An Organizational Case Study

Scott BompczykSugato BoseDaniel FreyAnnie KimInsu Park

David SalleyRobin Vail

December 9, 2004

Executive Summary

The road to success is not always an easy one, nor a clear one. This is

especially true if that road runs through the often-unpredictable realm of

online advertising. This study describes the experience of Kanoodle, an up-

and-coming Internet-based advertising firm whose growth over the last

several years has led it to a crossroads.

Founded in 1999, Kanoodle is based in Amherst, NY and currently employs

103 employees. With revenues expected to top $30 million in 2004, the

company provides text-based, cost-per-click sponsored links to its clients,

allowing them to reach their customers on the Web's search engines and

content destinations.

Kanoodle has managed to quickly become a major player in the sponsored

advertising market, in part because of its ability to quickly adapt and

innovate due in part to its unique organizational culture. The path the

company chooses could change this, as well as many other aspects of the

company.

This study will examine Kanoodle’s current position in the Internet

advertising market, as well as the strengths and weaknesses of that position.

It will also analyze several possible pathways the organization may take,

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focusing on growth as a private organization, buyout by a competitor, and

becoming a publicly held company.

Industry Profile

The appeal of Internet advertising lies in its targeting precision as well as its

ability to deliver immediate purchases. The tight focus of paid search and

behavioral targeting ensures advertising dollars are well-spent. Traditional

media falls short in this regard; audience-quality measurement is based on

surveys and demographics, and a significant percentage of the people that

view these ads has absolutely no interest or use for the products in question:

one study shows that 59% of US consumers feel that most advertising has

little relevance to them (eMarketer, 2004). If an advertiser can make ads

relevant and ensure their delivery, they will likely be more willing to spend

more dollars more often.

Predictably, the online advertising industry has grown a great deal in a short

period of time. In the United States, $650 million were spent on Internet

advertising in 1997. US ad spending on the Internet reached $2.0 billion by

the end of 1998, and that number had swelled to $7.27 billion by the end of

2003. This figure is expected to reach $17.5 billion by 2008, according to

PricewaterhouseCoopers.

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According to an article in The New York Times, in 2003 the number of online

advertisements delivered to consumers increased four percent, reaching

1.09 trillion impressions. An impression is a single appearance of an ad on a

user's computer screen (2004) .

Online advertising worldwide is predicted to grow between 30 and 35

percent this year to $9.8 billion based on data from the Interactive

Advertising Bureau (IAB) and PricewaterhouseCoopers.

The IAB stated that online advertising grew 40 percent to $4.6 billion in the

first six months of this year, due to the acceleration in online ads in the

second quarter. Online ad revenue in the second quarter hit $2.37 billion, up

43 percent compared with the 37 percent growth rate in the first three

months of this year.

The crux of online advertising is paid search, also known as “pay-per-click”.

Nearly everyone familiar with the World Wide Web has come in contact with

this method of advertisement. In the case of Google, performing a search

will return a screen of typical ranked query results in addition to a set of

highly visible sponsored links. Some web sites feature advertiser links based

on the content of the page; these are known as contextual links. For

example, the MSNBC Sports page features contextual links for New Balance

sneakers and a fantasy football website, among others.

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The methods in which these links are chosen vary. In the case of links

displayed in search engine results, customers pay a fee to companies who

have relationships with various search engines. The customers place bids on

keywords chosen to best identify their site to a search engine. The highest

bid for a given keyword will ensure a customer’s site is placed first among

sponsored links. For example, if Ford Motors was Google’s highest bidder for

the keyword “automobile”, anyone searching for that word in Google’s

search engine would see Ford’s site at the top of the sponsored links listing.

If a consumer were to click on this link, Ford Motors would be billed their bid

price by Google.

Contextual links are placed in a similar manner. Advertisers define the

nature of their business with the ad placement company, and instead of

bidding on keywords, bid on topics. If an affiliate web page dealing with that

topic is displayed in anyone’s browser, the sponsored links will display

accordingly, based again on bid price. Again, the advertiser pays the

placement company the bid price only if a consumer clicks on the contextual

link.

The newest method online advertisers use to seek out potential consumers is

known as behavioral targeting. Behavioral targeting technology allows

advertisers to more accurately expose potential customers to appropriate

sponsored links by analyzing a consumer’s web usage statistics. This is done

by serving tracking codes, which are implemented as cookies, on a user’s

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computer as he or she is served ads from various online advertising

networks. Sites visited, content viewed, and length of visit are then all stored

in databases and analyzed to predict an online behavioral pattern for such a

user, thereby classifying that user by his or her online demographic.

