The fall and rise of b-to-b

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When BtoB was launched in March 2000, the b-to-b marketing industry was in its heyday. Dot-com investing was at its peak, e-hubs were the rage, tech marketing spending was at an all-time high and new-economy publications were sprouting like weeds.

In the five years that followed, the industry turned completely around. First came the stock market crash in April 2000, followed by a global recession and the terrorist attacks in the U.S. in 2001.

Marketers responded by cutting budgets, and advertising was often the first thing to go. Out of necessity, b-to-b companies learned how to be careful with their marketing investments, which ushered in a new corporate culture of scrutiny and accountability was ushered in.

Looking back over the past five years of b-to-b marketing, industry watchers and marketing experts provided perspective on some of the major events and news stories of the day, as well as a look at how b-to-b marketers responded.

B-to-b e-hubs

With its ability to electronically connect buyers and sellers, the Internet spurred the growth of hundreds of e-marketplaces, more commonly known as e-hubs, for b-to-b marketers.

From Covisint, an auto industry exchange founded by General Motors Corp., Ford Motor Co. and Daimler Chrysler that was featured on the cover of the first issue of BtoB, to Trade-Ranger, an oil exchange set up by 14 energy and petrochemical companies, industry-specific e-hubs flourished in the late 1990s and into 2000.

"There was a real need for an intermediary to connect buyers with different procurement systems to lots of different suppliers, and on the sales side, to automate catalogs, purchase orders, shipping and confirmation," said Andrew Bartels, research analyst at Forrester Research.

Electronic marketplaces were also driven by fear of competition, Bartels said. "There was fear by a lot of industrial companies that a new intermediary would stand between them and their customers, and they wanted to control that," he said.

This fear turned out to be unfounded, Bartels said, as most of the independent e-hubs did not survive because the market was simply not there.

"The most likely candidates for exchanges were primarily midsize and small companies," he said. "The large companies ended up integrating with each other, and the midsize companies have been very slow to take up e-commerce."

Most e-hubs shut down, sold off bits and pieces of their business or changed their focus to providing software and services.

Covisint was acquired by software company Compuware Corp. and is now a messaging and data communications service. ExoStar, a partnership of five aerospace and defense companies, now provides secure networking services. VerticalNet, a mega-hub and information resource for a wide range of industries, now provides supply chain management software.

Tech wreck

On Thursday, April 13, 2000, the tech-heavy NASDAQ stock market dropped by 7%. The following day, it plunged an additional 9.7%. The tech wreck had begun. Within a year, the NASDAQ market lost approximately $4 trillion in value.

"The technology bust of 2000 was a major reset for the whole community of technology marketers," said Rich Vancil, VP, CMO Advisory Service, at tech research firm IDC.

"After the bust, tech marketers had to adjust from decades of double-digit growth, during which there was very little scrutiny of marketing spend," Vancil said.

"The global IT market peaked in growth rates in the late '90s and has now shifted to a very modest 5% to 6% rate for the foreseeable future," Vancil said. IDC, which started tracking marketing investment in 2003, found that marketing spending by tech companies was down by 2% in 2003 compared with 2002.

"During late 2002 and through 2003, marketers were still cutting budgets and staff in reaction to the downturn," Vancil said.

While many tech marketers pulled the plug completely on new ad campaigns and major marketing initiatives, some high-tech marketers-including IBM Corp., Microsoft Corp., Hewlett-Packard Co. and Palm Computing-continued to invest in campaigns to strengthen their brands.

HP, for example, launched a high-profile marketing campaign in early 2002 to promote its controversial acquisition of Compaq Computer Corp., and IBM launched its "E-business on Demand" campaign in the midst of the recession.

Another key reaction to the tech crash was more centralization of marketing investment and greater accountability for marketing investments, Vancil said.

"The last few years have significantly reset the marketing agenda and mind-set at most tech companies," he added. "These changes are permanent. Marketing will now always remain under significant pressure to better justify and account for spending and provide better reporting on results."

