LEARNING THE DOTCOM LESSONS: After a spate of dotbombs, investment in the net is down. Camilla Palmer looks at the implications for ad agencies

Last year was a roller-coaster ride for the dotcom sector. After reaching a skyward high in January and February, the track began to bank sharply by spring and continued to plunge, resulting in the destruction of some of its key brands in time for Christmas.

Last year was a roller-coaster ride for the dotcom sector. After reaching a skyward high in January and February, the track began to bank sharply by spring and continued to plunge, resulting in the destruction of some of its key brands in time for Christmas.

No more Letsbuyit.com. Adieu to Breathe.com. Bye-byes to ClickMango and Boxman.

This time last year, agencies were falling over themselves to clinch accounts from companies such as these. Dotcom was sexy, it was booming, and the entrepreneurial spirit of those running them rubbed off on the creative campaigns produced.

Most agencies new-business heads were dealing with hundreds of potential new clients in the first six months, helping start-ups to spend their first round of investors' money on campaigns to get them talked about and a better chance of getting them more cash. Judy Mitcham, the new-business director at M&C Saatchi, claims her phone 'did not stop ringing'. So are agencies as keen this year? The answer is no.

Of course, investor cooling has been the main cause behind the slow-down in internet advertising spend. But many doubt that the scramble to bag dotcom clients seen last year will continue.

Last September, Saatchi & Saatchi scrapped it out against Leagas Delaney and Duckworth Finn Grubb Waters for the pounds 5 million account for Abcaz.com, a consumer pricing and search engine.

After the initial fanfare, the site launch has been delayed by almost six months and there is no sign of any ads. Saatchis thinks it is unlikely to become embroiled in such a race this year.

Agencies have also been stung by the ill-health of the sector. Fallon found out the hard way when its campaign for the internet banking service First-e was pulled at the last minute. The account was worth pounds 10 million, and Fallon was already the second agency to have worked on it after J. Walter Thompson won it the previous year.

Fallon's managing partner, Robert Senior, says the mood within agencies has seen a steep change in the past months: 'We are far more circumspect of the ideas which internet start-ups bring to us. But in turn, the number of those turning up - we saw 70 within six months last year - is decreasing rapidly.'

He says he does not relish turning down dotcom business, but stresses that checking credentials and assessing whether it would survive was more important than ever.

Lowe Lintas managed to safeguard itself against possible financial loss when it won Priceline.com's UK account in September. The pounds 600,000 upfront payment it demanded turned out to be a shrewd move. When Lowe won the business, Priceline.com was a dotcom darling, forging ahead in the US and rolling out all over Europe. Now, it is attempting to fight a falling share price, cutting back on expansion plans and has been forced to shed top management.

Caution is clearly key, and looking closely at the foundations of the dotcom business in question is a shrewd first step. HHCL & Partners' chief executive, Robin Azis, says he will continue to look at ideas from companies with the right backing, after the success of the agency's advertising for the online bank Egg. He claims that the bank's success is in some part down to the brand's quirky advertising, but admits that it may have been an altogether different story had the internet venture not come from a proven bricks and mortar business.

'The plain fact is that adequately backed companies are a safer option for agencies,' he says. He claims 17 per cent of the agency's billings last year came from dotcom advertising.

So agencies are demanding better credentials from possible dotcom clients who come to them with ideas for above-the-line campaigns. It's no longer enough to have a market capitalisation of pounds 500 million on tiny sales and no profit such as Lastminute.com.

While venture capitalists queued up to fund start-ups in the early part of 2000, the mood changed in March. By May, Boo.com, the online clothes retailer which spent pounds 80 million on advertising and marketing, was leaking so much cash it was forced to close down.

Some agencies decided to get in on the action by taking equity stakes in their dotcom clients. It was assumed to be a safe deal that, lacking cash, the start-ups would be able to pay for their cash in share options - something St Luke's did with the smartgroups.com communications website.

St Luke's invested pounds 200,000 into the company, saying it wanted to take a long-term view and claims to have made over pounds 100,000 on the deal. The chief operating officer, Neil Thomson, said he would definitely invest in an internet start-up again, but only if the business plan was sound.

