Dot.Comedy of Errors: E-Suckers Fleeced by Madison Avenue

Internet companies, whatever their strengths, make lousy mass-marketers.

Turn on the television these days, whether it’s South Park or Monday Night Football , and you face death by dot-com advertising. Each commercial break is a barrage of indecipherable spots introducing obscure Internet companies that provide indeterminable services.

There’s Donald Trump with clay all over his suit, leering at some woman’s cleavage, and there’s Norman Mailer reciting his theory of reincarnation, a fat man in a tank top sticking magnets on his head, a hand puppet singing “What goes up, must come down,” the no-longer-Bionic Man wheezing into a video store and a muscle-bound trampolinist massaging his sugar-mommy’s bunions.

What is being advertised in these spots? It is hard to tell–or at least hard to remember. On that level they do not work. But their message is loud and clear: the dot-coms are desperate and don’t seem to mind that they are getting fleeced by Madison Avenue and its old friends in the old media.

“It’s absolutely a wonderful time to be in advertising,” said Tom Bernardin, president of Bozell New York, giddy after the agency landed the $80 million Datek Online account. “I’ve been in the business for 25 years, and I can’t recall it ever being quite like this.”

The great dot-com advertising rush–made up mostly of low-level startups with, say, 50 employees and $30 million in venture capital–is basically a quest for mindshare. The dot-coms need to fatten up their financials in the fourth quarter or else they will vanish. Christmas is coming, and with it a chance to show that they can actually attract customers and sell things. If they fail to make a splash, only a few will make it to the spring. It is an arms race, comprised of dozens of tiny new republics.

The dot-coms are attempting to establish their brands in a field that has become hopelessly crowded with aspiring Web sites. They are all frantic to rise above the white noise created by their own frantic attempts to rise above the white noise. The Internet allows for an infinite number of aspirants, but the marketplace is made up of a finite number of customers–and a finite number of ways to reach them.

So the dot-coms are turning to advertising agencies and brand consultants in droves, pushing account billings to new highs. According to Adweek , total account billings through October amounted to a record $10.3 billion, of which dot-coms awarded $3 billion worth of business. In the same period in 1998, total billings were $6.3 billion, of which Internet companies accounted for just $200 million. The dot-coms are the new suckers, pouring dumb money into the coffers of their putative rivals in the old media–radio, print, television, outdoor. They don’t have marketing strategy; they have cash. The agencies and the media outlets are happy to oblige them.

“I have heard through the Internet grapevine that when radio sales people hear dot-com attached to a company’s name, they double the price,” said Jonathan Greenberg, chief executive of Gist Communications, which puts television listings on the Web. Mr. Greenberg doesn’t plan to make any ad buys until after New Year’s, when his company will launch a $10 million on-line, outdoor, radio and television campaign. “There is a feeding frenzy taking place among the sellers of broadcast advertising. I’m glad that I am not in this fourth quarter e-commerce rush, because if I was, we would have to pay the dot-com premium. I don’t want to buy $10 million worth of advertising as a dot-com and get the same thing a non-dot-com would get at $5 million.”

“Oh, it’s huge!” said Cleve Langton, director of business development for DDB Worldwide. “It’s like the agency business was 30 years ago. The clients are saying, ‘Look, we don’t have a marketing department. We need you to be the brand steward. We need you to create the brand, identify the positioning and build awareness and then drive traffic to the site and maintain that.'”

And they’re willing to spend whatever it takes. Mr. Langton said that out of the $1 billion worth of new business DDB has won this year, close to $200 million is dot-com accounts, around $150 million of that coming in the third quarter alone. “The dot-com founder or the dot-com marketing team will come to us and say, ‘We think we want to spend $15 million,'” Mr. Langton said. “And the venture capitalist will come back and say, ‘You’re being unrealistic, you need to double that budget.’ So when we actually write the plan, they’re actually spending $30 or $40 million because of the V.C.’s assessment.”

“The dot-coms are kind of setting their own pricing,” said Cindy Clements, the head of local affiliate buying at TBWA-Chiat-Day North America. “They’re buying very last-minute, and they’re paying very high premiums. But they have the cash.”

