Dot-com slump crimps marketing

By Published on .

Thriftiness is in. As dot-com casualties mount, cash-strapped companies are abandoning spending sprees and hatching marketing plans on the cheap. That means online ads, e-mail promotions, barter and partnerships are gaining momentum as costly TV and print ads get whacked back.

For example, online home-page-creation and community site said it trimmed sales and marketing expenses to $5.6 million in the first quarter, a 38% drop from the fourth quarter of 1999. That's down from more optimistic times when theglobe launched a $27 million TV campaign in November from New York agency Black Ink.

Theglobe's stock hit an all-time low last week, trading 92% off its 52-week peak.


Dean Daniels, president-chief operating officer, said theglobe.-com's marketing expenses would fall even more as it continues to focus on supplying community services to partner sites.

A year ago, "We started building products we knew we could distribute through partnerships," Mr. Daniels said.

Employing user-generated content, theglobe provides a free online community for affinity groups and splits ad revenue from co-branded pages. It also piggybacks on partner sites' ad campaigns and promotions.

Partnerships include a deal with CBS SportsLine, teen and twentysomething site Alloy Online and

The strategy, Mr. Daniels said, means "we don't have to spend tens of millions" on marketing.

"A lot of people have written stories about dot-coms running out of money. We're not -- even at our current cash burn," he added.

Another example is, an e-commerce ratings service, which recently announced it will spend $20 million on an online and offline campaign, half of what it anticipated spending before the March market implosion (AA, May 22).

EToys also recently told analysts its advertising would shrink this year as a percentage of sales compared with last year. The e-tailer said it spent more than $50 million last year on advertising.

Dot-coms have ways to advertise without spending cash: Give away the store (or part of it)., for example, gave stock to Walt Disney Co. in January in return for $11.8 million in advertising on ABC. That could help at a company whose marketing and sales expenses in the first quarter were nearly four times its revenue. TBWA/Chiat/Day, San Francisco, handles the account.

Given stock declines, however, dot-coms would have to give up far more if they were to do similar deals now;'s stock is 85% lower than its early 2000 peak.


Rich LeFurgy, a partner at venture capitalist Walden Group's Walden VC and chairman of the Internet Advertising Bureau, said Internet companies big and small are tightening the reins on marketing spending as investors focus more on a site's profit potential than its ability to ramp up traffic.

"We're seeing this across the board," he said. "Companies in our portfolio, whether they're pre-IPO or post-IPO, are all focused on cash conservation. There's definitely a sea change going on in funding and perspective." Investors want to see an ability to track effectiveness of marketing programs, and sites are responding by pulling back from unchecked spending on mass-media campaigns. The "land grab" campaigns have been replaced by a dose of reality, he said.

One agency executive said he's getting one-tenth the number of calls from dot-com prospects compared to several months ago. He said his dot-com clients are paring spending 10% to 20%. "I consider it more sanity than a retreat," he said.

Jim Nail, senior analyst at Forrester Communications, predicted dot-coms will shift their focus to e-mail marketing.

"It's going to be a boom in e-mail marketing," Mr. Nail said. Dot-coms are "going to burn up their customer lists by carpet bombing them with e-mail, the way they carpet bombed them with ads."

Cash-starved CDnow plans to dramatically cut traditional ad spending in favor of promotions. Hampel/Stefanides, New York, is its agency of record, but CDnow is also creating more advertising in-house, said Steven Bobowski, senior VP-marketing at CDnow.

In its first-quarter report, CDnow outlined extensive money-saving measures to cut operating expenses by more than $12 million per quarter. The austerity plan slashes spending on new-customer acquisitions by more than 50% by zapping "the least efficient marketing spending and pursuing more productive customer-acquisition initiatives," the report said.


"We're shifting money away from the broadscale advertising vehicles like TV," said Mr. Bobow-ski. "In the past we were trying to establish a brand name. TV advertising helps generate awareness, but a lot of it reaches those that aren't online."

The new plan is to "focus first on the people who have come to our site."

That means shifting 75% of its marketing budget to online promotions, he said, adding TV, print and other media when it makes sense. CDnow also wants to increase revenue from ads sold against music and entertainment content on its site.

In addition, he said, the company is trying to milk partner deals with portals, such as America Online, for more promotions. At the same time, Mr. Bobowski said he's re-evaluating all such relationships.

He said also to expect more promotional programs such as the spring effort with Pizza Hut in which CDnow gave away customized CDs to people who purchased the Big New Yorker pizza. Of 800,000 CDs given away, he said 600,000 went to new customers. Pizza Hut supported the promotion with its own $15 million ad campaign.

Despite their cash burn rates, some dot-coms, such as search engine Ask Jeeves, are sticking to their original budgets.


"Whether we're acting rational in an irrational market, I don't know," said David Hellier, VP-marketing, at Ask Jeeves ( Ask Jeeves still plans to spend $40 million during 2000 on an ad campaign from Euro RSCG DSW Partners, Salt Lake City.

Mr. Hellier said the size of the campaign is small in comparison to budgets such as AltaVista Co., which is in the middle of an estimated $100 million, 18-month campaign. Wieden & Kennedy, Portland, Ore., is AltaVista's agency.

Ask Jeeves also is switching more dollars to online. When it launched its campaign last year, it was doing 80% of its advertising offline and 20% online. Now, he said, it's a 50-50 split.

Ask Jeeves is also looking to expand its business-to-business revenue. He said the number of b-to-b clients has grown from five last year to 85 this year. Sites deploy the Ask Jeeves technology as a customer-service tool, allowing consumers to query a site about a brand or service in a search-engine format.

Mr. Bobowski said CDnow expects to send 15% to 20% more

e-mails this year than last. He pointed out that the "individual consumer will only see a modest change" as opt-in e-mails become more personalized. "The frequency depends on the level of involvement you want from us," he added, explaining that users can sign up for a variety of music-related content.

With reduced and reallocated budget, dot-coms "still face the challenge of how do you grow your revenue," Forrester's Mr. Nail said. He foresees dot-coms taking customer e-mail lists they acquired from the 1999 holiday season and launching aggressive

e-mail campaigns in an attempt to increase sales and demonstrate their worth to investors to obtain additional funds. But there's also a risk in making such a change.

"If they approach their e-mail marketing with the same level of immaturity that they did their TV advertising," Mr. Nail said, "they risk annoying and alienating their customers."

Most Popular
In this article: