@Home buy risks consumer backlash

Analysts like @Home's purchase of ad company Narrative, but say it must walk a fine line.

Updated at 2:58 PM PT

If @Home Corp. can avoid consumer backlash, its plan to make splashy multimedia Web advertising the standard will be good for it, observers said.

The high-speed cable Internet access provider's plan to buy online advertising firm Narrative Communications for roughly $90 million was driven by a desire to change Web advertising, company executives said. Analysts said the plan has merit.

The deal is likely to allow the companies to help clients more effectively merge online advertising and retailing capabilities, a pairing which is "a natural fit" and which hasn't really happened up until now, said Melissa Bane, an analyst at The Yankee Group.

"It makes sense for a company like @Home to build up its capabilities," Bane said. Since Narrative's Enliven technology works in the narrowband as well as the still-nascent broadband environment, the deal will give Enliven a much broader reach, she noted. And the Enliven technology takes much better advantage of direct marketing tools than traditional online advertising, a trend which is likely to be embraced by the industry as a whole, Bane said.

"We expect that more than 50 percent of all online ads by 2001 will be of the direct marketing variety, as opposed to static brand-building ads," she said.

Web advertising accepted
Others said it showed that Web users now accept advertising as a fact of life. "This deal proves that media is media, whether it's television or the Web, and most of it is supported by ads," said Greg Blatnik, an analyst at Zona Research. "I think people accept that now, and @Home will be a lot stronger if they can make that (Narrative's multimedia ad technology) the standard," he said. Noting that even public television viewers have become accustomed to seeing promotional pitches, Blatnik said that like television, the Internet is becoming more ad-focused as it matures.

But he said @Home (Nasdaq:ATHM) must "walk a fine line" to ensure that the multimedia ads it serves up through its new partnership with Narrative don't backfire with consumers.

Crossing the line
"People use the mute button on annoying TV ads, and there's no doubt in my mind that there will be a backlash against these type of ads on the Web if they cross that line," Blatnick said.

And some companies, such as Sun Microsystems Inc. (Nasdaq:SUNW), have found that there are challenges to pushing a technology as a standard when they own that technology, said Rob Enderle, an analyst at Giga Information Group.

While the deal is not "counter-strategic" for @Home, it could be "distracting" to the company as it focuses on its main objective of promoting cable-based Internet access, Enderle said.

Execs not worried
But officials of the companies were upbeat about the deal during a press conference earlier Friday.

"This combination gives us the resources to create a fully robust advertising medium that will elicit greater responses from users and drive purchases," giving a boost to the e-commerce industry, @Home Vice President Charles Moldow said during a press conference on the $90 million deal Friday.

@Home will integrate Narrative's Enliven multimedia ad technology into its cable set-top box services, and the combined company will push Enliven as the new de facto ad standard for the high-speed and narrowband Internet industries, Moldow said.

"This is a significant win for all participants -- consumers, content publishers and advertisers," he said.

E-commerce deal
Hilmi Ozguc, the chief executive officer of Narrative, said the deal "ultimately is all about commerce." Ozguc, who will serve as vice president of the Enliven business unit at @Home when the merger closes in several weeks, said broader adoption of the company's technology will boost e-commerce because its interactive audio and video ads are more targeted and ultimately more efficient than static banner ads.

"We're not just about driving brand awareness, but also direct marketing through capturing leads" and other direct interaction with Web site readers, Ozguc said. "We can do this all without leaving the context of the Web page and in fact the ad itself."

The 55 advertisers
Some 55 major advertisers, including Proctor & Gamble, IBM and Sprint, have deployed Enliven because static Web ads "are not delivering the results that they are looking for," he said.

The terms of the deal call for @Home to acquire all outstanding shares of Narrative in exchange for 1.34 million to 1.55 million shares of @Home common stock, based on Thursday's closing price of $66.50, placing the value of the transaction at about $90 million.


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