Behavioral ad networks then provide targeted advertisements related to the

user’s behavioral classification, regardless of what pages the user may visit

(Loren, 2004). For example, Ford Motors would use this technology to place

dynamic links on pages visited by a user who has been searching the web for

new cars within the last month.

US spending on paid search advertising has grown from $927.4 million in

2002 to an estimated $3.93 billion in 2004, or over 423%.

Behavioral targeting advertising spending in the US accounted for 3.8% of all

online ad spending in 2003, and is projected to grow to 8.3% in 2005. The

current leader in behavioral targeting revenues is Claria Corporation. Claria

generated $90 million in revenue in 2003, a 125% increase from 2002,

according to company documents.

Nevertheless, the Internet advertising industry is still in its early phases of

development. Online advertising only began in earnest in 1995, and most of

the industry's norms, standards and policies have been established only

within the past two years, and continue to evolve. Note: *Revenue from a relationship with Overture, which supplies paid listings for a Claria search product, accounted for 31% of 2003 revenue. Source: Claria Corporation, April 2004

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Company Profile

Founded in 1999 by Kent Keating, Kanoodle is an Amherst, NY-based

company specializing in sponsored advertising. Starting with a staff of five,

CEO Keating has seen his staff grow to 103 employees spanning four offices

and two states. The Amherst offices accommodate 75 employees. Four

employees maintain all of Kanoodle’s computer systems in an office in

downtown Buffalo. Branch offices in New York City and Santa Monica, CA

house the remaining 24 employees.

Kanoodle shares strong ties with the Buffalo-Niagara region; all five founders

are from the area. This is the main reason the company is located in

Western New York instead of a major metropolitan area. By bringing

business to Buffalo, Kanoodle benefits two fold. The organization

strengthens its corporate image while promoting growth within their

company; the more employees and business they have, the more

opportunity they have to grow.

Kanoodle has experienced consistent strong growth since its establishment,

growing 200 percent every year. Revenues are expected to top $30 million

in 2004, and the company has just completed its twentieth consecutive

quarter of profitability. These figures are particularly impressive considering

the overall $2.1 billion decrease in US online advertising from 2000 to 2002.

Kanoodle attributes their success during the so-called “dot-bomb” to their

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wise use of available funding. Having been completely self-funded until only

recently, Kanoodle survived in part by learning how to “squeeze the most out

of every penny” according to chief technology officer Carin Obad.

Another key to Kanoodle’s success is its organizational culture. Functioning

under the motto “work hard, play hard”, Kanoodle provides employees with

an open and relaxed atmosphere. Employee input in all aspects of the

business is encouraged, and Kanoodle highly promotes advancement from

within. For example two-year employee Dave Casion was recently promoted

to Chief Information Officer. Although this flat hierarchy does not work in all

organizations, the rapidly changing industry of online advertising makes this

structure ideal.

The company extends the organizational culture to outside the workplace, as

well. The company participates in local softball and basketball recreational

teams as well as charitable events and company dinners. Family members

are encouraged to attend these events; Kanoodle is a family-oriented

organization.

Furthermore, the company is also very flexible with employee’s work

schedules, as they know scheduling conflicts can occur quite often,

especially when an employee has children. For example, a particular

employee comes into work after she puts her children on the school bus and

leaves in time to get them off the bus. Another employee works an evening

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shift. Adapting to the needs of their employees is something Kanoodle

values as quite important.

Within the Amherst offices, the structure has been deliberately designed to

facilitate collaboration. Various departments are sectioned off, but there are

no intrusive walls creating an “us versus them” feeling. There are a number

of conference rooms available in order to afford employees opportunity to

create, share, and implement ideas and innovations. To further enhance the

easy-going, open environment, CEO Keating frequently brings his dog,

Willow, to work with him.

Another unique aspect of Kanoodle is their view on risks and mistakes. The

organization’s leaders view risks and mistakes as inevitable; they believe

that it is more dangerous to not make a decision than to make a potentially

wrong decision. They encourage employee participation in the decision-

making process, and weigh their opinions when final decisions are made.

Products

Kanoodle’s strong and diverse product line is the key to their reputation as a

strong up-and-coming player in the paid search industry. Their main suite of

products geared towards advertisers consists of KeywordTarget,

ContextTarget, and BehaviorTarget. They also provide products for potential

partners, BrightAds and DomainHop.

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Kanoodle started with one product, KeywordTarget. KeywordTarget is a pay-

per-click sponsored link placement service. Customers bid on keywords that

describe the nature of their website. A higher bid means a better link

placement on one of Kanoodle’s partner search engines. Several innovative

methods of managing their bids are offered to customers. Kanoodle’s

Automonitor system continuously monitors a customer’s bids, keeping them

$0.01 ahead of their closest competitor without exceeding a specified bid

cap. AutoScheduler allows advertisers to schedule listings to be active

during specific times of the day, or specific days. Kanoodle is a leader in this

technology, now known commonly as “day parting”. KeywordTarget is still

the flagship of Kanoodle’s offerings, and they are integrating it’s capabilities

with other products.

Kanoodle’s next offering was ContextTarget. ContextTarget provides

advertisers with contextual links which are displayed in the pages of

Kanoodle’s partner sites. An advertiser chooses what topics appropriately

describe his or her web site, and enter a title and description that will best

describe their site to the target audience. Bids are placed on topics, and the

highest bidders have their pages displayed on the partner web pages that

suit the topic. Kanoodle puts an interesting twist on this accepted practice

by implementing a technology they call ClickFactor. The highest bid does

not necessarily ensure the top spot on a partner page, the relevance of the

ad to the topic also factors in to the equation. ClickFactor is determined by

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the number of clicks an ad receives relative to other listings associated with

the same topic. This ensures that an advertiser can’t flood topics with

irrelevant ads, they will quickly be relegated to the bottom of the heap.

Additionally, Kanoodle is the first company to offer its customers topics; the

previously accepted method was simply an extension of keyword targeting.

BehaviorTarget is one of Kanoodle’s most recent developments. Kanoodle

partnered with 24/7 Real Media to begin tracking the web usage habits of

nearly 50 million users in the 24/7 Web Alliance’s network of over 700 web

sites. Using this information, Kanoodle has built “audience segments” to

which advertisers can more accurately target their sponsored links

campaigns. Again, advertisers bid on segments in order for their links to

appear at the top of the page for the appropriate segment. ClickFactor is

also factored in to the relevance equation to determine what links make the

top of the page. BehaviorTarget was the Internet’s first behaviorally

targeted sponsored links network available to advertisers and publishers.

Additionally, Kanoodle offers services to companies who wish to partner with

them. BrightAds is Kanoodle’s latest product offering, allowing partners to

display Kanoodle’s sponsored links on their web sites. BrightAds is

integrated with Kanoodle’s ContextTarget and BehaviorTarget systems,

providing ads to partner sites based on relevance as opposed to the

traditional keyword method.

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Kanoodle’s rapid development of products and wise partnerships has put

them at the forefront of the paid search field. However, their work is far

from over. Kanoodle realizes that many businesses do not realize the value

of Internet advertising. “We are still educating many business website

owners on how to advertise on the Internet,” said Carin Obad, Kanoodle CTO.

“Many think that if you simply build a website, consumers will come. This is

not true. They must learn to market their site and learn how to use products

like ours to drive consumer traffic to their site.”

Statement of the Problem

“If you can understand it, you can control it” and “finish the race no matter

how hard it is” are two mottos by which Kanoodle employees are encouraged

to work and live. So far, this philosophy is working. However, change is

inevitable, and as the paid Internet advertising market continues to evolve at

breakneck speed, Kanoodle will come to a crossroads.

There are three probable paths that Kanoodle may take: they will continue

to grow while remaining privately held, they will be purchased, or they will

offer their stock to the public. Combinations and permutations are also likely

to occur, but the opportunities and pitfalls of these three paths offer an

intelligent cross-section of probability that should be examined.

Kanoodle is Purchased

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A number of changes will undoubtedly occur if Kanoodle is purchased.

Depending on the intentions of the new parent company, Kanoodle may

thrive in a partnership with a larger company, or may lose its identity and

suffer as a result. If the parent company intends to maintain the

organizational image and culture on which Kanoodle currently thrives,

Kanoodle may continue its trend of success.

Purchase by a larger company will give Kanoodle better opportunity to

rapidly increase in size and funding. With an increase in size, however,

negatives may accompany the positives. Kanoodle takes pride in being able

to offer its employees sharing options in addition to a relaxed, comfortable

atmosphere. If Kanoodle dramatically increases in size, the chance of these

aspects of their organizational culture remaining intact decreases.

In addition to a possible increase in size, a buyout will most likely result in an

increase in business. Absorption by a larger company can enhance a

company’s reputation and corporate image. Currently, their image is a very

positive one, and although Kanoodle is growing, it has not yet achieved the

brand recognition of some of its competitors. Partnering with a reputable

company provides them with the opportunity to become a household name.

In turn, Kanoodle will likely experience an increase in business revenue.

