Will Online Ads Ever Click?

The implications of that shift are intriguing. Instead of negotiating for space to run an ad on a Web site, advertisers might negotiate for customers that fit a certain profile. "We usually know what an ad space is worth better than the site itself does, and we can use that to our advantage in negotiating," McCowin says. "We might be willing to pay $5 for that sports fan, while Yahoo! thinks he's only worth a dollar. At the same time, we might pass on a guy who is less valuable. In negotiating a contract with Yahoo!, one term might be 'What percentage of users can we just pass back, rather than sending an ad to them?' "

Avenue A has bet the company on its new approach. Three of its clients are testing the complete system, and eight others are trying out various parts of the customer-life-cycle marketing platform. The good news for Avenue A: Its system will become even more crucial to advertisers as the Internet becomes broader in its reach and more diverse in its formats, covering everything from broadband television to wireless devices. Marketers will need advertising technology that can not only find a company's customers wherever they might be in the digital world -- logged on to the Web, watching TV, or dialing in from a handheld device -- but also recognize instantly which ads they have already seen and how best to move them to the next step in their relationship with a company.

The bad news for Avenue A: In the short term, at least, most of the news about digital marketing is bad -- from the collapse of the NASDAQ, to the slowdown in online-ad spending, to the ongoing (and escalating) legal concerns about privacy on the Net. Not surprisingly, Avenue A's stock price has plummeted in the past year, going from a high of $89 shortly after it went public, in February 2000, to just a couple of dollars now. Despite the company's efforts to add more established companies to its client roster, dotcoms still make up roughly half of its customer base, and its revenue growth has slowed as the cash resources of Net startups have dwindled.

Meanwhile, the company has become a legal target: On November 20, the notorious (in high-tech circles at least) class-action law firm Milberg, Weiss, Bershad, Hynes & Lerach filed suit against Avenue A -- and also against MatchLogic, a subsidiary of Excite@Home -- charging that each company tracks customers without their permission. Avenue A is fighting back, claiming that its technology identifies only anonymous Web browsers, not individual users.

Coupled with the downturn in spending on Internet marketing, that lawsuit makes it harder for Avenue A to chart its own course as an independent company. But Brian McAndrews remains undaunted. The CEO doesn't believe that his company -- or online marketing in general -- will fall by the wayside during the tumultuous correction now under way in the Internet economy. In fact, he sees an ironic side to the chill that has descended upon the nascent digital-marketing industry. "Because the medium is so accountable through all of the data it generates, people are hard on it when it doesn't work as well as they thought it might work," he argues. "But advertisers follow eyeballs. They always have. There may be a lag, but eventually money will flow into this medium. We're talking about a world where not a single marketing dollar is wasted -- where every dollar you spend is targeted toward somebody who is receptive to your ad. No one is going to walk away from that."

Paul C. Judge (pjudge@fastcompany.com) is a Fast Company senior editor. Learn more about Avenue A on the Web (www.avenuea.com).