The furor over an impending e-commerce takeover has not been greatly exaggerated. At least, not in the minds of those companies vying for leadership on the Net: In their view, the fierce battle they're fighting today is for tomorrow's customers.
As the Net becomes a truly mass medium, surpassing the kind of demographic skews that once fueled skepticism among marketers, the race is on for those in the advertising arena, whose pockets the "dot.coms" have increasingly enriched in their insatiable quest for a greater share of Web surfer eyeballs. Whereas once, virtual companies turned to banner ads and other online-only media strategies to promote their wares, now, these dot.coms are increasingly looking to traditional, off-line media venues as the best way to get noticed, get larger, and build brands.
"These companies need to establish their brand now," says Lee Westerfield, an analyst with PaineWebber. "Mainstream media is plainly the best means to establish brand awareness for Web sites. The very profitability of e-commerce depends on brand awareness. As adoption [of e-commerce] in the household becomes ubiquitous, the open space for mass marketing becomes more real."
In the first quarter of this year, the largest increase in advertising spending came from online companies, which spent $284.2 million in traditional media, up 183 percent from the year before. Westerfield predicts that online companies will spend $1 billion in traditional media by the end of the year, a figure that he sees doubling every year through 2002. That figure counts the amount spent by start-ups and Web veterans like Amazon.com, as well as the old-line, bricks-and-mortar retailers that are increasingly adopting a presence in cyberspace. Boston Consulting Group predicts that revenue from online retailing will reach a record $36 billion this year. Another study says that 65 percent of retailers surveyed will sell online by the end of the year, up from 12 percent two years ago. That means more money from retailers promoting their online presence.
Meanwhile, dot.coms are hiring ad agencies in record numbers and making ambitious media plans for the holiday season. Part of the reason they are going mainstream is because Web usage is too targeted and fragmented, and lacks the emotional appeal that leads to building brands. That's why Forrester Research recommends in a recent report that dot.coms "trim waste from their online spending to fund more effective off-line and e-mail programs this year." Forrester analysts further predict that online's share of the traffic-driving advertising budget will fall by 20 percent, as marketers extend their efforts elsewhere. "More than 70 percent of U.S. households above a $35,000 income have Internet access, making off-line advertising a viable strategy to promote a company's Web presence to a middle-to-high income audience," the report notes.
And Net usage is growing among U.S. households at an exponential rate. The Internet has penetrated 37 percent of households, and is expected to rise to 63 percent by 2002, according to industry figures. In fact, the Internet is the fastest-growing mass medium vehicle in U.S. history. Morgan Stanley calculates that it took the Internet five years to reach 50 million users; by comparison, it took radio 38 years, television 13 years, and cable ten years to reach the same critical mass. And what used to be the domain of white, affluent men is becoming a lot more diverse. A recent study from Commercenet/Nielsen Media Research says that the percentage of Web shoppers who are women has jumped to 38 percent in the last year. "The gap is closing," says James Vogtle, e-commerce research director at Boston Consulting Group. "It will become just like any other media."
That is why, some industry experts argue, it is important to get noticed now, before it all evens out. Autobytel.com, for instance, figured this out early on. The online car broker, which recently broke a $15 million TV and Internet advertising campaign through Grey Advertising, was the first dot.com to advertise on the Super Bowl, in 1997. And this year it was a player in the fall upfront. "You need to keep talking to future prospects," says Anne Benvenuto, Autobytel's senior vice president of marketing. "Traditional media does the heavy lifting on getting the word out to new prospects and brand awareness." Benvenuto says that 30 percent of Autobytel's $35 million media budget is spent in traditional advertising, up from a mere 5 percent in the early days of the four-year-old company.
But traditional advertising is expensive, which is why so many start-ups are struggling for the kind of visibility that will earn them funding from venture capitalists, who have been generous of late. In the first quarter of 1999, a record 43 percent of all VC investment poured into Internet-related companies, according to PricewaterhouseCoopers. VirtualVineyard.com, a leading online wine retailer, recently received a boost worth $30 million in VC financing, which will finally allow it to move from smartly placed strip ads in The New Yorker or The Wall Street Journal, via agency Kirshenbaum Bond & Partners, to its first TV campaign this fall. "As the current leader [in online wine selling], we think there is a terrific opportunity for us to solidify our spot," says chief executive officer Bill Newlands.
Michael Rasmussen, a vice president and group marketing supervisor at Grey, says that more and more dot.com marketers will be compelled to go the mainstream way as the Internet becomes a broad medium. Autobytel's vision, he says, was in anticipating the trend. "The first e-commerce movers like Autobytel have looked beyond the Internet," Rasmussen says. The strategy: Get your name out, even if no one knows what or who you are, something Rasmussen calls predisposing people to the brand. "Start now, pay later," Rasmussen says. Already, the investment is paying off for some first-movers. A study released in May showed that the top four Internet e-commerce brands are widening the public awareness gap between themselves and their competitors. The four companies - Amazon, Priceline, eBay, and E-TRADE - increased their total adult awareness by an average of 35.8 million adults per brand from summer 1998 through April 1999. By contrast, the nine next largest e-commerce companies measur! ed over the same period increase d adult awareness by an average of 1.3 million adults per brand. The top four, incidentally, are among the biggest media online spenders as well.
Bargain travel site Priceline.com, which spent about $8 million on traditional media in the first quarter of this year, making it the seventh biggest online spender according to Competitive Media Reporting, is a big believer in predisposing people to its brand. Like many of the leading e-commerce companies, Priceline regularly commissions surveys to gauge changes in public opinion or loyalty to its product. One such survey of a thousand Priceline customers, conducted for the company by Princeton-based Opinion Research, noted the importance of word-of-mouth as a key brand-building tool. The average user, for example, told more than 17 other people about their shopping experience with Priceline.
"We already have a good portion of mind share," says Priceline spokesman Brian Ek. From the start, he says, Priceline has used mainstream media to target its customers, mostly through radio and newspapers. "If we had used the traditional [online] brand-building model of using portals or banners, we would have missed a big portion of our target audience." Ek also emphasizes that his company's business - one in which consumers trade brand flexibility in exchange for low prices - is likely to extend to other industries outside of travel. Awareness of the brand name will certainly come in handy, if and when the company diversifies.
That is why, some say, gaining exposure through mainstream media is so important now. Today's e-commerce companies are not yesterday's dinosaurs. "They're building a brand and a product at the same time," says Rishad Tobaccowala, president of Leo Burnett unit Starcom IP, which helps traditional and dot.com companies drive traffic to sites. "They're also trying to become more than what they were when they began," he says. It's only a matter of time, he says, before we see an Amazon store (with real shelves and real books). That's when today's brand-building investment should pay off.