2002: An Entirely Make-Believe Year In Review

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Sometimes it's painful to look back; sometimes it's instructive. As Advertising Age reviews the year in interactive, it's clear 2002 was a mixture of both. The year combined the consolidation that typified 2001 with entirely unexpected developments. Everyone knew eBay would emerge as the dominant dot-com, but who would have thought that one-time Procter & Gamble Co. trainee Steve Case would return to the package-goods company as CEO? And then pull down all the company's Web sites, terming the P&G Internet investment "unnecessary"?

Here then, a look back at a year so amazing, it's unreal.

AMAZON RIVER RUNS DRY

The end of the road for Amazon.com came in September when eBay acquired all 6,400 of the company's desks-made-out-of-doors and five Foosball tables, while Wal-Mart Stores bought Amazon's one remaining warehouse, its customer service operations and inventory. Warehouse workers said that in the end, all Amazon had left were copies of former General Electric Co. Chairman Jack Welch's biography and Britney Spears' latest CD, "I Promise I Won't Do It Again."

The complicated deal, valued at $6.9 million, called for a co-marketing agreement between eBay and Wal-Mart in which Wal-Mart would dispose of the inventory on eBay and eBay would manage Wal-Mart's store greeter staff. "I was surprised and delighted by the acquisition," said former Amazon Chairman Jeff Bezos, who last month became Wal-Mart's Head Greeter. "I always wanted to do it all. Now Amazon.com is firmly in the hands of two companies who can." Wal-Mart plans to use Amazon's site infrastructure to again revamp walmart.com, though analysts don't expect that project to be completed until 2008.

MORE MARCH MADNESS

Up from the wreckage of the Internet services business rose MarchThirtyfirst, the combination of Scient, Viant, iXL, Luminant, Razorfish and the e-consulting arm of PricewaterhouseCoopers.

Company officials came up with the name after an attempt to name the new group Reinvent Communications foundered due to trademark hassles.

The curious rollup came together on March 31 in an effort to recoup revenue lost to the recession and to cope with rampant price cutting in the industry. "The time was right for this deal to happen," said former venture capitalist and MarchThirtyfirst CEO and Chief Innovation Officer Mark Kvamme. "We couldn't have done it a day later." The company is planning an IPO and a multimillion-dollar TV campaign to launch during the NCAA Final Four.

TIME FLIES Without AOL

In August, AOL Time Warner surprised no one by dropping AOL from its name. "We're old media folks," said Time Warner Chairman Gerald Levin. "AOL is a nice niche opportunity for us, but we believe the future is in TV and magazines." Since the recession that began in September 2001, Time Warner has seen its revenue plummet, primarily due to dismal ad sales at America Online and the effects of "Operation Customer Count." That study, undertaken by attorneys general in 27 states, revealed that AOL did not, in fact, have 30 million subscribers, but rather had distributed that many starter CD-ROMs to residents of Rhode Island. The glitch was blamed on computer error. But the fiasco left execs at the company mulling the possibility of an AOL spinoff.

AOL's actual subscriber total, as of Sept. 30, was just six million, putting Microsoft's MSN Earthlink firmly in the lead among online services with 16.4 million subscribers. Meanwhile, former AOL Time Warner Chairman Steve Case was receiving praise for his successful turnaround of P&G.

BILL AND PAUL, TOGETHER AGAIN

In February, Microsoft acquired cable operator Charter Communications, marking the return of prodigal son Paul Allen, now Microsoft's CEO. Mr. Allen remained characteristically bullish on the new unit's prospects. "We're intent on moving our set-top boxes into literally dozens of broadband-enabled homes. My track record speaks for itself," he said. Mr. Allen is known for turning his Microsoft inheritance into a lucrative portfolio of investments including pop.com, TheStreet.com and Dick's Clothing & Sporting Goods.

The year also finally brought an end to Microsoft's protracted government antitrust battle. After more than 12 months of settlement talks and a series of five mediators, Microsoft agreed to change the name of Windows XP to Windows 2002. "No one could ever figure out what XP stood for anyway," said Microsoft Chairman Bill Gates.

STOCK MARKET INCHES BACK

After a long slump, the stock market began a rebound in October as investors finally shook off wartime jitters and day trading made a slight comeback among the unemployed. At press time, the Dow was at 10,896, up 11% from a year ago, mainly on the strength of increased sales at McDonald's Corp. and Philip Morris Cos. Both companies have seen sales surge as Americans consumed more food, alcohol and cigarettes as the war progressed.

The stocks of Internet companies are still trying to recover from the effects of the major bug discovered post-release in Windows XP . The bug, which mysteriously forced any browser operating on the XP platform to only go to Microsoft Corp. sites for weeks at a time, cut into e-commerce and advertising revenue for non-Microsoft sites because of the dramatic slowdown in traffic. The glitch was blamed on computer error.