People commonly rely on the reputation and image of the companies with

which they decide to conduct business on a daily basis. Being that Kanoodle

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offers services that are to be used daily, it is important for them to build a

reputable image.

Purchase by another company may also allow Kanoodle to instantly become

a stronger competitor in their field. Overture Services, Inc.’s recent buyout

by Yahoo! Inc. has not only enhanced their image but it has allowed them to

become one of the industry’s major players. Previously, Overture had not

been as well-known as it is today and its reputation was commonly

determined by experience. Now that Yahoo’s name is associated with

Overture, their reputation has absorbed that of Yahoo!’s as well.

If Kanoodle is bought out by a company who does not plan on implementing

a similar structure or who is buying them simply to obtain their clients or

eliminate the competition, Kanoodle’s identity will surely diminish. Even if

the name remains, the unique identity of the previously independent

company disappears. The organization’s policies, structure, and culture may

be assimilated in to those of the parent company. In order to promote

uniformity, the corporation may implement policies that have been effective

for them, but may not be for the newly acquired entity.

Physical relocation is another negative side-effect that may occur. Currently

Kanoodle is based in Amherst, NY with branches in Buffalo, New York City,

and Santa Monica. Through bringing business to Buffalo and providing locals

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with jobs, loyalty to the community is one of Kanoodle’s greatest strengths.

If Kanoodle is bought and the offices are moved out of Buffalo, the

community and current employees may suffer.

It is likely that absorption by a larger entity may cause employees to lose

their connection with Kanoodle, feeling that they have become a number

instead of a name. Regulations may become stricter, creativity hindered,

and employee turnover may increase. Additionally, company loyalty is

questioned, and uncertainty and resistance to change manifest.

Kanoodle Continues the Grow

The negative changes of growth resulting from buyout may be avoided if

Kanoodle remains privately held and continues its pattern of growth.

Considering that Kanoodle’s employee base has grown nearly 2100% in the

last five years, it has shown great aptitude in retaining the organizational

culture that has in part aided in this dramatic growth. With offices in

California and New York City, this trend may not continue, nor be desirable in

these new satellite offices. It is almost a certainty that the organizational

culture of the satellite offices will evolve in a different way than that of the

main office in Amherst, NY.

The tight-knit, “work hard, play hard” culture of Kanoodle may not scale

effectively. Kanoodle has publicly mentioned their difficulty in finding the

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right people to fill their ever-present employment opportunities (Drury,

2004). The ultra-competitive world of advertising can be very demanding,

but Kanoodle has thus far managed to keep turnover rates low. With

continued growth, keeping a cohesive, family-oriented culture may prove

difficult.

Kanoodle can also reap the benefits of continued growth by wisely choosing

partnerships and product development targets. Currently, Kanoodle lists six

products on their website, all of which leverage their core sponsored links

technology. One product, DomainHop, deals with using unused domain

names to increase advertising penetration. Although this does still

implement Kanoodle’s core technologies, it may be a sign that they are

looking to diversify beyond the paid search market.

Additionally, further growth requires new capital. Kanoodle secured an

undisclosed amount of funding in December of 2003 from Insight Venture

Partners. It is undeniably positive that a large venture capital firm sees

Kanoodle as a worthwhile investment. However, with external capital comes

external influence. Deven Parekh, Managing partner of Insight Venture

Partners, has joined the board of Kanoodle, and his firm undoubtedly

invested in Kanoodle to see a return on that investment. Kanoodle now has

an extra responsibility to not only achieve the goals set by top management,

but those of their venture capitalists.

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Kanoodle Goes Public

Offering stock to the public is another method of raising capital for growth

and increasing company visibility and reputation. However, as with venture

capital, Kanoodle would become more accountable to their investors. Also, a

company’s reputation can often be directly correlated to its stock price.

Company executives may feel pressure to diversify into unrelated markets or

push products to market before they are ready.

This change in strategy may have a marked effect on Kanoodle’s

organizational culture. The focus on quality may be superseded by a desire

to keep investors happy. Kanoodle currently prides itself as a company

whose employees garner great job satisfaction. “We believe in creating and

maintaining a culture where people enjoy coming to work,” said CTO Carin

Obad. “You can be the best salesperson – but if you are not happy working a

Kanoodle, you shouldn’t be here. It is very important for us to maintain a

culture where people are passionate about their jobs and feel like they are

contributing positively.”

Another factor possibly affecting Kanoodle is the requirement to make

financial disclosures to the Securities and Exchange Commission. These

disclosures include information regarding compensation of senior

management, transactions with parties related to the company, conflicts of

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interest, competitive positions, how the company intends to develop future

products, material contracts, and lawsuits. This information would then be

available to employees, investors and competitors. Employee morale may

be affected by salary information coming to light, or information regarding

lawsuits against the company.

