The dot-com ad hangover

The post-dot-com era has arrived. At least for the advertising industry.

          The post-dot-com era has arrived. At least for the advertising industry.

          After posting its best year ever in 2000 as an army of would-be dot-com brands spent millions to get in front of consumers, the advertising industry faces dismal prospects in 2001, according to executives gathered in Florida last week for the annual American Association of Advertising Agencies conference. With the economy sputtering, causing traditional advertisers to conserve cash by reining in marketing expenses, and internet companies dead or dying, the mood in the sunny resort town was downright chilly.

          "If we end up flat this year, we'll have a party," says Tom Messner, a partner at Messner Vetere Berger McNamee Schmetterer/Euro RSCG. The comment summed up the sentiments of just about every ad exec at the meeting.

          The gloom is merited, though the gathering was split on whether the recent dip in ad spending is a short-term "cratering" or the beginning of a real ad recession, something that hasn't been seen since 1991. In January, media spending dropped 10.3% – the first monthly decrease since 1992, when the US economy was slogging through its latest recession, according to industry tracker CMR. And like the high-tech and internet sectors, advertising agencies have begun laying off staff.

          "I don't think our business will ever change this much again over a three-year period," says Don Maurer, president and CEO of McKinney & Sliver, which was bought by ad giant Havas on the same day former owner, MarchFirst, declared bankruptcy. "The lesson is that while finances changed a lot of things structurally, the fundamentals of our business – building brands – did not."

          That opinion is widely held. Advertising agencies, like much of the economy, were flush with cash as the economy roared from strength to strength. A seemingly endless population of dot-coms, larded with venture financing or IPO cash, looked for creative teams to craft their images. Magazines were loaded with ads, and prime-time television was full of ads from companies just a year or two old. And there was the new, uncharted field of online advertising.

          Once vogue, the industry is now shunning its banner ads, the ubiquitous blurbs that load on a page before any of the content and annoy viewers with their flashing, blinking text. Few people click on them, advertisers say, and they are largely an impotent method for getting a message out. During one session, a presentation included a slide with the heading "banners suck."

          The collapse of dot-com ad dollars has led many marketers to believe the medium's best hope may be to position it as a direct-marketing vehicle. That would combine the interactivity of the Web with advertising styles consumers are already comfortable with. "We've learned technology does not change everything, especially human motivation," says Brad Brinegar, CEO of Leo Burnett USA, Chicago.

          As tempting as the idea sounds, some say concentrating on effective online advertising makes more economic sense. The top 15 companies specialising in data-driven target marketing had combined revenues of $US1.5 billion in 2000, says Lanny Baker, a media analyst at Salomon Smith Barney's San Francisco office. Yahoo and AOL combined for around $US2.5 billion in ad revenues in 2000.

          "There's been excessive preoccupation with targeting and return on investment," Baker says. "But it turns out that what advertisers want online is the same thing they want offline: large audiences in clean environments where they can display their brands."

          He also fired a warning shot at agencies, noting that online giants such as Yahoo and AOL are increasingly making their own deals both with advertisers and other media properties. "This bus will leave the station with you or without you," Baker says.

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