IPOs were few and far between among Internet companies, and most had to find robust alternative revenue streams to wow the market. The top performer was search engine and fruit smoothie purveyor Google, which soared 40% on its first day of trading in March.

PORTALS: NO VISIBILITY

The collapse of the portal business continued this year, with the January sale of Excite@Home's Excite to ubiquitous digital camera hawker X10 for $4,312. Excite expected to gain traffic to its site by becoming a dedicated portal flogging x10 products.

Yahoo! spent much of the year in acquisition talks with various partners, including Walt Disney Co., Time Warner and the acquisition-hungry Vivendi Universal Oprah. None of the deals materialized. Some observers expected eBay to make a bid for Yahoo!-"Why shouldn't the flea market own the Yellow Pages?" said one wag. Yahoo!'s controversial shift to a paid-listings format for search earlier this year cost the company millions of users, but the additional revenue is helping the company bounce back from its failed attempt to enter the fruit smoothie wars against Google.

FULL-SERVICE HACKERS

In the wake of February's cyber-terrorist attack on the Internet, which shut down vital hubs in New York and San Francisco, President Bush declared a consumer Internet access surcharge of $1 per month to fund development of tighter security protocols. The attack, initially thought to be related to last year's Sept. 11 terrorist attacks, was later revealed to be the surprisingly successful work of a rogue band of ex- employees from the 1994 launch of Time Warner's Full Service Network interactive TV debacle in Orlando, Fla.

RETAIL HOPES FOR A REBOUND

Online retailers have this to say: At least this fourth quarter was better than last year's.

After 2001's holiday bust put most online retailers out of business, October's stock market rebound provided a glimmer of hope. 2002 saw a host of unusual cross-promotions as those still in business looked to eke out sales. The Gap teamed with Yahoo! to offer My Yahoo! subscribers My Gap, an opportunity for them to customize a monthly wardrobe online.

Yahoo! planned to aim banner ads for other advertisers to My Gap customers based on new targeting insights that can connect even slight variations in clothing preferences to customer interest in other products. "Who knew that men who wear blue-and-yellow-plaid boxer shorts are more responsive to Classmates.com ads?" asked one Yahoo! executive.

In a similarly unconventional deal, Wine.com paired with MCI Viacom-backed CBS MarketWatch for "Watch and Wine," a promotion offering a free bottle of wine to MarketWatch users who correctly pick the date a tech stock will hit a price that matches that of a jug of Almaden Mountain Chablis. Wine.com said the promo was a success since it helped the company unload some lower-priced vintages.

ONLINE ADS SOAR 0.8%

Online advertising is on track to rise a remarkable 0.8% this year, according to executives at ForresterJupiterNielsenNetRatingsYankee Group. Last year, the category experienced a dismal 18% falloff in online ad revenue, to $6.2 billion. Flat is good, Internet execs agreed, as some of them celebrated the uptick with a keg of Schaefer beer in San Francisco's once trendy South Park, where many of them now live. Much of the growth this year came not from blue-chip marketers, many of which eliminated Internet spending from their budgets in 2002, but from companies such as Orange Glo, which moved the bulk of its infomercial budget to the Internet to promote its next-generation OxiClean cleaning solution.

A new "stealth" ad format, the bunker, also contributed. A response to 2001's skyscraper ad, bunker ads hide "underneath" a Web page. They were launched by Time Warner's CNN.com with a tie-in "Find the Bunker" contest offering a cash prize of $1 million. Although no consumers have yet found one of the ubiquitous bunker ads, Internet ad execs say it's the hottest ad format since the banner.

Oprah clubs commercials

TiVo usage expanded exponentially this year, reaching 78 million households after talk show host Oprah Winfrey launched "Oprah's TiVo Club." Vivendi Universal Oprah's CEO made TiVo the centerpiece of her crusade to decommercialize American society.

Recognizing that TiVo was killing viewership of commercials, a group of prominent advertising executives led by Grey Interpublic Group's Ed Meyer launched Project WATCH ("What Ads Tell Consumers Helps"). The initiative consisted of a TV campaign directed at TiVo customers.

Unfortunately, since TiVo users don't watch ads, the media buy proved unable to reach its target. "Project WHAT?" asked one TiVo user. At press time, members of Project WATCH were rethinking their strategy and setting plans to launch an Internet-wide campaign using the new bunker format.

As the year closed, the industry was once again looking to a familiar place, Procter & Gamble, for answers. P&G CEO Steve Case hosted AD FAST to rally support for an industry-wide fast until people paid attention to ads. The Interactive Advertising Bureau, known for its expertise in setting up task forces and committees, promised to lead the charge.

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