The dotcom Wars Internet start-ups are eschewing online marketing for traditional ads as they compete for a share of the market, Gordon MacMillan writes

By Gordon MacMillan, campaignlive.co.uk, Friday, 10 September 1999 12:00AM

If somebody were to make a billboard for the dot-com age, it would be several hundred feet high and sprawl across Highway 101 in Silicon Valley, reading: 'Welcome to the new gold rush.'

 

If somebody were to make a billboard for the dot-com age, it would be several hundred feet high and sprawl across Highway 101 in Silicon Valley, reading: "Welcome to the new gold rush".

 

In the last month alone, CampaignLive has reported on about 20 companies that had appointed or were about to appoint ad agencies, as internet start-ups move to build their brands.

 

Just pick any subject and you can guarantee there will be at least three internet companies about to launch a service in that sector. Be it fashion, health, music - if it exists, it can be turned into a dotcom company.

 

Once the idea is there and the venture capital finance secured, the race is on to build a brand. It might take a traditional company a year to develop the launch of a product, but this is a fast-moving world and agencies are being appointed and work being rolled out nationally in weeks.

 

It is a case of get famous fast, says Arthur Bijur, executive creative director at Cliff Freeman & Partners, which made a splash at the Cannes Advertising Festival with its Outpost.com work. 'There is so much competition that if they are not successful quickly, if they don't get an agency and if they don't own their territory, they are dead and someone else will own it instead.'

 

The headline writers are growing weary of the subject. Adweek Online ran a story recently, titled: 'Yet another Dot Com tempts agency contenders.'

 

It is becoming something of a joke in the US ad industry - the crux of which is that there are not enough agencies to go around. In San Francisco, just 30 minutes from Silicon Valley, Rich Silverstein, the co-chairman and co-creative director at Goodby Silverstein & Partners, says that the agency is getting about five calls a day from prospective dot-com clients.

 

'Every time the phone rings, you know it will be another dot-com company that wants to launch a campaign in the fourth quarter. There is a client we are speaking to and we told them that if they have to make it by October, we will not do it. They had dollars 50 million to spend and we are saying no,' he says.

 

Linda Wolf, group president for North America at Leo Burnett Chicago, concurs: 'I would say about 50 per cent of the approaches we are receiving are coming from dot-coms. It seems every day there is another brilliant idea.'

 

In less than a year, there has come a realisation that online advertising alone is not enough to build a major internet brand. In the past six months, dot-com companies have begun to search frantically for ad agencies that can help them develop a brand.

 

Early fears that ad agencies would lose out in the new dot-com world as internet companies eschewed traditional advertising in favour of the web seem unfounded as agencies take up the challenge of making and building the reputations of these net companies.

 

Alison Burns, president of Fallon McElligott, New York, is not surprised that the dot-coms have come knocking. She argues: 'It is what we do. They value our expertise in building brands. When conventional advertisers want to expand online, that business goes to interactive specialists. The only real difference is that they want it done quickly.'

 

For proof, look no further than Highway 101. Forget your tiny internet banner ads. Here, the billboard reigns supreme, promoting internet companies of all shapes and sizes.

 

This is where the power of advertising is felt, and there is no closer partnership of technology and advertising than CNET.com. In July, the computer and technology portal announced a dollars 100 million campaign through the San Francisco agency, Citron Haligman Bedcarre.

 

For CNET, the decision to invest so heavily in advertising came after a survey showed that only 4 per cent of CNET's target audience knew about it.

 

The campaign is about opportunity, Annie Williams, the vice-president of marketing at CNET, says: 'With this campaign, we are seizing the opportunity to claim ownership of our category, clarify our offering for the immense audience and become the shorthand for computers and technology, in the same way that ESPN and MTV have become synonymous with sports and music.'

 

Last year in the US, the top 50 internet advertisers spent only dollars 420 million on traditional offline advertising. This year, between January and May, dot-coms increased their adspend by 283 per cent, according to Competitive Media Reporting. The research company, Jupiter Communications, estimates that figure will run into billions of dollars for 1999.

 

Fletcher Research estimates that adspend in the UK by online companies will be about pounds 40 million. In recent weeks, Netscape Online, Amazon, LineOne and Boo have announced multi-million pound campaigns.