A critical aspect of going public involves the possibility of hostile takeover. If

Kanoodle sells a large portion of their stock to the public, they may be taken

over by shareholders unhappy with how the company is managed or

corporate raiders looking for an opportunity. Defending against such an

action can be costly and time-consuming, and if it does occur, can damage

the organizational culture perhaps beyond repair. There would be no

opportunity for management to negotiate a smooth transition, unlike the

buyout scenario.

Hierarchical changes may occur in any of the aforementioned scenarios.

Regarding a transition from “flat” to “top-down” hierarchy, there are a

number of consequences that may follow. A top-down hierarchy may reduce

the potential for an information overload, but employee input may be

jeopardized. Currently Kanoodle welcomes and encourages employee input

and feedback, a top-down hierarchy jeopardizes this attraction. Additionally,

group connectedness and corporate openness are subject to change. With

vertically directed management, information follows a channeled path that

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does not easily facilitate system openness. Not only do the channels deter

round table discussions, but the fidelity of the information being

communicated is threatened as well. As the information travels through

various channels (as it would with a vertical hierarchy), the information loses

accuracy. An illustration of this point may be seen in an equation by Barnett

(1979), he states:

Hn = (h1,2)(h2,3)(h3,4)...(hn-1,n)

where:

Hn = final fidelity

hij= the fidelity for a single information exchange

hij < 1.0

n = the number of people or information exchanges (p.342)

This is to say that the fidelity of the information as it is passed tends to

diminish as the number of information exchanges increases.

Recommendations

There are three main approaches to organizational development, a proactive

response, a reactive response, and a response to a planned change. In all

three cases, company leaders should respond proactively to the changes

that are bound to occur. Although all three scenarios have the potential to

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bring positive change to the company, it has been stated that negatives are

also a part of the process, and need to be dealt with.

Any major change is likely to generate employee uncertainty and resistance.

Unless it is previously established that certain aspects of the organization

are to remain consistent, change is inevitable in any major business

restructuring. Employees are most likely going to be resistant to change. It

is imperative to keep this in mind while attempting to make such transitions.

Reducing uncertainty and eliminating resistance is by no means an easy

task, but by taking preliminary measures, it is possible to reduce the severity

of each.

It is critical to note that resistance is essentially a way of coping. It may exist

to protect a status quo that has served the organization well in the past. In

truth, resistance to change is but a manifestation of cultural values and

cultural strengths. Removing resistance is akin to removing corporate

culture. It may be possible, but the detriments may vastly outweigh the

effort (Bridges & Mitchell, 2000).

It is important to take note of the changes that are to occur and present

them, along with the reasoning and benefits, to the employees prior to the

deployment of such changes. Kanoodle’s relatively small size could be an

asset; senior management could speak to the majority of employees face-to-

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face at a pre-defined gathering place, perhaps while simultaneously

providing a live interactive audio/video feed to the satellite offices to address

their concerns. Additionally, it would be beneficial to the company leaders to

encourage employee feedback regarding such transitions. A question and

answer session with top management would do much to allay employee

uncertainty. It would then be easier to determine what steps need to be

taken to ensure that the fidelity and effectiveness of communication within

the organization are not compromised. Taking employee comments and

concerns into consideration would not only benefit management, but it would

show the employees and the community that the company is going to

remain an “employee-friendly organization” versus a stereotypically cold and

unfriendly corporation.

In all change, the associated transition must be addressed. Simply

implementing a change does not make it effective. It is important to address

the three phases of transition.

The first phase can be described as “saying goodbye”. People are being

asked to change how they do things, which is in effect asking them to

change who they are. They are being asked to let go of what they have

considered reality, to exit their comfort zone, and to change their sense of

identity. Understanding the underpinnings of change in relation to the

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psychological effect it will have on those affected is something that must be

addressed.

The second phase, “shifting in to neutral”, is a phase of rife uncertainty.

People have let go of their old ways, but the confusion of this in-between

zone requires much energy from the affected individuals. As awkward and

difficult as this phase may be, it is necessary for successful transition.

Creativity and the energy of transition are developed in this phase; this is

where real transformation occurs.

“Moving forward” is the third and final phase of transition. Some

organizations never reach this phase because they are unable to succeed in

the first two phases. However, the journey does not end here, people are

required to begin acting in a new way. This can be difficult when an

organization has a history of punishing mistakes; some may hang back and

wait to see how others handle the new beginning.

