After the crash: Where from here?

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It's easy to explain why many dot-coms crumbled in the past six months. The more difficult soothsaying task is how Web companies will build strong brands in order to survive in the coming years.

To make projections, it's important to understand what already has happened. A July 12 report from Banc of America Securities sums up the dot-com debacle:

"The game many dot-coms were pursuing was a fairly simple one. Spend the majority of your ad budgets on offline media and portal deals to drive brand awareness while simultaneously driving site traffic by acquiring click-through rates as cheaply as possible by buying "low end" commodity online media on the cheap. This methodology helped drive exposure to consumers (and even more important, investors), while at the same time boosting Web-site traffic, which was being utilized as a primary measure of valuation by the broader investment community. We believe this game is over."

So how do dot-coms start a fresh game from here?


Most dot-coms are scrapping older revenue models that relied on banner ads and sponsorships for more reliable revenue generators, such as pay-per-click online ad deals, and old-fashioned concepts such as merchandising and licensing. Dot-com marketing plans are being scrutinized and revamped. (See media package, starting on Page S-36.)

For leading Internet companies such as America Online and Yahoo!, it's business as usual. Both posted stellar earnings last month and seem unflustered at the moment by the shakeout.

Other seasoned dot-coms are busy inventing new ways to push their brands under consumers' noses.

Microsoft Corp.'s Expedia travel service, for instance, in July announced that in addition to its marketing campaign, it would create a chain of Cafes in airports around the U.S. in conjunction with HMSHost, formerly Host Marriott Services.

Expedia, which has a national radio program, is also planning to launch a magazine, Expedia Travels, this fall.


Other survivalist marketing tactics might be gleaned from start-ups fresh from the hatchery-companies that managed to wriggle money from venture capitalists as the stock market for dot-coms crashed around them.

That's essentially what happened to Pete Blackshaw, CEO-founder of, a customer feedback portal, and a former interactive brand manager at Procter & Gamble Co.

PlanetFeedback made its final presentation to VC backers in the spring the day the market began imploding. A few weeks later, it still managed to close a $25 million round of financing, says Mr. Blackshaw, noting that one of his backers is Denis Beausejour, his former mentor who was VP-global marketing at P&G till April when he left to enter a seminary.

PlanetFeedback launched its first ad campaign last month, an estimated $20 million effort, from DDB Worldwide, New York.

"I've pushed on my team to take nothing for granted," says Mr. Blackshaw. "You don't have two years to drive traffic to show results.

"We've really tried to be small, nimble and move fast, but not get sucked into all that misleading conventionalism," he says, referring to the pressure in Silicon Valley to grow companies at exponential speed without a thought to earning a profit.

"I'd say there's a heightened discipline about how marketing is spent and return on investment," Mr. Blackshaw adds. "They might not get a second chance."

Similarly, girls teen site Kibu shopped for financing last fall when the market for business-to-consumer sites was drying up. In February -- weeks before Net stocks imploded -- it closed a $22 million round of financing from backers including former [email protected] Chairman Tom Jermoluk and VC firm Kleiner Perkins Caufield & Byers, where Mr. Jermoluk is now a partner. The site launched in May with an estimated $7 million to $10 million ad campaign from FCB Worldwide, San Francisco.


Knowing that a pure ad-supported content model wouldn't fly with investors, Kibu CEO Judy MacDonald says the company came up with a three-prong business plan to differentiate the site: integrated marketing partnerships, licensing merchandise and a goal of porting Kibu content into print, TV and other media outlets, such as the Kibu Studio, which it recently built in San Francisco to create site content and hold entertainment events.

Licensing and merchandising programs include a deal with Motorola for Kibu-branded pagers, as well as plans for apparel and appliances for teen girls, Ms. MacDonald says. Kibu also is talking with several teen media outlets to develop Kibu magazine and TV brands.

A former brand manager at Hewlett-Packard Co., Ms. MacDonald says she knew building a brand would take at least five years. So she says she made sure to get enough financing and find good retail and other media partners who could help spread the brand name, rather than trying to go it alone.

While offline is important, many marketers will be leveraging online media in the coming year. E-mail, in particular, will be hot, says Mr. Blackshaw, who predicts the medium will grow more sophisticated. He says marketers also will try to tap more viral marketing efforts, those elusive word-of-mouth campaigns fueled by consumers.


"A whole new science will emerge around understanding key influencers," he says of people "who are highly opinionated and tend to tell other people what they think. The Internet is giving disproportionate power to key influencers.

"One of our core beliefs is that consumers are better marketers than marketers themselves," he adds. "Conversely, there will be enormous challenges. How do you manage negative word of mouth?" Marketers must learn "viral sandbagging" to stem negative talk, Mr. Blackshaw says.

Another tactic that's bound to become more prevalent in the next year is partnerships, borrowing on the success of Intel Corp.'s strategy, in which the computer chip marketer spread its brand through PCs bearing the "Intel Inside" logo.

That's just one way fusionOne, a company that synchronizes data between users' PCs and mobile devices, is getting its name out.

It also recently launched an estimated $30 million campaign from San Francisco agencies Black Rocket, which does offline, and SF Interactive, which handles online ads.

Key to fusionOne's marketing plan is more than 70 partnerships with mobile device and computer makers, wireless service providers, and portals, says Don Albert, senior VP, marketing and sales. Unlike Intel, however, no co-op ad dollars will be sent to partners, he says.

FusionOne has signed deals with Hewlett-Packard Co. (in which its service will be bundled on HP computers), Novatel Wireless, Sun Microsystems as well as Web directory InfoSpace. On InfoSpace, an asterisk-like symbol from fusionOne represents addresses in business and consumer directories, for instance, that can be automatically added to a user's database with one click.

"Part of our branding effort is to have people recognize this little jack (its branded asterisk symbol borrowed from the child's game of Jacks) and say 'this is fusionOne; I can connect this to all my devices,' " says Mr. Albert.

FusionOne, which is backed by Nokia, is testing wireless advertising and looking at other revenue streams. For instance, it has a free ad-supported service and a premium paid service.


Some analysts say partnerships will become paramount, especially for young Web brands.

"We've already started seeing this," says Andrew Pierce, VP at Mercer Management Consulting. "Instead of taking 30 seconds on TV to make a name for myself," dot-coms will be courting partners, he says.

"You're also going to see more and more consortium brands. We're seeing this through exchanges in the [business-to-business] world."

He defines consortiums as sites that partner to complement each other's businesses, such as Hotwire, the travel site launching this fall that combines offerings from several major airlines. Dot-coms will "combine resources and then market the hell out of them," says Mr. Pierce.


Marissa Gluck, analyst at Jupiter Communications, says dot-coms must now do more than simply create brand recognition.

"I think the trap a lot of dot-coms fell into is that they thought they could build a brand overnight," she says. "A lot of these dot-coms felt building brand awareness is the ultimate goal -- you also have to build a preference and affinity for your brand. That's difficult; it takes years."

Many dot-coms have failed to back up their brand promises, she notes. "They didn't put energy into the back end, logistics and customer service."

The door may be shut for new companies trying to make a brand for themselves, says Rob Labatt, research director-Internet retail at the Gartner Group.

He asks: Why did Bertelsmann agree last month to buy CDnow for $117 million in cash? His answer: Because the European media giant knows it is easier to take an existing brand, with customers and cash flow, than to create a new online entity from scratch.

Trying to bring a new name to market is "too expensive and it's too risky," Mr. Labatt says.

Venture capitalists would "rather a brand be created as Napster was -- through some incredible viral accident," says Mr. Labatt. "They're not going to spend $100 million on an ad campaign for a new dot-com."

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