Pre-IPO branding essential for Web companies

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In the recent stock frenzy over Internet companies going public, the guiding rule seems to be the bigger the consumer brand, the bigger the success of the initial public offering.

Online community GeoCities, fueled by positive media attention and its consumer community word-of-mouth, blasted onto the stock market two weeks ago at more than double its opening price of $17 per share. Later that same week, Internet ad network 24/7 Media, better known in the Internet industry than in the consumer world, had a smaller, but still successful start with a more than 50% increase over its price of $14 on opening day.

REVENUE TIED TO ADVERTISING

"From the revenue perspective, most of the [Internet company] IPOs are advertising related because their revenue streams are tied to advertising. But the IPOs are also about a ton of marketing to Wall Street," said Evan Neufeld, Jupiter Communications analyst. "It's a volatile market. The window to go out and have a very successful IPO is still open, but it's also still driven by sexy quotes instead of on-the-books revenue."

GeoCities and 24/7 joined a crowd of others who have already gone through similar successes, and while neither can talk about marketing strategy because of the federally mandated quiet period, others could.

"One of the great follies of this whole notion is, `If we build it, they will come,' " said Rod Parker, senior VP-marketing and product management at CDnow, which went public in February.

$10 MIL USED FOR MARKETING

About six months before going public, CDnow raised $10 million in a private placement, money that Mr. Parker said it used for a marketing blitz to launch online banner ads in September and a radio campaign in October. It also signed its first e-commerce partnership with Yahoo!. Its total customer base has jumped from 200,000 in August 1997 to more than 600,000 today. Its stock, which opened at $16, as of last week was trading at $13, but has been as high as $39.

"I think building a brand as a strategy becomes even more important on the Internet than it would be in a supermarket situation," where products have a chance of being seen on the shelf, Mr. Parker said.

DoubleClick, the advertising network and software company that also went public in February, continues to sustain a stock price more than double its initial offering.

INSATIABLE APPETITE

Kevin O'Connor, CEO of DoubleClick, attributes part of his company's IPO success to the brand strength it gained through marketing efforts, including trade advertising, and public relations.

"Clearly the stock market has an insatiable appetite for Internet stocks, but it's important to make sure [the financial community] know[s] what your company is about and what you do," he said. "It also depends on your goal. If your goal is to build a company long term, I think you've got to continue to focus marketing on your clients" while recognizing you have new clients, your stockholders.

One of the wildest Internet company opening days belongs to Broadcast.com, the Dallas streaming audio and video company that was known as AudioNet until just before the IPO. Its stock jumped from $18 to a final price of $62.75 on the opening day July 17.

Tina Williamson, VP-marketing for Broadcast.com, which just came out of its quiet period last week, said the company did not spend much money in traditional advertising, but marketing was a key for them. Broadcast.com gets frequent mentions and listings from its distribution partners and co-branding deals. In addition, the company's name change brought media attention just before the IPO.

"We strategically planned our name change to be in sync with the IPO," said Ms. Williamson said. "Before, during and after the IPO, we were written about as `Broadcast.com, formerly known as AudioNet,' so the IPO ended up being a huge branding awareness [initiative] for us."

MORE IN THE OFFING

And while the both the Internet and financial industries may be getting wary of Internet IPOs, there are still more to come. Companies filed and waiting include Web community theglobe.com and grocery service NetGrocer.

Public Internet companies have a commitment to short-term financial success to keep stock prices from falling, but they must also invest for the future, Mr. Neufeld said.

"In order to keep profits up, you have to keep spending a lot of money on marketing and maybe sacrifice the short-term profit. Some sites could be profitable today, but instead of keeping $50 million in revenue, they need to spend $50 million to make sure that 10 years down the road, no one else is viable competition," he said.

Contributing: Patricia Riedman.

Copyright August 1998, Crain Communications Inc.

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