Why spending rates are dropping

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Dot-com marketing spending dropped again in the third quarter -- right as expected. But spending still appears insanely high and unsustainable.

The average publicly traded business-to-consumer dot-com spent 65› on sales-and-marketing expenses last quarter to generate $1 of revenue, according to an analysis prepared for Advertising Age by Pegasus Research International. Pegasus tracks Net financials for institutional investors.

That sales-and-marketing spending is down 7% from the 70› per revenue dollar the average dot-com spent in the second quarter, and 95› at the high point (or low point) of dot-com advertising during last year's fourth quarter.

Biggest decline: E-tailing. In the wake of the spring Nasdaq stock market crash and cash crunch, e-tailers last quarter put 58› of every dollar of revenue into sales and marketing. That's still high by bricks-and-mortar standards, but far below the $1.09 e-tailers dumped into marketing at last year's peak.

Pegasus President Greg Kyle figures the e-tail sector will increase spending slightly from third to fourth quarter as many make "a last-ditch effort for survival." But he predicts overall dot-com spending as a percentage of revenue will be flat this quarter, with no seasonal bump higher.

The average dot-com spending rate, he says, is on track to fall to 25% to 40% by mid-2002.

"There's still a lot of pain" among dot-coms, he says. "We haven't seen all of that wrung out yet."