 

Evan Rudowski, general manager of Excite UK, estimates that 70 per cent of the company's pounds 10 million marketing budget in 1999 will be spent offline.

 

It has already invested several million pounds on a TV campaign created by Lowe & Partners/SMS, New York.

 

Most recently, M&C Saatchi, which handles the net travel company, Lastminute.com, was appointed by the online bookstore, BOL, part of the German media giant, Bertelsmann, to build the brand globally with an initial UK spend of pounds 6 million to pounds 8 million.

 

For Russ Ackerman, director of marketing at BOL.com, it is a straightforward investment: 'As we get more new entries in the online world every day, the companies that will be successful when the market shakes out will be those who have invested in creating the brand.'

 

BOL is engaged in a battle for dominance in the book market with the net pioneer, Amazon, WH Smith and others, as they fight for market leadership.

 

The fight has been characterised by ferocious price-cutting, with as much as 80 per cent slashed from some best-sellers.

 

But BOL, like others, knows that price-cutting alone is not enough, Nick Hurrell, joint chief executive at M&C Saatchi, argues. 'These companies realise the net is one of the greatest forms of commoditisation there is ever going to be because price comparison is just a click away,' he says, 'and that has a downward effect on price. The crucial issue for brands is to create a brand. We are seeing a proliferation of companies, but they will be reduced to a handful in each category.'

 

It is an old pattern. Everyone wants to be a Coca-Cola, but someone has to be a Pepsi. Beyond that point lies market saturation and, even in these early days, there are signs of online congestion.

 

The music network, Tunes.com, has already delayed its flotation twice.

 

It admitted concern that the appeal of another online music company may have diminished following the initial public offerings of MP3.com, Liquid Audio and Musicmaker.com.

 

This is something that agencies have to consider when dot-coms call. Rob Quish, president of Lowe & Partners, New York, advises a certain amount of caution. 'Everyone is being wooed by talk of big budgets, but agencies have to be discerning in selecting what dot-coms they work with. Some will be a flash in the pan, so you have to be careful for reasons of staffing and workloads. You have to be wary of staffing up,' he says.

 

There are a number of other reasons why some agencies are thinking twice.

 

Stories are circulating Madison Avenue about dot-coms that are more interested in impressing their investors with signs of visibility than building a brand. While others do not seem to understand how the industry works, according to Cindy Gallop, president of Bartle Bogle Hegarty, New York, which recently won Furniture.com.

 

Gallop says: 'If you want to build a brand that is going to endure, then you have to spend time to get it right. A lot of dot-coms are simply not familiar with production timetables. They have this great idea and want to be advertising next week. We know we have to be responsive, but there is a balance.'

 

Cliff Freeman's Bijur admits it is hard to turn away multi-million dollar accounts, but it has to be done. He says: 'We are only in the first wave and not all of these companies will make it. It will be interesting to see what happens if these tens of millions are spent and they aren't effective, as there is no question there will be failures.'

 

And that is the worry - that the dot-com phenomenon will be to the zeros what the South Sea bubble was to the 19th century, as boom turns blindingly quickly to bust.

 

Gordon MacMillan is Campaign's internet editor 

 

PIONEERING COMPANIES AND THEIR ADVERTISING

 

E*TRADE With more than 550,000 customers, the California-based company, E*trade, is the online brokerage behind Charles Schwab's ESchwab and other online share trading services. Customers trade stock via its online services as well as accessing market data and portfolio management services. It launched on to the web in 1996 and went public in 1997. It has since become a powerhouse in the online world. Agency Goodby Silverstein & Partners.

 

YAHOO! Launched in 1994, Yahoo! is one of the oldest and the biggest media properties on the web. It boasts about 33 million visitors each month and has a line-up of 3,800 advertisers. It is also profitable.

Yahoo! has added to its service this year with the acquisitions of GeoCities and broadcast.com. Agency Black Rocket.

 

AMAZON.COM Launching on to the web in 1995, the bookstore, Amazon.com, is one of the internet's pioneers. The company went public in 1997 and, in 1998, expanded into the music, video, toys and electronics business.

 

Amazon.com has also expanded its European reach with the purchase of the online bookseller, Bookpages, in the UK and Telebook in Germany. Agency Foote Cone Belding.