So now the smart money is forced to sit out. “It makes my work more difficult placing time for my regular advertisers,” Ms. Clements said. “It’s the tried-and-true advertisers that are being pre-empted or being forced to pay higher rates just to hold their spot in place. Some stations don’t pre-empt, but some stations are obviously going to take the business if they get double the rates for it.”

But eventually the tried-and-true will find a way back in. The dot-coms whose advertising fails to attract consumers will find they don’t have as much cash to play with.

“We think there is definitely going to be a shakeout at the end of the fourth quarter,” said Kozmo.com chief executive Joseph Park. “You’re going to see a lot of dot-com companies who have blown all their money on advertising and didn’t win in the fourth-quarter Christmas wars, and they’re going to be in financial trouble in the first half of next year.”

Bigger Balls

Lean and nimble, the Internet companies are unencumbered by bureaucracy or concern for the bottom line. They don’t have to spend months crafting marketing campaigns or haggling with their own finance departments over the allocation of advertising dollars. So they have nothing to stop them from making rash decisions–like spending most of their marketing budget on one 30-second Super Bowl ad.

“Typically when you work with a larger, more established brand, you’re working with a career advertising manager somewhere, and he’s a corporate guy,” said Edward Boches, executive creative director for Mullen, an advertising firm in Wenham, Mass., that created ads for Monster.com, Cozone.com and Oxygen Media, among others. “Obviously, he wants his work to be great, but he’s also got to think about his internal constituencies: What’s the sales force gonna think? What’s his boss gonna think? So that person is almost forced to be a little bit more cautious because he’s trying to also keep his job and survive and prosper inside a company.

“In these younger companies, more often than not ad agencies are working with the top guy. They’re working with the boss, the founder. Those people are by definition entrepreneurs. And what does that mean? They got bigger balls. They’re more courageous. They’re risk-takers. And so they’ll do more aggressive advertising.”

Aggressive in advertising means expensive . It means booking the most coveted time in television. Leslie Winthrop, managing partner of agency search consultants AAR-Bob Wolf Partners, said people in advertising have begun to refer to the Super Bowl as the Dot-Com Bowl. “Who else wants to pay the Super Bowl prices?” she said.

Most well-established advertisers buy their fall ad space in the “up-front market” the previous spring, when networks are willing to sell at a discount. Last spring, some of the dot-coms that are advertising now were just business plans in a venture capitalist’s briefcase. So the new dot-coms eager to ramp up for Christmas are stuck buying in what’s called the “scatter market.” As a result, they are paying a lot more than the AT&T Corporation or the Ford Motor Corporation would have in the spring.

Thanks to the dot-coms, the networks are booked solid for November and December. “The fourth quarter has essentially sold out,” said Dana McClintock, a spokesman for CBS Corporation. Nonetheless, if a dot-com with fat pockets wants to get on bad enough, Mr. McClintock hinted that they can still buy air time–for the right price. “If somebody walks in and offers $20 million for a 30-second spot, will we do it?” he said. “I mean, put yourself in the business person’s shoes.”

Interbrand Group, a consulting firm that helps companies find themselves, is lining up dot-com clients left and right. John Grace, Interbrand’s executive director, said, “Ten years ago when I called on a V.C. and asked what hot companies do you have and who can we help position, they’d list out the companies, and then we’d list out our fees, whether it was half a million or a million, to work and figure out where the brand was. They’d laugh us out of the room. Now the V.C.’s are the first in line asking how much can we spend with you to help define our brand? The impact of that is that our fees have gone through the ceiling.”

Mr. Grace added, “We’re actually developing brands for ideas that don’t technologically exist yet. Fifty percent of the people who come to us tell us, ‘Quick! We gotta have a brand because we are going to have an I.P.O. in six months.’ Our answer is No, or, ‘Here’s a really high fee. If you want to pay it we’ll do the best we can do.'” And a lot of them pay up. “They can’t afford not to,” he said, “because they’ve got to do the road show for Wall Street.”

