SPECIAL REPORT: Dot-coms to spend $7.4 billion in the next year--unless the market goes bust.

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TBWA/Chiat/Day since April has talked with 174 dot-coms, reeling in 13 clients with billings of $290 million.

But just as intriguing is what TBWA rejected. Chief Marketing Officer Laurie Coots says the agency's California and New York offices declined offers to handle "well over 100" dot-coms with proposed billings "close to a half a billion dollars." Akin to an advertising venture capitalist, TBWA weighs every dot-com to try to invest its brand-building talents in sites with a future.

"I've been in new business for 15 years and I've never seen anything like this," says Ms. Coots, whose agency handles such clients as bookseller BN.com and e-tailer Pets.com.

Madison Avenue has gone truly mad--but call it a state of temporary insanity. Signs point to a dot-com shakeout in 2000. Likely prognosis: Hundreds of dubious dot-coms will disappear; dot-com launches will be more select; and the strongest dot-coms will get stronger, with the marketing clout to leave lesser sites in the dust.com.

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Dot-coms and Web-related companies such as online services are shoveling money into advertising as fast as investors shovel it into dot-coms. Dot-com spending in the fourth quarter is expected to hit $2 billion, according to Advertising Age research, as companies court consumers for Christmas and investors for venture capital deals and stock offerings in early 2000.

FIRST AND LAST HURRAH

Spending for calendar 1999 should be between $3 billion and $4 billion, reflecting that much of the money was allocated to the late-year push. Dot-coms are dumping money into advertising at an annual rate of $7.4 billion, heavily weighted in favor of traditional media, according to an Ad Age review of 524 companies in the market.

But for many dot-coms, current campaigns will be the first and last hurrah. Numerous companies--and ad budgets--will evaporate in 2000. It's a good bet that spending will become more rational and disciplined as dot-coms are forced to show some return on investment. Since so much of the dot-com ad boom is driven by lavishly funded new sites, there's a good chance spending during the next year will fall short of projections if predictions of fewer launches come true.

Call it the $7.4 billion boom--or bust. Ms. Coots figures 10% of today's dot-coms will survive.

Eric Roos, partner at San Francisco agency Swirl, is getting 15 calls a week from new dot-coms, but he anticipates dot-com mania will pull back over the next year.

"It does feel like a high-water mark," says Mr. Roos, whose clients include e-book site netLibrary and pet store Petopia.com.

LOOKING TO DIVERSIFY

Dennis Scheyer, president of a San Francisco agency bearing his name, assumes "absolutely 75% of dot-coms will switch agencies next year" and bets only "25% max" of current dot-coms will be around one year from now. With 80% of his billings tied to dot-coms--including EMusic.com and Intuit's Quicken.com--Mr. Scheyer has directed his new-business chief to go after traditional accounts to diversify the roster.

Dot-coms are enriching the ad world. Yet many agency and media executives have a curious love/hate relationship with the category, mocking the advertising creative as sophomoric, mistrusting dot-coms, pointing to the naivete of young dot-com marketers and questioning how long the money will last.

The stereotype of "slimy advertising folks" has been one-upped by "slimy dot-coms," says Mr. Scheyer. He demands 50% cash upfront from dot-coms and says his media buying service, KSL Media in New York, demands cash upfront for dot-com media planning.

BLISSFUL IGNORANCE

At the same time, he says, media properties often demand cash upfront from dot-coms before running ads.

"It's really like the movie studios," says a media director at one New York agency. "You launch a movie and, if it goes well, you have to buy more activity immediately. . . . It's all about coming to market late, changing schedules, canceling schedules. . . . The [dot-com] category's schitzo."

Mr. Scheyer is stunned by the blissful ignorance of some dot-coms.

"One of my clients"--struggling to buy radio time in a sold-out market--"said to me, 'Can't they build more radio stations?' " he recalls. "What do you say to that?"

Even as they play the dot-com game, many agency executives debunk this quarter's sonic boom of soundalike ads for lookalike sites.

Mike Massaro, chief operating officer at Goldberg Moser O'Neill in San Francisco, says he counted 15 dot-com radio spots in his 25-minute drive to work, but could only recall the names of two. The agency's dot-coms include drugstore CVS.com and toy site KBkids.com.

`WHOLE LOT OF NOISE'

Says Brian Hurley, principal at Grant, Scott & Hurley: "I've seen at least three or four different dot-com pet stores. How much dog food do we really need?" The San Francisco agency's clients include cooking site Tavolo and gift site Della.com.

Swirl's Mr. Roos questions how consumers in one quarter can absorb several hundred new dot-com brands--particularly when so many advertisers see shouting as the only way to break through the clutter.

"It's a whole lot of noise," he says. "It may be just the noise that's remembered, not the brand that's being advertised." Swirl has taken a quieter, straightforward approach to get its clients heard.

Much of dot-com advertising uses humor, but the question is whether the punch line gets in the way of the brand or connects with the consumer.

'TAKE THE MONEY AND RUN'

Dot-com ads tend to have "the same Gen X sensibility," says Steve Hayden, who helped popularize the concept of "e-business" as president-worldwide brand services on Ogilvy & Mather Worldwide's IBM Corp. account. "I think that has more to do with the age of the founders than with the sensibility of the audience."

Mr. Hayden predicts the hip spots of fall '99 will give way by spring to a more straightforward, "old-fashioned selling" approach in broadcast ads--running the URL on-screen for most of a commercial in a more direct pitch.

Mr. Scheyer couldn't be more blunt in his assessment of dot-com ads.

"Most of the creative sucks at this point," he says. "[But] it's not the agencies' fault [because] there's no point of difference" among sites in a given category.

Yet Mr. Scheyer will ply his talents even in categories where he sees little room for new players.

"It really is a take-the-money-and-run attitude right now," he says. "If they'll pay upfront and they seem relatively bright, why wouldn't you take advantage of a boom while it's there?" Boom--or bust.

Copyright November 1999, Crain Communications Inc.

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