Marketing company shrinks

MarketSmart Interactive lays off 20; remaining nine go to sister company

MarketSmart Interactive, once a red-hot company that expanded like wildfire, has burned out.

On Friday afternoon, the search-engine marketing company laid off 20 employees, said Rachel Honoway, vice president of marketing for Think Partnership, the Morrisville company's Florida-based corporate parent. The nine staffers who remained after the layoffs were incorporated into a sister company, Raleigh ad agency MarketSmart Advertising.

It was a precipitously steep decline for the business, which was founded in 1998 and rapidly grew to as many as 176 employees in 2005, when it was called WebSourced. The company had 100 employees as recently as March.

MarketSmart Interactive was among the pioneers in helping companies drive traffic to their Web sites by ranking higher in Web searches.

But it failed to adapt to intensifying competition, former employees say. They also say the company suffered from disgruntled clients, and that a management team installed in 2005 didn't keep the business from disintegrating.

"There was no real direction, no real strategy, no real leadership," said Dave Honaker, a senior interactive copywriter who was let go at the end of October. "The clients felt that."

He added: "Sometimes they were being promised things that couldn't be delivered on."

The latest job cutbacks were preceded by three rounds of layoffs last year. In addition, employees left the business on their own because they didn't see a future there.

Honaker said two or three people a week were departing of their own volition in the fall when he was let go. "Most people saw the handwriting on the wall," he said.

Still, Elizabeth Perez, a marketing manager who worked for the company nearly three years, said she was blindsided by Friday's action. She said Scott Mitchell, CEO of Think Partnership, the Florida-based corporate parent of MarketSmart Interactive, visited the company in November and told employees that he wouldn't close down the business.

Perez, 30, was working from home Friday afternoon when she got a call from a co-worker who told her, "We're done."

"I thought it was a joke at first," Perez said. "I found it hard to believe."

Perez, who is four months pregnant with twins, cried after she confirmed the news. "I'm still in a state of shock," she said Monday.

Perez said she didn't receive any severance pay, and neither did any of the the former co-workers she has spoken with.

Severance terms were "different for every employee," said Think Partnership's Honoway. "We told them we would keep that between them and us."

Honoway said she didn't know any details about why the business declined.

George Douaire, who was put in charge of the business in September 2005 as part of a corporate overhaul, declined to discuss the situation.

Douaire changed jobs in July, when he was named president of Think Partnership's consumer services division. After that, MarketSmart Interactive employees reported to top executives at MarketSmart Advertising, Honoway said.

The 2005 restructuring was sparked by the discovery that WebSourced needed to write off $1.4 million in bad debt -- sizable for a company that had posted less than $20 million in revenue the year before.

Honoway said folding what remained of MarketSmart Interactive into MarketSmart Advertising was part of a company-wide effort to consolidate operations and be more efficient.

The plan calls for MarketSmart Advertising, which has about 60 employees after absorbing the remaining MarketSmart Interactive workers, to move into the latter's 30,000-square-foot office in Morrisville's Perimeter Park.

Think Partnership is publicly traded, but it doesn't break out the financial performance of MarketSmart Interactive. Revenue for its advertising division, which includes three businesses -- MarketSmart Interactive, MarketSmart Advertising and Web Diversity, an Internet marketing company based in the United Kingdom -- in the third quarter was $7 million, virtually flat from a year earlier.

Shares of Think Partnership closed Monday at $3.15, down three cents. Shares fell as low as $1.61 last year before climbing in the second half of the year.