“I would say conservatively in New York and Chicago we are getting eight calls a week from dot-coms, and we are turning down six of them,” said Mr. Langton of DDB. “Out of those six, four are really qualified but for one reason or another they just don’t fit our criteria. We are now in a position to be able to turn down a lot of the e-commerce business. We are approaching it much the way the V.C.’s do, and we do a vitality analysis on all the accounts before we consider taking them on. Due diligence. In a lot of cases, we are requiring payment up front on all third-party costs. We’re requiring that we have guaranteed income, and we’re also checking the business plan and making sure that it’s valid. We’re even going back to the V.C. funding and making sure that the V.C. is valid.”

How to Call a Turkey

But no matter how discriminating they may be, the dot-coms keep coming, one after another, cluttering the airwaves and bus billboards with their inane appeals.

“An agency’s got two jobs,” said Sam Craig, professor of marketing at New York University’s Stern School of Business. “One is to come up with great ads that sell products, and the other is to come up with ads that make the client happy. They may be the same thing, but if you look at the Internet environment and you have a lot of young entrepreneurs, their taste in advertising is quite different. For some of these, they may think they’re cool. The other side of that, they grab your attention but they may not say enough about the brand to get you care about the brand.”

“You have a lot of dot-com companies out there doing crazy antics just to get people’s attention,” said Mr. Park, the kozmo.com chief, whose most recent ad features Lee Majors, the Bionic Man, running errands. “But at the end of the day, those crazy antics are all that people remember. They don’t remember what the company does.”

But the Bionic Man?

“It’s really about educating our customer but trying to keep their attention,” Mr. Park said. “So you’re sucked in because it’s Lee Majors. People haven’t seen Lee Majors or the Bionic Man in ages, but people instantly recognize Lee Majors and as a result they’re tuned in and then watch the commercial, and it’s pretty funny.” Maybe the first time. In a vacuum.

Even though flooz.com now runs an ad in which Whoopi Goldberg menaces befuddled shoppers, Robert Levitan, Flooz.com’s chief executive, is quick to criticize similar ads for cozone.com, a site that provides information about how to use computers. Cozone’s ads, created by Mullen, feature Donald Trump, Dr. Joyce Brothers and David Robinson trying to craft pottery, call turkeys and make quilts.

“You just forget the company,” said Mr. Levitan. “It’s just about the Donald and his women.”

Mr. Boches, Mullen’s executive creative director, said that in the Cozone ads they were trying to show people metaphorically that it is O.K. if they don’t know how to use a computer. “We are giving people permission to admit that they’re not supposed to be good at everything, even if they’re

really, really good at something else. If Donald Trump, Mr. Master of the Universe, can have flaws or have something he isn’t good at, then certainly you, Mr. Decorator setting up your small interior decorating firm, there’s no reason for you to be ashamed to not be an expert at something other than decorating. It’s asking consumers to do a little bit of work, but I don’t think it’s too much work.”

Indeed, a little work helps the customer engage with the product, Mr. Boches said. “Consumers consume brands and they also consume products, but I think people also decide to consume advertising. If you have any kind of sensibility for popular culture, I bet you wouldn’t buy stuff or use stuff if it had offensive advertising, or had advertising that didn’t amuse you or that didn’t make you feel as if I’m in on the joke kind of thing.”

But Mr. Boches acknowledged that being in on the joke was not enough. The builders of these new brands don’t have time for that. They need the eyeballs now.

Mr. Boches said, “We broke an ad for Northern Light [a search engine] and got an e-mail from the president of the company the next day saying, ‘Hey, these many people hit our site or these many people didn’t hit our site.’ For us, it’s like, holy shit, the reaction is there in 24 hours.

“With typical brand advertising–ads for Budweiser or ads for Nike or even a car–you’re not expected to buy the beer the next day. You’re expected to start to feel good about the brand so that the next time you are purchasing something in that category maybe I have you at least considering this brand. With dot-com advertising, we want you to sign on to the damn site tonight, or tomorrow morning or the next day at the latest, because we need you to do that because there is no other option. Somehow I have to get you to remember a brand-new name you’ve never heard of, in the midst of an environment where there’s a new one coming at you every 15 minutes.”

It’s a tall order, but one he is happy to take on, if the price is right.