AOL is pitching potential clients on a one-year, $300,000 marketing package it insists is not open to negotiation.
Ad agencies are eager to get their clients involved with AOL, the hottest and fastest-growing commercial online service. But, not surprisingly, they find the cost of entry hard to swallow for a new, relatively unproven medium. Few advertisers are expected to spend that much on interactive media this year overall, and even fewer are likely to put it all in one place.
"Obviously, we'd like to be involved with AOL, but we can't get past that fee right now. It's exorbitant," said Michael Drexler, president of BJK&E Media Group, New York. "After they rethink it, they'll probably think of another way of handling it."
But AOL said it's not budging and only wants to work with those advertisers willing to make a substantial commitment to online marketing.
"We're taking the high end," said Jonathan Bulkeley, VP-business development, who oversees advertising and shopping services at AOL. "We don't want to work with everybody. Price in some ways is a hurdle, but that's good for us."
AOL said the $300,000 is not based on any traditional pricing formulas, but represents a mix of production time, staffing and media value.
"What [the media value] is, I don't know," said Mr. Bulkeley. "We thought [the price] was fair."
Craig Gugel, senior VP-interactive media and research at Bates Worldwide, New York, thinks differently. "$300,000 is really beyond the benchmark," he said. "They're going to have to come down in price if they want people to participate."
So what does $300,000 buy? AOL's package includes development of an online area in its Marketplace section with multimedia, research and transactional capabilities, and creation of a separate Internet home page.
Advertisers can set up bulletin boards for customers to ask questions and discuss products and services. They can also run online promotions, distribute photo-filled brochures and poll users.
Ron Pullem, senior VP-managing director of McCann Interactive, New York, said he appreciates "the very proactive approach [AOL is] taking ... and we are actively investigating the opportunity for several clients."
McCann client 800-FLOWERS recently opened an area on AOL, although that deal was negotiated separately from the packages currently being pitched to agencies.
But Mr. Pullem doesn't take the $300,000 price tag at face value.
"It's an initial offering. Media is about negotiations," he said. "I'm surprised if any agency accepts that as the final word on what might happen with AOL."
AOL, however, insists the price is not open to discussion. In an e-mail exchange that followed an in-person media briefing, Mr. Bulkeley said that "because a big chunk of this cost is production, it is non-negotiable. And we're holding the line very tightly."
AOL expects to do business initially with between 15 and 25 clients, giving it potential first-year ad revenues of $4.5 million to $7.5 million, roughly equal to those of a small consumer magazine.
Mr. Bulkeley said no deals have been signed, but a "handful" of marketers have agreed to buy packages. He declined to identify them, but said target categories include automotive, financial services and travel.
AOL is known to have already cut a deal with American Express Corp., likely to be the first high-profile marketer on the service. That deal, like the 800-FLOWERS agreement, was negotiated prior to the current ad package.
The AmEx area-in development at Ogilvy & Mather's interactive unit for more than a year-is expected to make its debut early in the second quarter and will be full of bells and whistles, allowing users to communicate with the company, apply for an AmEx card and participate in special promotions.
Despite its hard-line approach, AOL said it has no plans to circumvent agencies and sell directly to marketers.
"We can't make it a prerequisite, but our preference is to work with the agencies," said Mr. Bulkeley.
Agency executives, however, don't view AOL's initial approach as all that friendly.
"When you come in with a rigid, non-negotiable approach, you're going to get people's backs up," said Wes Dubin, senior VP-director of electronic ventures at DDB Needham Worldwide, Chicago. "If you want a non-negotiable price, you're going to have to come up with a lot of good, salient reasons for it, and the benefits to advertisers have to be clear."
Advertising sales are increasingly becoming crucial in the online industry as market growth and competition force commercial services to lower the cost to consumers. In addition, planned services from heavyweights Microsoft Corp. and AT&T include advertising prominently in their financial models.
Prodigy has been the most aggressive to date in the advertising arena, with limited success.
Prodigy encourages clients to spend at least $100,000 but has designed programs for considerably less.
"Our view is that you should be able to become involved in this medium at the level that you desire," said Scott Kurnit, exec VP-consumer products marketing and development. "Some clients want to tiptoe and some want to dive right in."