Dot-com spending in traditional media boomed in the first half of 2000, a new review of measured spending shows. But in what could be a sign of things to come, dot-coms cut offline spending after the spring stock tech wreck. Online ad sellers benefited from changing strategies as dot-coms put more emphasis on Internet advertising.
The dot-com universe -- pure-play Net ventures and Web divisions of traditional companies -- accounted for 6.4% of U.S. measured offline spending in the first half of 2000, up from 1.8% in the first half of '99, according to Competitive Media Reporting.
Dot-coms' share of overall spending on offline media -- such as TV, print and outdoor -- peaked last November at 7.4%, CMR data show.
But technology stocks crashed in the spring, and by June 2000, there was a sign of things pulling back: Dot-coms that month accounted for only 5.8% of offline spending, the lowest figure since dot-com spending took off last fall.
CMR's June 30 data end amid a dot-com period of cost cutting, layoffs and investor skepticism. Both pure-plays and traditional companies recently have pulled back from Web investments, including online and offline ads promoting Internet ventures (AA, Sept. 18). While first-half figures don't fully reflect that harsher environment, the June 2000 results hint at slower spending that could be seen in future CMR data.
$3 BILLION IN OFFLINE ADS
The universe of more than 1,400 dot-coms spent $3.06 billion on offline ads in the first half of 2000, up from $2.36 billion in the second half of '99, according to CMR.
The top 100 dot-com spenders accounted for more than half the dot-com field's offline spending -- $1.72 billion -- in the first half of 2000 (see chart, Page 26). They spent $469.5 million in the first half of 1999 and $1.18 billion in the second half of '99.
These 100 companies' estimated online advertising also increased, from $150.9 million in the first half of 1999 to $190.4 million in the second half of 1999 to $205.7 million in the first half of 2000.
This breakout of 100 companies includes 56 pure-play -- independent -- Net ventures and Internet units of 44 traditional companies.
Overall, the top 100 dot-coms' offline advertising efforts made up 90.2% of their advertising in the first half of 2000, up from 76.5% in the second half of 1999.
Ad Age calculations of month-to-month data reveal that the top 100's offline spending dipped to 87.4% in June 2000, indicating that dot-coms, by the end of the first half -- after the spring market correction -- were beginning to shift marketing budgets to online.
On the top 100 list, pure-plays' offline ad spending peaked in November 1999, when the 56 pure-plays spent $175.9 million, or 95.2% of their total advertising budgets, on offline. In May 2000, that number hovered around $165 million. One month later, however, the pure-plays' offline spending plummeted to $113.8 million, the lowest point since September 1999. The reduction presumably in part reflected spending cuts as dot-coms reacted to the stock crash, which forced many dot-coms to slash expenses as access to capital dried up.
Traditional marketers on the top 100 list jumped into big offline spending for Net units later than the pure-plays. The traditional companies' Net ventures hit their stride in April 2000, when they spent a record $165.7 million on offline advertising.
While pure-plays pioneered big-budget offline campaigns to promote the Net, traditional companies' Net divisions in the second quarter of this year overtook pure-plays as the biggest offline spenders, according to an analysis of the top 100's spending. So the biggest dot-com spenders may no longer be pure-play dot-coms.
Overall, a majority of the top 100 companies -- 60 -- increased their offline spending during both the second half of 1999 and the first half of 2000.
Meanwhile, online spending for the top 100's pure-plays saw strong, consistent growth from January 1999, when they spent $4.8 million on online, to May 2000, when they hit overall online spending of $10.5 million. The number dipped only slightly in June 2000 to $10.4 million. That June figure represented 8.4% of the pure-plays' measured total spending.
Like pure-plays, traditional companies boosted their online spending steadily from January 1999 to June 2000. In fact, the highest spending came in June 2000, when traditional companies on the top 100 list spent $28.9 million, or 19.8%, of their ad budgets, on online advertising to promote their online brands.
The June offline-vs.-online allocations show traditional companies' Net units are far bigger believers in Web advertising than are pure-plays born and bred on the Web.
Dot-coms cluttered the airwaves with TV commercials over the past year, but spending fell sharply at the end of the first half. The dot-com field accounted for a peak of 8% of measured spending on TV -- network, cable, spot, syndicated -- last November, at the height of dot-com holiday spending. By June, dot-coms' share of TV had fallen to 5.4%, its lowest point since the dot-com boom began last fall.
Dot-coms' network TV spending peaked in January 2000, accounting for 8.6% of all network TV spending -- not surprising, given the fact that the dot-com-laced Super Bowl aired in January. By June 2000, that percentage was back down to 5%. That lower figure hints at how dot-coms -- cutting costs and looking for more targeted marketing -- are becoming reluctant to spend heavily on expensive network time.
Cable TV, on the other hand, remained rather stable since peaking in November 1999, when dot-coms accounted for 12% of all advertisers' cable TV spending. During April, May and June 2000, that percentage hovered around 10%.
Cable is a more focused medium that is cheaper and more targeted than network TV, said Michele Slack, an analyst at Jupiter Communications. Because advertising on TV is still a necessary branding vehicle for certain dot-coms, she said, "It makes a lot of sense for them to advertise on the more targeted cable channels." Cable news and financial news channels, for example, are in a good position to carry spots from business-to-business dot-coms trying to reach business users and investors.
Network radio also peaked as an ad medium for dot-coms in November 1999; they accounted for 26.8% of all advertisers' network radio spending that month. Network radio remained a popular ad medium for dot-coms well into the first half of 2000. In June, dot-coms' network radio spending still accounted for nearly 20% of all advertisers' spending on that medium.
Among offline media, dot-coms spent a record high on outdoor advertising in June 2000; their measured outdoor spending accounted for 4.3% of all advertisers' outdoor advertising, indicating that as dot-coms moved into the second half of 2000, outdoor remained a sizzling medium.
The fall in measured offline spending in June 2000 meshes with other evidence, including comments from dot-coms, that spending is coming down. Some researchers, such as Pegasus Research International, predict dot-coms will keep their marketing spending in check as a percentage of revenue (AA, Aug. 7). Still, Jupiter's Ms. Slack said she expects dot-coms to spend heavily as they gear up for the 2000 holiday season.
Unlike last year's fourth quarter, however, when many dot-coms spent exorbitant amounts on network TV and other expensive advertising outlets, "This year dot-coms are going to go for more targeted media," she predicted, because "it tends to be less in terms of out-of-pocket costs."
"It often makes sense to advertise on a number of targeted advertising vehicles," Ms. Slack said, "because there's a higher percentage of people who are your target market who see your message and who are [apt] to respond to it." That makes targeted advertising on cable, online and in niche magazines more cost-efficient, she said.
Ms. Slack argues the top 100 dot-coms ranked by offline spending are not representative of the entire dot-com universe of smaller players, which tend to have more targeted audiences and less money to spend on marketing. The top 100 offer broader-reaching products and services and "also tend to have bigger marketing budgets and can actually start to afford some of the offline media," she said.
"If we had a listing of the bottom 100, you'd see very different results," she said, adding that they'd be putting more emphasis on online advertising.
Ms. Slack is correct on one score: The bottom 100 on CMR's list of more than 1,400 dot-coms aren't big offline spenders, putting just $2.4 million into traditional media in the first half of 2000. That's about enough to buy one dot-com spot on the Super Bowl.