Others, though, have remained wary. Duckworth Finn Grubb Waters' chief executive, Michael Finn, said that owning shares was never an option when the agency had talked to dotcoms looking for advertisin. However, down-payment on intitial fees was.

CDP's managing director, Simon Myers, says the agency will continue to be wary of taking on any account not backed by an established and profitable company. Its decision to take on the online recruitment company Totaljobs was based on the solid financial background of its parent company Reed Elsivier.

'High adspends for unbacked brands, ie those relying purely on cash from investment houses, will be unheard of this year,' he predicts. 'There are more bombs to come, and the last thing any agency wants is for its client to go belly-up - people will be more careful.'

Agencies are also falling foul of poorly thought-out business plans from clients who, forced to weigh up between high-profile, short-term branding campaigns and long-term strategic ads, have chosen the former.

Azis claims that this has created confusion within creative departments.

'To a certain extent, the advertising community has been hoodwinked by dotcoms. The most important element of an ad is to convey a message to consumers. If it fails to do this - where's the value?' Azis asks. 'The recent internet service provider casualty Breathe.com's campaign was pretty, but it failed on all levels. It did not help the company get more cash or build the brand - consumers did not know what the company actually did,' he adds.

This is fiercely denied by the campaign's art director, Paul Briginshaw, who claims the ads fulfilled the client brief. 'They asked us to create a brand for 18- to 30-year-olds. We did that.'

Boo.com's campaign is widely heralded as a lesson in how not to advertise an internet company. Like Breathe.com, it relied upon the target audience's love of and fascination with the obscure and underground in an attempt to persuade them to buy. Unfortunately, the core element of the business plan - aiming at a tiny minority of consumers - does not guarantee big sales.

But internet business does not always play by the rules. Mother's poster and press ads for Boxman.com, the music site, were based on a simple statement: 'What Boxman says, Boxman does.' Similarly, Letsbuyit.com's campaign from Abbott Mead Vickers BBDO concentrated on communicating its core offer - the more customers, the lower the price - only to find its well-established brand image struggling for further funding in December.

By contrast, Letsbuyit.com's message reinforced the company's dominant market position and its agency, M&C Saatchi, says that the creative strength of the campaign has undoubtedly brought in new business.

It is unfair to blame a brand's advertising solely for its demise. But when a campaign fails to engage consumers or deliver a message that they can understand, it is a huge contributory factor. Take this coupled with a flimsy business plan, and it spells disaster, as agencies singed by last year's dotcom rocket can testify.




Agency HHCL & Partners

Adspend pounds 5 million

Ad strategy Relying heavily on Amazon's existing reputation, the ads - though hardly award-winning - sought to get new users by focussing on an elderly consumer in a remote location

Results Two million customers now using the site



Agency Saatchi & Saatchi

Adspend pounds 4.5 million

Ad strategy Ads were irreverant and aimed specifically at the young jobseeker

Results 70 million page impressions in 2000 and 350,000 registered users



Agency HHCL & Partners

Adspend pounds 13 million

Ad strategy Quirky ads designed to set the brand apart from its competitors on the web and the high street

Results 1.4 million UK customers



Agency CDP

Adspend pounds 2.5 million

Ad strategy High penetration fully integrated ads designed to position the brand above the rest in the highly competitive online recruitment sector

Results Approximately five million registered unique users each year



Agency Mortimer Whittaker O'Sullivan

Adspend pounds 17.5 million

Ad strategy Front-woman Connie was designed to educate and 'enable' consumers about the ISP - naff, but it worked

Results AOL services now reach over five million homes



Agency Miles Calcraft Briginshaw Duffy

Adspend pounds 4 million

Ad strategy Highlight the brand to the target audience - but it wasn't enough to save its failed business plan

Results 600,000 registered customers, but the company was sold for pounds 1.4 million to Great Universal Stores this month after running out of funds



Agency BMP DDB

Adspend The company famously frittered pounds 80 million of investors money in the first year

Ad strategy Striking images designed to target style-conscious shoppers

Results Site forced to close after funding ran out



Agency M&C Saatchi

Adspend pounds 5 million

Ad strategy A series of poster ads using real people and building on the high awareness of the Lastminute brand

Results Despite falling share prices, traffic to the site remains healthy with three million customers.