The higher a leader sits in an organization the more quickly he or she tends

to move through the change process. Because they can see the intended

destination before others even know the race has begun, senior managers

can forget that others will take longer to make the transition: letting go of

old ways, moving through the neutral zone, and, finally, making a new

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beginning. This is known as the “marathon effect” (Bridges & Mitchell,

2000).

Managers need to keep several things in mind when dealing with employees

involved in the change and transition processes. First, they should

remember that they themselves took some time to come to terms with the

necessary change, and that their followers will need at least as long to do so.

They should also note that it is the transitions, not necessarily the changes

themselves that are holding people back and thereby threatening to make

the change unworkable.

In the problem scenarios, company leaders, whether under the influence of

the shareholders, new ownership or venture capitalists, will at some point

implement change throughout the company. In order to implement

successful and smooth transitions, company leaders must take a proactive

stance. Not only does the implementation of change generally take on a top-

down approach, but the hierarchical structure of the organization may be

affected as well. The type of hierarchy that works best for an organization is

relative, so one cannot say that a top-down approach is undesirable.

However, in Kanoodle’s case, the organization seems to thrive on the current

flat hierarchy. In the case of a buyout for instance, the organization will be

restructured to meet the needs and goals of the parent company. In order to

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do this, a top-down hierarchy is usually employed, not only to implement

change, but to manage the recently obtained organization.

At a certain point, Kanoodle may need to reconsider its hierarchical layout.

With an additional 50 or more employees expected to join the team in the

next year, the group will soon grow too large for a completely flat hierarchy

to work effectively. Splitting Kanoodle in to divisions, each maintaining a flat

hierarchy may help alleviate the looming issue. It will be important for these

divisions to maintain open communication with one another on many levels.

If, for instance, members of management of the divisions are the only

liaisons between the divisions, a degree of isolation may occur, especially if

there is turnover among the ranks of these managers. A good way to ensure

that this does not happen is to periodically perform structural, psychological

and cultural communication audits. Ensuring that information is flowing as

well as it can and employees are continually motivated and satisfied in their

current position will help Kanoodle continue to prosper, even if the

organizational culture undergoes transformation.

As previously stated, Kanoodle may benefit from the three scenarios;

however, the accompanying risks are not to be ignored. This is not to say

that Kanoodle cannot overcome these risks. By predicting such risks and

devising a plan of attack, Kanoodle can conquer them before they become a

major concern. It is here that a structural functionalist approach would be

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beneficial. According to Levy, functional and structural requisites must be

determined in order to maintain stability of an organization (p. 23). Levy

defines the requisites as the following: “A functional requisite may be

defined as a generalized condition necessary for the maintenance of the type

of unit under consideration…” and “A structural requisite may be defined as

a pattern (or observable uniformity) of action (or operation) necessary for

the continued existence of the type of unit under consideration…” (p. 23).

Kanoodle would benefit from identifying the functional and structural

requisites that have gotten them this far and have allowed them success.

One of the major structural requisites unique to Kanoodle is their corporate

culture. Maintaining this comfortable, open environment will preserve their

low employee turnover rate and continue to encourage creativity. Happy

employees foster successful results.

A functional requisite Kanoodle process may be identified as their physical

location which draws business and brings jobs to Buffalo. If Kanoodle were

to relocate as a result of future actions, the Buffalo community would suffer

and Kanoodle would run the risk of its local advertisers developing a

negative attitude and thus boycotting or spreading negative opinion about

Kanoodle and their services. However, keeping the Buffalo location even

symbolically would eliminate this risk and provide good public relations for

the company. Being involved with the community and being portrayed as a

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family-oriented organization are two images Kanoodle should strive to

maintain.

In summation, the major benefits of the three situations are all tangible and

realistic. As the current structure of the company does not present any

pressing disadvantages, Kanoodle should take strides towards preparing

itself for any of the three possible scenarios. Growing from the Social-

Darwinist theory, the employment of a structural functionalist approach will

ensure that the company adjusts itself to reach a homeostatic structure for

continued success. Each entity of the company that is viewed as

advantageous needs to be considered, they then need to determine what

steps must be taken in order to maintain these entities. From the research

collected, entities worth being noted include the following: organizational

culture, corporate image, and dynamic innovation of new products and

services.

It is clear from the rapid growth of the company, the low employee turnover,

the impressive increase in revenue, and its growing popularity that Kanoodle

is a strong organization with a promising future. In order to ensure the

continued success of Kanoodle, the company leaders should employ a

structural functionalist approach, regardless as to which path the company

will follow. Structural functionalism focuses on the stability of an

organization. While it is true that this approach values homeostasis over

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growth, it is important to note that it is not being suggested that growth

should not be a focus of the organization.

