Digital Impact Bolsters Search Moves With Acquisition

Digital Impact, the email service provider that recently announced it would move into search, has bolstered its SEM offerings by acquiring Marketleap.

The larger firm will pay $1.5 million in cash and 1.25 million in Digital Impact shares and options, with further compensation possible if Marketleap meets certain revenue goals. At press time, shares of San Mateo, Calif.-based Digital Impact were trading at $1.78 per share.

San Francisco-based Marketleap provides search engine optimization, paid inclusion and pay-for-placement services to clients including Kaiser Permanente, SBC’s SMARTPages.com and Tyco Electronics. The purchase seems mostly aimed at acquiring those clients, as well as Marketleap’s nine employees. The smaller company also has technology assets that help it manage paid inclusion and natural search engine optimization.

“Where Marketleap is going to help us accelerate and grow even faster, is that they have a stable of clients of their own,” said William Park, chairman and CEO of Digital Impact.

The email space has been suffering considerably because of the spam scourge, anti-spam regulation and marketers’ resulting reluctance to use email as an acquisition tool. When it most recently announced earnings in April, Digital Impact reported a loss of $884,000 or $0.03 per share in the first quarter, on revenues of $10.4 million.

By pushing into search, Digital Impact is one of many firms pairing the two marketing techniques, including Google, Microsoft, DoubleClick and Mamma.com. They’re seen as complementary practices, with search acting as the acquisition piece and email providing retention.

Digital Impact’s search practice is led by Michael Gorman, a fairly recent hire who previously worked at professional services firm Mitchell Madison Group, which was acquired by USWeb/CKS, and at ESPN. With the buy, it will gain Marketleap executives and co-founders Noel McMichael and Paul Owen.

“It’s really a deep group of people who can make a big impact for their clients,” said Gorman, who is senior vice president of search and acquisition at Digital Impact. “Being able to leverage that expertise across our network of client delivery staff, is just going to multiply what Marketleap can do.”

One thing Marketleap doesn’t have is a proprietary bid management tool. It’s an area that has gotten quite a bit of attention in the marketplace, as aQuantive acquired GoToast and DoubleClick bought Performics. Digital Impact executives downplay the technology’s importance, however, saying it’s likely to become a commodity in the future.

“Our belief is that that area, the bid management side, is something that is ripe for commoditization over time,” said Park. “The challenge for the marketer today isn’t having that tool, but in executing against the information the tool provides.”

Though Digital Impact says buying Marketleap will add $1.5 million in net revenues for fiscal 2005, it doesn’t expect to see any improvement in earnings per share for the year.

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