 

EXCITE The internet search engine, Excite, is another online pioneer.

 

Launched by six Stanford University graduates as Architext Software in 1994, the company changed its name to Excite and launched its search engine service on to the web in 1996. Earlier this year, it was acquired by At Home in a deal valued at dollars 7.2 billion. The new comapny is known as Excite@Home. Agency Lowe & Partners/SMS, New York.

 

CYBERIAN OUTPOST Cyberian Outpost, a Connecticut-based company, sells computer hardware, software and peripherals on the internet. This virtual retailer offers more than 130,000 items on its Outpost.com website. It went public in July 1998 and won awards for its TV ad campaign, both at D&AD and at Cannes. Agency Cliff Freeman & Partners.

 

CNET CNET was founded in 1992 to create cable programming on computers and IT. The company launched its first online site in 1995 and, by the end of 1996, had nine sites and more than one million registered members and a flotation behind it. Earlier this year, CNET announced a dollars 100 million advertising campaign in an effort to dominate the technology market. Agency Citron Haligman Bedcarre.

 

Top ten dot-com advertisers on US television

1.      E*trade.com Goodby Silverstein 20.205

2.      CNET.com Citron Haligman Bedcarre 15.128

3.      Monster.com Mullen Wenham Mass 10.530

4.      Ameritrade.com Ogilvy & Mather 9.059

5.      Gmbuypower.com D'Arcy, Los Angeles 7.453

6.      Saturn.com Publicis & Hal Riney 6.188

7.      About.com Margeotes/Fertitta & Partners 5.472

8.      Fidelity.com Gotham of New York 5.195

9.      Ivillage.com Friedland Jacobs Burbank 4.230

10.  Amazon.com Foote Cone Belding 2.996

Source: Nielsen Media Research - Monitor-Plus (1 April to 30 June 1999)

 

THE DOT-COM MILESTONES

 

1960s The forerunner to the internet, Arpanet, is created by the US military as a way of communicating should the US suffer a Soviet nuclear attack.

 

1970s The first e-mail is sent between computers at US universities.

 

1984 The first mass-market online service is launched. Eventually known as Prodigy, it was created out of a partnership between IBM, CBS and Sears. Now defunct, Prodigy was beaten by its US rival, America Online.

 

1989 The British scientist, Tim Berners-Lee, creates the worldwide web, an adjunct to the internet, at CERN, the European Laboratory for Particle Physics in Geneva.

 

1991 The first browser is devised. But it is another two years before Netscape's co-founder, Marc Andreessen, creates the first graphical web browser.

 

1992 Al Gore, Bill Clinton's running-mate in the presidential elections, popularises the term, the 'information superhighway'.

 

1993 Andreessen creates the first popular web browser, Mosaic, which allowed images and text to be seen in the same place, like on the pages of a magazine.

1994 Netscape is born and Andreessen become one of the web's first millionaires.

 

Berners-Lee, by contrast, moved to the Massachusetts Institute of Technology to labour quietly in the background. Yahoo! is founded and Hotwired begins to run the first banner advertising. Campaign launches its Interactive section.

 

1995 Amazon.com launches on to the net. In the UK, BT begins its first interactive television trials. Chiat Day creates the UK's first major consumer brand commercials on CD-Rom for First Direct.

 

1996 Lowe Howard-Spink teams up with The Guardian to create a pounds 300,000 multi-lingual website for General Motors' sponsorship of the Euro '96 football tournament - www.eurosoccer.com.

 

1997 Amazon.com floats at dollars 18-a-share and by the year-end has reached dollars 59. The US government begins an anti-trust case against Microsoft.

 

1998 Procter & Gamble hosts the Fast (future of advertising stakeholders) Forward summit in the US where like-minded fmcg advertisers come to talk about the internet and advertising.

BT acquires 50 per cent in Excite UK and, in September, Freeserve launches. 1999 Freeserve floats in London and New York. Its shares make spectacular gains, rising to 237p. They settle down at 200p. In the US, internet stocks go into freefall with Yahoo! and AOL cut in half and Amazon.com down 60 per cent.

 

 

This article was first published on campaignlive.co.uk

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