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Appendix A

Transcript of an e-mail interview between Team Avis and Carin Obad, Kanoodle CTO, November 26, 2004

Q: How many employees did you have when you were founded? A: Only 4 or 5

Q: What kind of products did you initially offer?A: One product – pay-per-click for keywords (search engines)

Q: Why Amherst instead of Buffalo, or NYC?A: The founders are from Amherst/Lockport.

Q: What makes Kanoodle special as an employer?A: We believe in creating and maintaining a culture where people enjoy coming to work. You can be the best salesperson – but if you are not happy working a Kanoodle, you shouldn’t be here. It is very important for us to maintain a culture where people are passionate about their jobs and feel like they are contributing positively.

Q: Why would someone want to work for Kanoodle?A: We are a growing company with lots of career opportunity. It is a fun place to work. We try to maintain a culture where people really feel a part of the Kanoodle success.

Q: How do you view your organizational culture in contrast toGoogle or Yahoo?A: I don’t really know their cultures but I would guess they are more of a “big company” type environment where we are still small and quite personal.

Q: How would you identify your target audience/market segment? A: We work with all types of companies that want to get their products advertised on the Internet. We are a “sponsored links” provider.

Q: What is your corporate culture like? A: We a very friendly work environment where people work hard but feel good about their efforts. We have a couple of messages that we live and work by:

“If you can understand it, you can control it”“Finish the race no matter how hard it is”

Q: Which of your products has been most successful, and why do you think it has become so successful?

Appendix A

A: Our KeywordTarget product is our original product and has been very successful. We have also had tremendous success with our ContextTarget product this year. We believe both are successful because they are quality products.

Q: What would you identify as your most successful partnership; how was it developed?A: We have many successful partnerships. We believe that we won our distribution partnerships with CBSMarketWatch and MSNBC because we have a better partner relationship and better quality product than our competitors.

Q: In an era where so many dot-com's fail, how did Kanoodle succeed?A: We learned very quickly to squeeze the most out of every penny. We were totally self-funded up until last year when we took our first venture capital investment.

Q: What would you identify as your weakness in your business field?A: We are still educating many business/website owners on how to advertise on the Internet. Many think that if you simply build a website, consumers will come. This is not true. They must learn to market their site and learn how to use products like ours to drive consumer traffic to their site.

Q: What are the key sources for your revenue?A: Advertisers (website owners) and publishers (like CBSMarketWatch)

Q: How do you go about researching users' needs in regards to your business?A: We run online surveys, we belong to industry groups like the Internet Agency Board (IAB) and we attend many online marketing conferences.

Q: How does the process of partnering with Kanoodle work?A: If you are an advertiser, you can simply sign up on line. If you are a distribution partner, we negotiate a contract with you that involves revenue sharing opportunities.

Q: How do you measure customer satisfaction?A: One very obvious way is customer spend and refueling of their accounts. We also talk with our customers to understand their conversion ratios.

Q: Why would someone pay to have their page listed higher in a search engine when they can submit their link for free with other services?

Appendix A

A: With free services they cannot control if their listing really gets listed nor can they control their rank where they are listed. Free listings also don’t get you on sites like MSNBC, USAToday, CBSMarketWatch, Dogpile, etc.

Q: Are you concerned that people will take issue once they know that their online activities are being tracked and analyzed?A: This is actually already a common Internet practice and we do not track the specific information of a user. We don’t know who it is necessarily, only that a consumer is looking for something specific.

Q: As others are sure to follow your lead, how will Kanoodle continue to remain competitive?A: Like any business, we must push ourselves to be the leader with new features and products. The Internet is still very much wide open – good for us!

Q: Can you tell us about what kind of products you're currently researching or developing?A: We are enhancing our BrightAds product, investigating more work with RSS and more on Behavior Marketing.

Q: How did Kanoodle manage to beat other firms to the marketplace with behavioral targeting technology?A: We have a better technology and mapping strategy.

Q: Overture Services appears to have a very similar business model to Kanoodle's - do you think that acquisition may be in Kanoodle's future? A: Anything is possible. Overture was purchased by Yahoo for $1.6 Billion - not a bad thing to hope for I guess.

Q: Would you care to comment on the Mark Nutritionals suit against your company? A: I am sorry, we do not comment on any legal issues.

Q: Do you have any plans for expansion in the near or distant future?A: Of course, this is why we moved to our new offices. Kanoodle has experienced 200% annual growth for the past 5 years…we certainly have a great opportunity still in front of us.

