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In crash’s wake, it’s hard to bleed for dot-coms

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It seems that the public flogging of ad agencies for their role in the dot-com crash last year is well under way. Recently, I came across a column by a technology analyst pointedly accusing agencies of "bleeding dot-coms dry." Had these companies, the writer suggested, dedicated their energies to sales-building activities, many dot-coms would have been spared their current anemia.

Funny, I thought advertising was a sales-building activity. As the book is closed on dot-com mania, it is difficult to cast any of the actors in this story as sympathetic. To suggest that these companies were bled dry, though, reveals a fundamental naiveté surrounding competitive business.

Dot-com mania was fueled by the mistaken belief that the Internet mother ship guaranteed a trip to the moon. Internet hype created new economy icons like the Pets.com sock puppet, a brilliant advertising stroke for a shaky business. But in the end, celebrity does not a business make—it takes revenue to keep the lights burning.

The relationship between a flawed business model and advertising excess is easy to trace. To meet the projected returns of venture backers, principally through an IPO, many of the now-shuttered dot-coms poured all their resources into customer acquisition and so-called branding activities. Conventional wisdom held that company valuation was tied to eyeballs and gross rating points, leading the typical dot-com to allocate nearly 80% of its operating budget to marketing expenses (read: advertising).

What proved to be the undoing of the typical e-commerce company was the relentless attempt to create a major brand from a minor business. I remember seeing gerbils flying from cannons in a dot-com spot, but to this day I can’t tell you the name of the company. Probably more responsible for the dot-coms’ demise are those publicity firms that tried to goose the public markets by packaging a lot of nothing as the next big something.

The postscript to dot-com mania should not absolve ad agencies for their role in this excess. Nor should agencies be expected to act as missionaries, in effect saving these companies from themselves. Clients who approach an agency in full belief that they need to spend $6 million in three months will never be shown the door.

The real lesson of dot-com mania is obvious: Nobody will ever leave money on the table. The real question is, why did dot-coms universally adopt approaches that are counter to more traditional market development practices? The answer, I suspect, lies less with the hypster and more in the appetite for hype.

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