Cyberplex shakes off dot-com doldrums

Fabrice Taylor is a chartered financial analyst.

Once upon a time, not that long ago, Vernon Lobo was a very rich man. Now he's a lot less rich, but he's also blessed because he's got a healthy second chance at the big payday, and things are looking up.

About 15 years ago, when you could count the number of Internet addresses with images on your hands, Mr. Lobo and his partners had an idea to build websites and become leaders in cyber retailing. This was vanguard thinking at the time.

So they started a company called Cyberplex Inc. to execute the vision. The company eked out a living and thanks to the tech stock boom was worth almost $1-billion in early 2000. Mr. Lobo might have cashed out for about $40-million. He didn't, and the company's stock fell from $30 or so down to mere pennies eventually.

But the venture capitalist wasn't daunted. Instead, he set about rebuilding Cyberplex, of which he's chairman, and he is slowly getting redemption. Today, he says, his goal is to make his stake worth even more than it once was.

Cyberplex's recent success - the stock has surged sixfold in the past six months - is based on a new business model: matching advertisers with electronic publishers.

If you know anything about, say, Google, you've got an inkling of how valuable Internet advertising is. By one research firm's estimate, U.S. online advertising will hit $30-billion (U.S.) next year, and that's still less than 10 per cent of total media spending.

But if you've ever been a Google customer, as I have, you know how frustrating it can be to attract attention online. The main problem some advertisers have with online advertising is the cost-per-click model. If you advertise with a search engine, you first bid on key words - "flowers" for instance, which would be expensive because it's in great demand - and the frequency and placement of your ad is based on how much you're willing to pay for a click.

The trick is that you pay regardless of whether customers do what you want - buy your product, sign up for your offer or whatever. Every click on your ad, which takes the clicker to a site of your choice (yours typically), costs you money regardless of outcome.

This works fine for certain types of ad campaigns, like finding a lawyer. But for others it can be prohibitively expensive. This is the problem that Cyberplex is addressing. The company's customers are advertisers who want to sell something, collect information or otherwise prompt an active response. They build their campaigns and hand them over to Cyberplex, which in turn offers the campaigns to its publisher affiliates. These are owners of websites and blogs, e-mail marketers and, most interestingly, key word arbitragers - more on that in a minute.

The affiliates decide which campaigns will work with the kind of traffic they attract, and run the ads accordingly. They're then paid only for each action they generate - if, for example, a florist has a promotion offering free flowers to anyone who fills out form, they pay, say, $10 per form to the owner of the site the visitor came from. They pay Cyberplex, to be precise, which pays the publisher after taking its cut.

Cyberplex's most innovative affiliates are what you might call key word arbitragers - statistically minded dudes who buy less obvious key words - "special occasion blooms" instead of the far more expensive "flowers" - and then point their key words to the aforementioned florist's site (meaning if you click on their ads, you go to that site). They might pay 10 cents per click for the keywords, but earn $10 for every sign-up, meaning they only need to convert 2 per cent of their clicks to be profitable.

Anyway, advertisers appear to appreciate Cyberplex's service. The company is profitable and quarterly revenue is up almost 500 per cent since the fourth quarter of 2007. No sign of recession here.

The company recently closed a $15-million financing and is flush with cash, which is good because this is a scale business and also because being king of the hill matters, just as it does for eBay. You have to be the destination; second place isn't worth nearly as much. A couple of shrewd acquisitions would help, and management is looking hard.

Analysts who cover the stock generally like it, although some worry about the high concentration of sales coming from a small number of sectors, like health and wellness. There are risks, let it be said, and it's not as cheap as it was six months ago.

But the business, while seasonal, is posting extraordinary year-over-year growth and, based on my somewhat limited understanding of the industry, should keep going. I think of it as The Shopping Network but better because the latter only works if people watch it while Cyberplex's business is, in theory, infinitely multichannel.

Mr. Lobo appears to be sitting pretty right now.

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Growth

Report on Business Company Snapshot is available for: CYBERPLEX INC.