Q: What steps have you taken in regards to pubic relations and/or corporate image? A: We work with some of the finest PR firms including Hill and Knowlton out NYC.

Appendix A

Q: As a local corporation, do you think it would be beneficial tobecome more involved in the community?A: We are already very involved in the community. We actively participate in many local charity events including Computers for Children and the March of Dimes. We are members of the InfoTech Niagara Group. Watch for an article about Kanoodle in the October 29th edition of Buffalo Business First.

Appendix A

Appendix B

Recent Timeline Derived from Kanoodle.com Press Releases

April 8, 2003 – payQuake announces partnership with Kanoodle.

April 21, 2003 – Kanoodle launches an ad campaign to bolster their image, feeling that “their brand has been challenged by the surplus of low quality engines entering the market”.

April 30, 2003 – Kanoodle announces partnetship with LaGarde, provider of StoreFront e-commerce software.

June 26, 2003 – Kanoodle announces an agreement with InfoSpace, Inc. that will expand the search engines on which Kanoodle’s pay-per-click results display. Added are Dogpile, MetaCrawler, and WebCrawler, among others.

July 8, 2003 – ExactSeek.com announces an exclusive referral partnership with Kanoodle. The program will allow ExactSeek advertisers to supplement their advertising with a free Kanoodle account for a limited time.

October 28, 2003 – Mike Feeley, one of the founders of Kanoodle and formerly the company’s Director of Business Development, is appointed President of Kanoodle.

November 6, 2003 – Kanoodle selects Dave Casion as the company’s CIO. Casion had been with the company for two years previous to his promotion to CIO.

December 8, 2003 – Kanoodle introduces AutoScheduler, allowing advertisers to enable or disable search terms based on time of day, month or year. Kanoodle is the first company to offer this service.

December 10, 2003 – Kanoodle announces the Earn on Errors program, allowing customers to replace website error page with a Kanoodle search page.

December 17, 2003 – Kanoodle announces the addition of three former Sprinks managers to its team, as well as a private investment from Insight Venture Partners, Kanoodle’s first external investment.

January 7, 2004 – MarketWatch.com selects Kanoodle as its provider of context-targeted sponsored links.

Appendix B

March 22, 2004 – Kanoodle announces the launch of ClickFactor, a proprietary method of further determining the ranking of ContextTarget listings.

March 24, 2004 – MSNBC.com selects Kanoodle as the exclusive provider of its contextual sponsored links.

June 9, 2004 – Kanoodle appoints Andrew Zucker Senior Vice President of Sales.

October 5, 2004 – Kanoodle launches BrightAds, a tool that will allow small- to medium-sized businesses to run Kanoodle’s context-targeted links on their websites.

November 9, 2004 – Kanoodle and Six Apart announce their partnership. Users of Six Apart’s Typepad online weblog software will be able to add Kanoodle’s contextual sponsored links to their pages.

Appendix B

References

Drury, T. (2004, November 1). ‘Kanoodling’ gaining favor among companies. Buffalo Business First.

eMarketer, Inc. (2004, November 8). The State of the Online Advertising Industry. New York, NY: Author

Williamson, D. A. (2004, September). What Comes Before Search?. New York, NY: eMarketer, Inc.

Loren. (2004, September 1). Behavioral Targeting and Contextual Advertising. Search Engine Journal. Retrieved December 4, 2004 from SearchEngineJournal web site: http://www.searchenginejournal.com/index.php?p=836

Bridges, W., Mitchell, S. (2000, Spring). Leading Transition: A New Model for Change. Leader to Leader. 16 30-36.

Taubman, L. E. (2001). Considerations of an IPO. Retrieved December 5, 2004 from FindLaw web site: http://library.lp.findlaw.com/articles/file/00446/002605/title/Subject/topic/Science,%20Computers,%20and%20Technology_Initial%20Public%20Offerings/filename/science,computers,andtechnology_1_990

Kanoodle Press Releases. (n.d.). Retrieved December 4, 2004, from Kanoodle web site: http://kanoodle.com/about/press_release.cool

Online Advertising Industry Background. (n.d.). Retrieved December 2, 2004 from ClickAffiliate web site: http://www.clickaffiliate.com/resources/industry_background.shtml

Stellin, S. (2004, March 1). Online Advertising Bounces Back as Animations Increase. The New York Times [Electronic version]. Retrieved December 3, 2004 from The New York Times web site: http://www.nytimes.com/2004/03/01/technology/01online.html?ei=5070&en=17ecd400963b98c9&ex=1102482000&adxnnl=1&oref=login&adxnnlx=1102355734-CvNvOKo3Esy8j/LOd2Cnfw

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