Exclusive Internet advertising deals' strategy questioned

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A year ago, many marketers rushed to sign exclusive ad deals with key Web sites. Now, industry watchers are examining the deals to see if marketers are getting their money's worth or if these agreements are a good sales strategy.

Almost all the deals are marketing and electronic commerce agreements, with the hosting site taking a cut of sales that it refers to a marketer. And the payments have certainly been lucrative for Web sites.

AOL'S EXAMPLE

America Online has more than 20 anchor tenancies, valued at nearly $600 million, with $212 million in annual payments spread over several years, according to Arlen Communications, Bethesda, Md. Partners include TelSave, Cendant Corp. and Scudder Kemper Investments. It also has warrants to buy shares of a few companies such as NetGrocer, eBay, Jfax and Software.net.

"The question is, [is AOL] making retail merchants narrowly define their product offerings? Because that's bad for business," said Peter Krasilovsky, VP-analyst at Arlen Communications.

Mr. Krasilovsky points out several instances in which the exclusive arrangements complicated potential partnerships.

For instance, he said, when AT&T Corp. was rumored to be interested in buying AOL or taking a stake in the online service, the deal was thrown off because AOL couldn't get out of its relationship with long-distance provider TelSave.

"These things can backfire," Mr. Krasilovsky said. "If you don't always assume the maximum opportunity, you may hurt yourself down the line."

INTERNET DIFFERENT THAN TV

Myer Berlow, America Online senior VP-interactive marketing, got his start in TV programming. Mr. Berlow said even though the beginnings of TV look similar to those of the Internet with advertisers sponsoring shows and creating content (Procter & Gamble Co.'s soap operas), he doesn't see the Internet going the way of TV's upfront buying.

"The TV upfront works the way it does because TV has turned into a commodity. Someone says, `I need X bazillion eyeballs and I'll go out and buy it.' The Internet is fundamentally different because we're not talking about passive eyeballs," Mr. Berlow said.

However, certain categories lend themselves to exclusive deals.

For instance, Yahoo! has exclusive deals with CDnow for music and Amazon.com for books. Yahoo! can still sell banner ads to competing music and book services on areas not specified in each deal.

EXCLUSIVES RARE

"We rarely do exclusives," said Jeff Mallett, Yahoo! chief operating officer. Books and music are two exceptions because they're categories in which there's little variance between competing services, he said.

As marketers expand their product offerings, the exclusive arrangements get more complicated. For instance, Amazon.com is unable to promote its music on Yahoo! because its agreement only pertains to books.

It's a careful dance between sites and advertisers.

"We want to do business with everyone," said Perry Allison, director of advertising and sponsorship sales at AltaVista, which has exclusive deals with Amazon.com and Trip.com. "A year from now, things can change, and you want to be able to pick up a relationship with one of your client's competitors."

EXCLUSIVITY PRICEY

Complete exclusive deals--those that prohibit a site from posting a competitor's ads or content--are rare and costly. "There's a premium associated with exclusivity," said Kenny Wachtel, senior VP-advertising sales, Excite.

The options are to commit to one company a site predicts will be a long-term player in a particular category, or "to spread yourself thin with three or four partners."

N2K's Music Boulevard holds a complete exclusive contract with Excite and Ticketmaster Online. It also has a semi-exclusive deal on AOL.

J.J. Rosen, president of Music Boulevard Network, which oversees Music Boulevard and sibling music sites, said early deals were important to blocking competition and building traffic and brand awareness. "It was a land grab," Mr. Rosen said. Now Music Boulevard is moving into alliances with sites that have offline media presences.

Lynn Bolger, senior VP-Web media director at Ammirati Puris Lintas, New York, said the agency negotiated deals for its client United Parcel Service of America to be the exclusive delivery service on search engines Yahoo! and Infoseek.

HUNGRY `BACK THEN'

The deals, which were struck in 1996, run through March '99, and include annual fixed payments, although Ms. Bolger declined to discuss terms.

"They were great deals," she said. "[Search engines] were very, very hungry to have money in their pockets back then." Measurable results include saving costs on package tracking online and being able to monitor response by users.

Some content sites are convinced that category exclusives are the way to go.

"Other people aren't willing to do the exclusives," said Matt Jacobson, exec VP of News America Digital Publishing, which offers E-Trade as a category exclusive across all its sites. Other sites "want to slice and dice" categories with several sponsors. "But . . . it's better for the advertiser to have a tight relationship with the site."

Though many alliances are multiyear pacts, marketers say they constantly monitor relationships. For instance, Karen Askey, senior VP-consumer marketing at Preview Travel, San Francisco, said there's been a learning curve to adjust to the multiyear deals it's signed in the past year. It has five-year deals with AOL and Excite and a semi-exclusive two-year deal with Lycos.

"We're very meticulous about tracking impressions," Ms. Askey said of efforts to reach more qualified customers. Preview works with sites to shift banners around to get better click-throughs. It also continues to buy and test its ads on different sites around the Web.

Exclusive deals aren't for every site. "Doing exclusive deals for the sake of doing them is not smart business," said Jocelyn Griffing, director of business development at Deja News, who was recently associate director-media buying, at Modem Media-Poppe Tyson.

PRESSURE TO MAKE MONEY

Sites feel "tremendous pressure to make money," she said. At Deja News, where content is generated via discussion groups, across-the-board exclusive deals are unlikely, but Ms. Griffing won't rule them out. "I can't tell the users `I've done a deal with Compaq, so please refrain from discussing Dell.' "

Contributing: Kate Maddox and Beth Snyder.

Copyright September 1998, Crain Communications Inc.

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