Now as the economy sputters and rate cuts by the Federal Reserve Board become commonplace, the once highflying techs are undergoing massive layoffs and belt-tightening measures, and their ad and marketing programs are under more scrutiny than ever. Companies are ditching unprofitable businesses and product lines, restructuring organizations and revising ad plans, all while trying to revive struggling stock prices.
The latest example: 3Com Corp., which announced last week it would discontinue its "Audrey" Internet appliance and exit the consumer appliance segment. The device was supported by a multimillion-dollar campaign via Interpublic Group of Cos.' Lowe Lintas & Partners, New York, which also created the company's $100 million global brand campaign. Last year, 3Com executives said that budget represented a doubling of ad spending (AA, Oct. 30). But in a recent Securities & Exchange Commission filing, 3Com reported sales and marketing expenses in the quarter ended Dec. 1 decreased $25.5 million, or 10%, compared to the same quarter a year earlier. And that's before 3Com's massive belt-tightening this calendar year.
For some companies, advertising is one of the first expenses cut back when sales slow. In a February SEC filing, Apple Computer reported lower spending on marketing and advertising as its fourth-quarter sales crashed 57%. It recently kicked off a multimillion-dollar campaign, via Omnicom Group's TBWA/Chiat/Day, Playa del Rey, Calif., for iMacs (AA, March 19).
In its February 10-K, Compaq Computer Corp., whose ad spending is expected to be flat or slightly lower this year, reported ad expenses of $370 million, $385 million and $336 million for the years 2000, 1999 and 1998, respectively. Compaq recently announced a reorganization that combined its business and consumer units.
Hewlett-Packard Co. spent $1.1 billion globally on advertising and marketing in fiscal 2000, down from $1.3 billion in 1999. Company executives told Advertising Age they expected a double-digit increase in advertising for the fiscal year beginning Nov. 1, 2000, despite dismal fourth-quarter earnings (AA, Nov. 27).
Tech companies contacted for this story did not return phone calls or respond to e-mail.
Agency account and media executives on notoriously demanding tech accounts said they're not getting much guidance from clients who are closeted in endless budget and planning sessions. However, not all is gloomy in the category. IBM Corp. said it upped ad spending for 2001 about 15% to 17% and recently launched a $210 million global campaign for its software division (AdAge.com, March 19).
STILL ON TRACK
Microsoft Corp. remains on track to spend more than $250 million globally on its "Agility" software campaign, continue its $150 million drive on the MSN Internet portal, spend $50 million on UltimateTV and soon break a major print advertising effort for Windows XP. A multimillion-dollar ad and marketing campaign for Microsoft's Xbox videogame console will debut later this year. Microsoft is "staying the course" in terms of the amount of money spent and the way it is spent among media, according to an agency executive close to the business.
A Microsoft advertising executive earlier this year said the company has focused its ad dollars on three major areas-MSN, WebTV, UltimateTV and other consumer products; the Xbox; and business software. Overall, the executive said, all three areas represent a half-billion dollars in spending in the fiscal year ending June 30. It was unclear how Microsoft's ad budgets will be rejiggered for its next fiscal year, starting July 1.
It's no secret the number of tech ad pages is down, mostly due to the implosion of so many dot-coms. For the first two months of this year, ad pages in the category were down 21%, according to data from the Publishers Information Bureau. Most tech ad executives maintain they're spending for the long haul and won't pare ad budgets.
Well, maybe. "That's a familiar refrain. It usually gets sung until it's time to make a quarter or not make it," said Jim Dougherty advertising analyst at Prudential Securities.
National advertising in the computer category in 2000 hit $4.2 billion, up 73% over 1999, according to Taylor Nelson Sofres' CMR. This year, Mr. Dougherty estimates an increase of roughly 30% in category spending up to $5.4 billion-less than half the increase in category spending seen in 2000. "A lot of what's going on in 2001 is related to the unbelievable comparisons that were set up in 2000," he explained.
Will tech advertising really dry up? "They [tech advertisers] will certainly keep up some pressure, but if there aren't any [products being sold], if that's just not happening, then you'll see a pullback," Mr. Dougherty said.
Contributing: Alice Z. Cuneo