The only place to go is up

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Maybe one day, people in the Internet industry will look back on late May 2001 as when the turnaround began. That's when the site that has done the most effective and profane job of covering the Internet's comeuppance sister site to chronicle some recent good news in an industry that put the "b" in beleaguered.

True, the bar for inclusion in LuckedCompany is set incredibly low, as one recent post by the site's creator illustrates: " just got $21.7 million in financing. Somebody wasn't paying attention." But such news sure beats the endless parade of layoffs and closings that have typified the Internet industry for nearly a year.

The Internet economy has reached rock bottom. And the 12-step program to its revival can't be that far behind, people in the industry reason.

"I think we're pretty close to hitting that point of inflection where things start to bounce back," said Doug McCormick, chairman-CEO of iVillage, which just acquired rival

Mr. McCormick, who was also there for the early days of cable, said the two nascent industries faced similar challenges, with one key difference: The hype that the Internet received, culminating in what he calls "a national plebiscite on whether Internet advertising works."

Perhaps that's why every upbeat prediction about Internet advertising's comeback is decidedly timid. Cautioned Ben Austin, VP-marketing communications for ad solutions provider Comet Systems, "I think the Internet advertising market is at or near the bottom, but I'd caution the optimists in the house that it could be a long trough."


Early indications from the research community support Mr. Austin's view. According to Patrick Keane, a senior analyst with Jupiter Media Metrix, the company in August will revise its earlier U.S. ad spending projection of $7.3 billion for 2001. Though he wouldn't be specific, Mr. Keane said he expects this year to see some "flatness," with a total closer to the $5.3 billion Jupiter reported in 2000 spending.

Pete Petrusky, director of new media at PricewaterhouseCoopers, which calculates the numbers for the Interactive Advertising Bureau, said that anecdotally things have slowed. (The company won't report numbers for the first and second quarters until later in July.) "We don't have any data to support that Web advertising has slowed down at all, but we don't have any data that it picked up," he said.

Despite the massive industry downturn that has dominated headlines thus far this year, the actual spending picture is, well, confusing.

Data from Jupiter's AdRelevance unit for the Internet's top five advertisers-most of them dot-coms-demonstrate that online ad spending didn't stop, although the outlandish growth did. Four of the five upped the number of impressions they bought. Although the numbers don't reflect how much they paid, some of the volume increases were substantial (see chart below).

Certainly, no one expects firmer signs of a rebound until the long, cold summer is over. But at least the flood of layoffs has slowed. For instance, during the first four months of the year, the total amount of layoffs among a dozen large i-shops was almost 4,800. In the last two months, those same 12 firms laid off about 1,000 people, handing out pink slips at less than half the earlier rate.

Meanwhile, Safa Rashtchy, an Internet ad analyst at US Bancorp Piper Jaffray, declared last week that online ad prices were stabilizing and that bellwether Yahoo! would meet or exceed estimates it will earn 1 cent a share in the second quarter on revenue of $180 million. But it shows how far things have fallen that during last year's second quarter, Yahoo! had $270 million in revenue.


If signs of a rebound are there, it's because of two factors: renewed focus on accountability and the continued rise of consumer Internet penetration. "Every year, television has less and less reach," said iVillage's Mr. McCormick.

But as the industry works that angle with advertisers, everyone realizes the game has forever changed. Accountability is what drives most media buys now. "We're no longer in the days of blind media buying," said Scott Schiller, senior VP at Walt Disney Internet Group's Strategic Partnership Marketing Group.

Jupiter's Mr. Keane said traditional advertisers, lacking evidence that online advertising is beneficial, "haven't embraced the Internet quite like everyone had presumed." But consumer penetration and efforts by the industry to build better ad models (see related story on this page) should slowly change that.

Last week, AOL Time Warner's America Online hit the 30 million subscriber mark, even though it has raised subscription rates by 8%. Cable modem growth increased by 178% to 7.2 million people in 2000, according to market research firm IDC. The growth is also compelling among (somewhat) less prominent sites. According to Gary Ryan, general manager of AOL Time Warner-owned, page views on the site increased during the past year from 30 million to 51 million.

Is the near-term bright? No. But the future is-assuming it gets here.

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