DOT-COMS RETHINK FREEWHEELING AD SPENDING

By: Jennifer Owens Ad Agency Execs Tell Their Version



(Mediaweek)Like kids who have
already spent their million-dollar allowances, many dot-com startups
have begun rethinking their spending -specifically their
advertising and marketing spending - as venture dollars dry up.



'We've seen it all over the place,' said Carl Johnson, president and
CEO of TBWA/Chiat/Day in New York, 'not just from current clients, but
from the tone of new business clients.'



Bill Katz, president and co-CEO of BBDO New York, agreed, saying, 'What
I'm finding is yes, the dot-coms are being pressed for more performance
by their venture capitalists; yes, they're being pressed for profit, or
at least to make their numbers - and that is having an effect on
how they spend their marketing dollars.'



Typically, he said, 'more money is being put into direct marketing
because [clients] are convinced and have been convinced that direct
marketing will get them that kind of expediate return, which is
directly in line with what their backers are asking them for.'



But while direct marketing works, Katz cautioned, 'they'll never have a
brand and their long-term success will not be assured.'



While not all agency executives polled by IQ had experienced the
same direct marketing shift, all agreed that marketshare is no longer a
magic money word.



And yet, said David Hernandez, executive creative director at Chicago-

based Quantum Leap, 'the new companies are in a Catch-22 because they
need to capture marketshare and they need to spend money to capture
marketshare but the venture capitalists won't give them money unless
they have some marketshare.'



All of which means that agencies dealing with Internet pure plays have
to be that much more careful in choosing new clients.



'We have to have a real belief that the business model works and not be
blinded by the dollar signs,' said Mike Alexander, director of client
services for Marketing.com, an Overland Park, Kan.-based interactive
agency. 'If it's not a legitimate business model, then great
advertising and promotion is not going to do anything but kill it
faster.'



Said Chiat/Day's Johnson, 'It's no use to an agency to have a quick
flash in the pan. I mean, OK, you get some money in the short term, but
what agencies should want is long-term, enduring relationships with
substantial, growing, real businesses I think with the right
relationship, you've already been rethinking [spending] and you've been
in the position of advising them.'



>From the VC's perspective, said Lance LeMay, a managing partner with
October Capital, Kansas City, Mo.-based VC firm, it's all expense and
it's all being scrutinized more.



'The question is how do you maximize the value of the expense? I don't
want any of my portfolio companies being cheap, but I want them to get
the most out of their money,' said LeMay.



'Marketing and advertising is going to be a major component of any
business plan,' he added, 'but you must spend wisely. If we have a
company that goes under and you have a bunch of Sun servers sitting
around, you can sell those. You can't go back and sell your ads.'