Ad Agencies Used to Chase Free-Spending
Dot-Com Clients,Now, They’re Taking Their Pick
The advertising community was on fire last year.
Dot-com fever was spreading faster than a virus on the Internet. Wide-eyed ad shops were willing to green light just about anything. Everybody was moving at Web speed, breaking all the rules and churning out the next “Instabrand.”
But when many of Internet ventures hit roadblocks on Wall Street this spring, ad agencies had to put the brakes on, even pulling the plug on some companies.
“People were drunk on the dot-coms for a while and now that’s changing,” said Billy Fried, senior vice president and group managing director at Southfield, Mich.-based Doner’s Newport Beach offices. “The trend now is that agencies are more sober; they are just saying no a lot more often than in the past.”
Fried, a former marketing director of Los Angeles magazine, was hired in November to head up Doner’s emerging dot-com roster.
Chasing Dollars
Back then, the advertising community was chasing the dollar and dot-com companies were pulling the string. Heavy-hitters and smaller agencies alike were firing on all fronts, clamoring to take a shot at the latest Internet showdown. The coveted pie-in-the-sky budget usually made headlines. But, in many cases, a few months later, the winning agency was feeling more like a loser.
The good news was Internet companies stipulated a lot of advertising and more creative work for print, TV, radio and outdoor billboards. Traditional companies became more involved in e-marketing and online spending grew.
Doner, which established an OC office here two years ago to serve its $200 million annual Mazda account, was one of the biggest local players. The agency added $125 million in dot-com billings in the past year with the addition of its clients such as Fountain Valley-based PingPong.com Inc., Atlanta-based Autotrader.com, Chicago-based Coolsavings.com Inc. and San Diego’s RealAge.com Inc.
According to Competitive Media Reporting, a New York-based firm that tracks advertising spending, Internet companies spent $3.2 billion last year on traditional media, compared to $650 million in 1998.
Some agencies still are hopeful about the future of doing work for dot-com companies, but they’re now more realistic about taking risks.
DGWB Advertising of Irvine recently was the winner in a review for an estimated $8 million to $10 million account with Creditcards.com in Los Angeles, beating out Asher & Partners of Los Angeles, Dana Foran of San Francisco and Robert Chandler & Partners of Beverly Hills.
But there was a hitch. The Creditcards.com like other dot-coms, ended up putting the brakes on its plans, said Jon Gothold, DGWB’s creative director.
“These dot-com companies tend to have very young aggressive managers running their agency reviews to generate funding,” Gothold said. “They say, ‘We are going to spend this much money’ and they don’t have the horses to back it up and don’t realize they don’t.”
Spending Less
Another DGWB client, LoanWorks.com, had planned to spend $13 million last year. But the company ended up spending just a couple of million, Gothold said. They initially launched big with full-page newspaper advertisements, billboards and even TV spots, but the account has since tapered off, he said.
Other local ad shops such as Bates USA West and FCB Southern California each landed several big dot-com accounts last year including Echobuzz.com and ZCentral.com respectively. Both ultimately fell considerably short of their estimated $10 million ad spending. ZCentral (which the former Bozell Worldwide renamed Zkey) even thumbed its nose at the agency and switched shops claiming FCB didn’t move at “Internet speed.”
In the eyes of the investment community, it’s the ad agencies who have more clout and credibility than some of the dot-com companies who hire them, contends DGWB’s Gothold, who also is co-president of the Orange County Ad Club.
“The dot-com strategy is to get the biggest, best-known agency to sign on, lure them in with stock options and then say to the investment community that the agency is invested and has stock in their company,” he said. “It’s a way for them to generate revenue and it’s all based on someone else’s reputation that they don’t have.”
Bates and FCB were among a group of agencies recently pitching a $13 million to $20 million account for NTN Communications’ Buzztime.com account, but the company chose a smaller shop, 120AC.com in Los Angeles (formerly Think New Ideas), to handle its work.
Paying Up Front
Indeed, the dot-com syndrome has left an indelible mark on the advertising community. Some agencies didn’t want to talk on the record about clients or the industry because they are optimistic about its future. But overall, agencies are far more cautious now. Many are insisting dot-coms pay with cash up front for advertising and are flatly turning down potential deadbeat dot-coms.
“The dot-com industry has done some damage with ad agencies,” said Jeremy Skiver, director of marketing, Bates USA West. “They are going to have to understand that there’s going to be some skepticism because a lot of agencies have been burned. Now agencies are asking for money up front and things they normally wouldn’t ask for because they need to protect themselves. If you are a small agency, you end up losing a lot of money and could end up closing your doors. If you are large, you still lose a lot of money, but it doesn’t hurt as bad.”
The advertising industry is rife with Internet-based companies that have run out of gas, but most shops say it’s imperative that the door remain open for new business.
“We’ve had one or two run out of money,” said Chip Shafer, chief executive of Shafer Advertising in Irvine. “We ended up settling for a lower amount than we wanted to be paid. They all have good intentions, we just need to pick the right business models with investors behind them.”
Shafer’s company created a new separate marketing agency called NeoBrands this year to handle the new technology businesses. The bulk of his new company’s client list consists of business-to-business Internet companies and rather than what he describes as “cash burning e-tailers.”
Steve O’Leary, president, T & O; Group in Irvine, has a fairly long list of Internet companies on his roster including lotteryfever.com, Goto.com, Autobytel.com and realator.com. Together they account for about 15% of his company’s annual $63 million in billings, nearly double what they were a year ago.
Growth Category
“It’s a real growth category,” he said. “They are integrated accounts and seem to use all our services such as public relations, interactive and advertising. Not just one capability.”
But like other agencies, O’Leary has come up with ways to protect his firm.
“We have them go through a screening process and worked out a cash flow system to help them organize their finances,” O’Leary said. “Some of them are inexperienced, young and naive, so we developed a week-by-week payment schedule with cash up front so they know what their commitments are.”
Most agencies agree that there are fewer constraints on creativity for Internet clients, but some Internet clients go too far.
“A lot of dot-coms have given themselves a bad name by advertising for the sake of advertising rather than to advertise and create a brand,” said Jim Harrington, president of FCB Southern California. “We believe that advertising and all communications should focus on building a brand, whether it’s a dot-com or brick-and-mortar business.” n
Taking It All With a Smile
So just how are advertising agencies dealing with the big projections of young Internet companies?
The folks at DGWB Advertising are using humor. DGWB’s Mandi Dossin was asked to speak about the dot-com industry at a conference put on in France last week by AMIN Worldwide, an alliance of more than 65 independent ad shops. The following are excerpts from her speech, which was written by David M. Agrela, a DGWB account supervisor.
What a dot-com says:
“We have to hit the market fast and hard because our competitors are only about six months behind us on this.”
What a dot-com means:
“We want our campaign to launch by this time next week. Is that OK?”
“Our advertising budget is $25 million over the first six months.”
“Our ad budget depends on how much balance we have left on our credit cards.”
What a dot-com says:
“We’re looking for an agency to partner with us and who’s interested in building our company’s long-term investor value.”
What a dot-com means:
“We have no money to pay you right away.”
“We’re planning to compensate our agency with large blocks of pre-IPO stock options.”
“We are not going to have any money to pay you with for a long, long time.”
What a dot-com says:
“Our VC money is due to come through next quarter.”
What a dot-com means:
“In fact, we may never be able to pay you!”
