Web Price Index

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TIMES ARE TOUGH. There’s no getting around the budget cuts by marketers, and many Web site developers are hurting. Still, the Internet is not going away as a medium for news, entertainment, commerce, advertising or branding. In fact, some industry observers say business is picking up in a couple of key areas, and both developers and marketers are adjusting to the new economic realities.

How are they adjusting? This iteration of the BtoB Web Price Index examines the hourly rate cards Web site developers use to bill their projects. We set out to determine what factors are influencing Web developers’ pricing and to probe how they keep costs down without seriously compromising their rate cards.

Surprisingly, despite the belt-tightening on the part of marketers—which could conceivably drive developers’ prices down—we find only slight variances in most categories since our last look at the rate cards in 2000.

Data on how much marketers spend on Web development is tough to come by, but other marketing expenditures may provide some insight. According to the Interactive Advertising Bureau, revenues for online advertising totaled $1.55 billion for the first quarter of 2002, down 18% from the first quarter of 2001.

Results from other media were mixed. CMR reported that many media (including magazines, newspapers and cable TV) were down for the quarter, while network TV and spot radio were up. Paul Gunning, managing director of Tribal DDB, Chicago, the interactive division of DDB Worldwide, is hopeful. “Blue-chip brands are starting to come on board,” he said. “When you have the mainstream ad groups as advocates, you tend to have more strength.”

Gunning believes that online advertising is still under-represented in marketers’ budgets, and he hopes that will continue to change. “Eleven percent of media consumption is digital, so [online spending] should be more than [its current] 1%,” he said.

He added that he has seen much more activity in the industry in recent months than in the past year or so.

What kind of work is picking up, and what are the agencies and developers doing? For one thing, they are trying to forge better relationships with, and to tap more business from, existing clients.

There hasn’t been a lot of effort toward attracting new business. “There don’t seem to be many large-scale pitches,” said Jonathan Greene, VP-interactive marketing of Euro RSCG Devon Direct and general manager of its interactive division, Devon Digital. “Most of what we’re seeing is project-oriented business, not agency of record-type pitches.”

But new-business development requires staff that may be more effectively deployed to client work, some agencies believe.

“We would like to be out pitching more new business, but our resources are more limited than we would like,” Gunning said.

Another factor is the way marketers are using their Web sites, and therefore what kinds of work they are seeking from their agencies and developers. In the past, many marketers tried to offer too much information through their Web sites—trying to be a “destination site” like Yahoo!, offering news, directories and search capabilities.

Now they’re looking at their Web sites as a way to complement their brand and build relationships with their customers.

“To be a brand site, you are not going to be the destination site of your entire audience,” Gunning said. “Marketers are keeping the sites up to date, but recognizing that the site is an accessory to the consumer’s life.”

Greene pointed to the experience of one of his clients, Nextel Communications Inc. Rather than trying to generate new customers or create a destination Web site, the company is focusing its efforts on communications with existing customers.

However, Nextel was in an odd position for a cell-phone marketer. It didn’t really know who its customers were. While a large client corporation might have 1,000 employees using Nextel phones, Nextel’s relationship was with someone at the COO or CIO level. Selling that person new add-on services or phone accessories, or interesting them in a newsletter, was not going to tap the full target market.

Working with Devon Digital, Nextel was able to create online resources for the end-users, an effort that is proving to have a “phenomenal” return on investment for a low cost per lead, Greene said.

How does this all affect the rate card? “It’s hard to just lower rates,” Green said. “We still have the same overhead. Price is a key point for clients, but we haven’t really adjusted the card.”

There’s no magic answer, Gunning said. “We’re forced to hold our margins to a level where we can still stay in business.”

Greene added, “Tighter margins are dangerous because it’s hard to maintain profitability. … We’re trying to provide value, not just service.”

Greene and Gunning agreed that customers get what they pay for. Both recognize that price is a factor for their clients, especially these days. But, Gunning pointed out: “You can’t deliver excellence by asking ‘who’s the cheapest?’”

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