headquarters for Abacus before our merger. We
also lease approximately 26,500 square feet of office space in San Mateo,
California under a lease that expires in October 2005. This facility was the
headquarters for NetGravity before our merger. In addition, we lease space for
our offices in California, Colorado, Georgia, Illinois, Massachusetts, Michigan,
Texas and Washington, as well as in Australia, Brazil, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Norway, Spain,
Sweden and the United Kingdom. We incurred non-recurring charges of
approximately $2.9 million in 1999 relating to our relocation to our current New
York offices. We are continually evaluating our facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
Prior to our NetGravity merger, NetGravity and several of its directors were
sued in the San Mateo County, California, Superior Court, alleging that the
defendants breached their fiduciary duties to NetGravity's shareholders in
connection with the proposed merger with DoubleClick. The California complaint
asks the court to enjoin the consummation of the merger or, alternatively, seeks
a rescission of the merger or an award of unspecified damages from the
defendants in the event the merger is consummated. Following the consummation of
our merger in November 1999, we succeeded to this action. We believe the claims
asserted in the complaint are without merit and are vigorously contesting them.
Also prior to our merger with NetGravity, we and NetGravity were named in a
complaint filed in the Chancery Court of the State of Delaware in connection
with the proposed merger. In January 2000, the plaintiffs dismissed the
complaint without prejudice.
27
In November 1999, we filed suit in the U.S. District Court for the Eastern
District of Virginia against L90, Inc. for infringement of our DART patent. In
December 1999, we filed suit in the U.S. District Court for the Southern
District of New York against Sabela Media, Inc., also for infringement of our
patent. Both cases are currently in the early stages of discovery.
We are a defendant in several recently filed lawsuits concerning Internet
user privacy and our data collection and other business practices:
On January 27, 2000, Judnick v. DoubleClick, Inc. was filed against us in
the Superior Court of the State of California, in Marin County. The
complaint alleges that we engaged in unfair business practices and false
and misleading advertising in violation of certain California consumer
protection statutes by allegedly improperly collecting and utilizing
information about Internet users. The complaint seeks injunctive relief and
restitution on behalf of the general public of the State of California.
On January 28, 2000, Bruce v. DoubleClick, Inc. was filed against us in the
U.S. District Court for the Northern District of California. The complaint
alleges that we have improperly collected and used Internet users'
information, allegedly in violation of certain federal electronics privacy
statutes and common law privacy rights. The complaint seeks damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Healy v. DoubleClick Inc. was filed against us in the
U.S. District Court for the Southern District of New York. The complaint
alleges that we improperly collected and used information concerning
Internet users allegedly in violation of certain federal electronics
privacy statutes, as well as common law trespass and invasion of privacy.
The complaint seeks damages and injunctive relief on behalf of a defined
class of Internet users.
On January 28, 2000, DeCorse v. Doubleclick, Inc. was filed in the Superior
Court of the State of California, Marin County. The complaint alleges that
we engaged in unlawful business practices by improperly obtaining and using
information about Internet users allegedly in violation of California
statutory and common law. The complaint seeks unspecified damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Steinbeck v. Doubleclick, Inc. was filed in the United
States District Court for the Central District of California. The complaint
alleges that we engaged in unlawful business practices by improperly
obtaining and using information about Internet users allegedly in violation
of federal statutes and Internet users' privacy rights. The complaint seeks
unspecified damages and injunctive relief on behalf of a defined class of
Intenet users.
On February 1, 2000, Donaldson v. DoubleClick Inc. was filed against us in
the U.S. District Court for the Southern District of New York. The
complaint alleges that we improperly collected and used information
concerning Internet users allegedly in violation of certain federal
electronics privacy statutes and common law privacy rights. The complaint
seeks damages and injunctive relief on behalf of a defined class of
Internet users.
These lawsuits have only recently been filed. We believe these lawsuits are
without merit and we intend to vigorously defend ourselves against them.
Additionally, we received a letter from the Federal Trade Commission
('FTC'), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. We are cooperating fully with the
FTC's inquiry.
In addition, we are subject to a request for information from the New York
Attorney General's office relating to our collection, maintenance and sharing
of information concerning, and our disclosure of those practices to, Internet
users. We may receive additional regulatory inquiries and intend to cooperate
fully.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our special meeting held on November 23, 1999 in connection with our
merger with Abacus Direct Corporation, we submitted the following matters to a
vote of our stockholders through a proxy solicitation:
To consider and vote upon a proposal to approve the issuance of our shares
of common stock pursuant to a merger agreement with Abacus Direct
Corporation.
To grant our Board of Directors discretionary authority to adjourn the
special meeting to solicit additional votes for approval of the share
issuance.
To consider and vote upon a proposal to approve the DoubleClick Inc.
Employee Stock Purchase Plan.
The results of the voting at the special meeting were as follows:
AFFIRMATIVE VOTES
PROPOSAL VOTES AGAINST ABSTENTIONS
- -------------------------------------------- ----------- --------- -----------
Share Issuance 25,305,111 37,712 53,662
Discretionary Authority to Adjourn 19,764,694 1,894,428 1,737,363
Employee Stock Purchase Plan 22,685,654 620,712 90,119
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol DCLK since our initial public offering on February 20, 1998. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of the common stock as reported on the Nasdaq National Market.
All prices have been restated to reflect our two-for-one stock splits effected
as stock dividends on April 5, 1999 and January 10, 2000.
HIGH LOW
---- ---
1999:
Fourth Quarter.......................................... $127.72 $54.88
Third Quarter........................................... 62.63 30.25
Second Quarter.......................................... 88.00 33.75
First Quarter........................................... 50.00 11.00
1998:
Fourth Quarter.......................................... 14.50 3.38
Third Quarter........................................... 19.28 4.55
Second Quarter.......................................... 12.43 7.72
First Quarter (since February 20)....................... 9.25 6.53
On February 15, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $111.44 per share. As of January 26, 2000, we had
approximately 766 holders of record of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
During the three-month period ended December 31, 1999, we issued an
aggregate of approximately 1,062,092 shares of our common stock (after giving
effect to our two-for-one stock split effected on January 10, 2000) in exchange
for the outstanding shares of capital stock of BusinessLink Incorporated (d/b/a
Opt-in Email.com) and the outstanding shares of DoubleClick Scandinavia AB that
we did not previously own. Of these shares, an aggregate of 200,000 shares were
issued on November 30, 1999 to the stockholders of Opt-in Email.com and an
aggregate of 862,092 shares were issued on December 29, 1999 to the shareholders
of DoubleClick Scandinavia AB. In connection with the DoubleClick Scandinavia
transaction, additional shares of our common stock may be issued in the future.
No underwriters were involved and there were no underwriting discounts or
commissions. The securities were issued in reliance upon the exemption
29
from registration provided under Section 4(2) of the Securities Act based on the
fact that we issued the shares of common stock in a sale not involving a public
offering. These sales were made without general solicitation or advertising. We
intend to file a Registration Statement on Form S-3 covering the resale of these
shares.
USE OF PROCEEDS FROM IPO
On February 19, 1998, the Securities and Exchange Commission declared
effective our Registra