New-economy pubs

With the boom in technology, and the Internet in particular, many publishers launched new magazines or revamped existing publications to cover industry news and capture ad dollars.

One of the most successful of the so-called "new-economy" magazines during the tech boom was The Industry Standard, which was launched in 1998 by Internet Industry Publishing, a unit of International Data Group, to cover the business of the Internet.

The magazine was wildly successful; between the first quarter of 1999 and the first quarter of 2000, ad pages increased 542%, from 273 to 1,754, according to tracking service Adscope.

However, the publication fell just as quickly as it rose. In February 2001, suffering from a precipitous drop in ad dollars, it laid off 69 employees, about 17% of its total staff, and in August 2001 ceased publication.

Other Internet publications folded in the wake of the dot-com crash.

In 2002, CMP Media shut down Internet Week, which had been renamed from Communications Week in 1997. In 2003, RHC Media pulled the plug on Red Herring as a print publication, and Penton Media shuttered Internet World.

Some new-economy magazines survived, however, including Business 2.0, which was launched in 1998 and subsequently acquired by Fortune Group (in 2001), and Fast Company, which was launched in 1995 and acquired by Gruner + Jahr USA (in 2000).

Reaction to Sept. 11

The events of Sept. 11, 2001, had both short- and long-term effects on the b-to-b marketing industry, which was already well into a slump.

In the immediate wake of the attacks, many marketers pulled or postponed ad campaigns in order to assess the marketing climate and deliver more sensitive messages.

Others revised their marketing strategies, opting for more serious, back-to-business types of ads instead of using humor in campaigns.

One of the most significant long-term effects played out in the trade show business, which was already in decline. With corporate travel budgets being cut, executives wary of travel and heightened security measures in effect, the trade show business took a hit.

As attendance and exhibitor business continued to fall, many trade shows were eventually canceled, including MediaLive International's Comdex, Hannover Fairs USA's CeBIT America, Ziff Davis Media's Business4Site and CMP's TechXNY.

Taking their place were smaller, more targeted events that proved an ability to show marketers a greater return on investment.

Marketing in a recession

Through the recession, b-to-b marketers responded with a variety of strategies, from cost-cutting moves to rolling out new products and brands.

"To survive, companies came out with new products and technologies or extended their brands," said Kevin Arsham, associate director of strategy and b-to-b specialist at media agency OMD. "If no one is buying, you have to create something new."

He pointed to General Electric Co.'s repositioning campaign, created by OMD sibling agency BBDO New York, and FedEx Corp.'s acquisition of Kinko's as new product and brand extensions.

Arsham said many clients turned to digital marketing as a cost-cutting move and tried new media platforms such as webcasting and rich media.

Bill Gray, president of Ogilvy & Mather, New York, said the agency saw business pick up in the small and mid-size business market. "There was a return to the small- and middle-market businesses, which really had products to sell and really had customers," he said.

Gray said several of his clients, such as American Express Open: The Small Business Network, have focused on small-business clients to grow their business.

A look ahead

Now that the economy has turned around, marketers are gradually starting to spend again and are experimenting with new technologies.

But the mood remains cautiously optimistic.

"Ad spending will continue to grow, but the rates will be more modest than they have been in the past," said Steven Fredericks, president-CEO of TNS Media Intelligence.

U.S. ad spending reached $141.1 billion in 2004, up 9.8% over 2003, according to TNS. Fredericks projected ad spending will grow about 5% this year.

"Certain media will see more significant growth, such as the Internet and cable TV," Fredericks said, pointing to the ability of these media to reach targeted audiences.

Gordon Hughes, president-CEO of American Business Media, said two key areas for business publishers going forward will be providing rich data and industry education.

"It's not about ad pages," Hughes said. "It's about marketing and being creative, and bundling the assets of your company."

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