CAMPAIGN-I: Spotlight on: failing dotcoms - Will this year see the collapse of all but the fittest agencies? The failure of a number of dotcoms has led to some disquiet, Alasdair Reid says

According to a report last week by webmergers.com, there were 210 dotcom failures in 2000. It's worth reflecting on that figure. The initial temptation is to express surprise that the figure is so low. It doesn't really match up to all the hysteria about 'dot bombs' and the new economy meltdown, does it?

According to a report last week by webmergers.com, there were 210 dotcom failures in 2000. It's worth reflecting on that figure. The initial temptation is to express surprise that the figure is so low. It doesn't really match up to all the hysteria about 'dot bombs' and the new economy meltdown, does it?

But we're not talking about piddling little operations here. These aren't bedsit web outfits and quirky fanzine publishing operations - the 210 failures represent the loss of at least 15,000 jobs, which is a significant casualty rate at the vanguard of an economic revolution.

A further breakdown of the yearly figure exposes even worse horror stories.

For instance, 60 per cent of the failures happened in the last quarter and during the months of November and December; the rate was well in advance of one dotcom collapse per day. In December alone, the shutdowns represented a loss of dollars 1.5 billion in investors' cash.

No surprise, then, that the US business pages (only 11 per cent of total closures were European) have been in a gloomy mood. And no surprise to find commentators on both sides of the Atlantic who believe that a continuing dotcom meltdown has fundamental implications for the advertising and media markets. Dotcom fever was very good news for revenues both online and offline last year.

However, do things look particularly bleak for new-media agencies? Or for the new-media departments of old agencies? A diminishing client base will inevitably put a squeeze on the market, won't it?

On the other hand, you could argue that new-media agencies are the purveyors of picks and shovels in a goldrush and will be the last people to suffer as the market succumbs to a dawning realisation that the gold is illusory. After all, companies will not stop building websites just because e-commerce hasn't taken off in the way people predicted.

But there is evidence, surely, that a rationalisation is already underway.

Razorfish laid off 10 per cent of its workforce back in October; 24/7 decided to let 17 per cent of its global workforce go back in November (last week came the development that the whole company is now up for sale in whole or in part); and in December, Agency.com axed a total of 190 jobs globally.

However, Chris Rayner, the managing director of Tribal DDB, cautions against the dangers of talking yourself into a recession. He says: 'Last week the US press was full of stuff about how the good times are over.

My view is more positive. I would say that agencies that have grown organically in line with their clients' business will still have a good year. Many clients are still discovering the benefits of the medium. Where the case for using new media is substantial, that situation is not going to be reversed. From our perspective, clients are seeing the cost efficiencies in investing in relationships with their customers.'

Rayner is not alone in adding that if there are casualties, they may be both inevitable and necessary. The industry will be stronger as a result.

'I am not saying that anyone deserves to lose their job. But after what we saw in the first half of last year, I think it was clear to everyone that there was going to be a shakeout and that it might actually be good for the industry as a whole,' he says.

There could be other trends that strengthen the industry. Many are predicting, for instance, that this could be the year when FMCG advertisers arrive in strength. The medium is becoming more sophisticated and flexible - advertisers are discovering that it can be used for branding campaigns as well as direct-response advertising. But it will take a lot of FMCG money to cure the industry of its incestuous tendencies. According to some estimates, a surprisingly high proportion of banner spend in the UK last year came from 'never-heard-of-it-before.com' web start-ups.

Hugo Drayton, the managing director of Hollinger New Media, says that one thing is sure: everyone will be more focused on value for money. He argues that the prospects for good new-media agencies have never been better. 'Agencies will find that the clients that have survived will be more rigorous and more careful with their resources. But in that respect, agencies will be more necessary than ever. You could argue that the market adjustment was more than overdue.

The underlying figures, though, are positive - Christmas e-commerce revenues in the UK were double those of last year,' he says.

Paul Pilkington, a consultant at PricewaterhouseCoopers, agrees that the long-term prospects for growth in banner is good. But, he argues, there will be winners and losers this year. He says: 'When the goldrush slows down, even the picks and shovels business slows. I think we'll see plenty of new-media agency restructuring this year. There will probably be consolidations - the bringing together of different skill-sets to make a more holistic offering.

'Many new-media agencies have evolved from a design background, but new-media is not just about the design of websites, it's about the whole business strategy. There may have to be a rethink about whether there's room for people just doing the design work. But the picture, as far as banner is concerned, is healthy. We've already seen banner being used more for brand building - I'm sure that will continue this year.'



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