MARKET FOCUS INTERNET PR: Is the feast over for dot-com PR? - Agencies that once enjoyed the hi-tech bounty seem to have survived April's market correction. And, as Peter Brennan reports, lessons have been learned.

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Effective June 27, 2000, BBQ.COM begins its vacation. Feel free to browse and read our contents (Recipes, BBQ Community, and TIPS), but the store is closed!... Now go out and grill.

Effective June 27, 2000, BBQ.COM begins its vacation. Feel free to browse and read our contents (Recipes, BBQ Community, and TIPS), but the store is closed!... Now go out and grill.

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The party is also over for many PR agencies in the hi-tech world. Almost every hi-tech firm took a hit in one form or another as a result of the spring correction in the US stock markets for dot-coms. 'When you read about a dot-com failure, there's a PR agency getting shafted,' says Mark Coker, president of Dovetail Public Relations of Los Gatos, CA.

At the same time, these agencies seem to have survived the experience fairly intact. For one thing, they say the market turnabout isn't affecting their billings because public relations budgets don't get cut as quickly as advertising budgets. 'You can spend a day working, bill a client dollars 1,500 and get them a couple million dollars worth of value,' says Coker. 'The cost is nothing compared to advertising.'

'When money's tight, adds Pam Alexander at Alexander Ogilvy, 'our experience has been that PR budgets become more critical than ever.'

'Ad budgets have tanked,' adds a third agency CEO. 'But while no one wants to come and admit it, the PR budgets are often intact.'

The April correction caused the Nasdaq to lose a third of its valuation.

Some say there was way too much dot-com hype and it was time for such a downturn. Internet companies so lost their luster that many are dropping the 'dot-com' - a suffix that used to mean riches -from their names. The dot-com caboose now implies instability and sometimes even failure - which is why ShopNow.com is now Network Commerce Inc., The Brain.com is The Brain Technologies Corp., and VarsityBooks.com is Varsity Group Inc.

How bad was it? Just look at the ticker. Some agencies saw the stock prices of the companies they represent - or represented - fall by as much as 95%. For example, Blanc & Otus had DrKoop.com, which once reached dollars 44 and is now around dollars 1. (The famous doctor got on the cover of The Industry Standard, but the headline was nothing to put in a portfolio: 'Good doctor, bad businessman.')

Niehaus Ryan Wong had PlanetRx.com, down to less than a buck after a high of dollars 36. Trylon Communications and now Fleishman-Hillard have taken on Drugstore.com, which once was at dollars 70 and is now at about dollars 6. Garden.com was smelling the roses when its IPO opened near dollars 24; it was last seen among the hedges, with a price below dollars 2.

'We had three clients where funding withered and dried,' says Donovan Neale-May, owner and president of the Palo Alto, CA-based Neale-May & Partners. 'I'm sure everybody took a hit in one form or another. It certainly has impacted the overall business.'

Still others are facing bankruptcy. For example, Porter Novelli client Value America - whose share price at one time was valued at dollars 54 - filed for Chapter 11 bankruptcy in mid-August. London-based e-tailer Boo.com, once represented by Connors Communications, also went under. APBNews.com, which wrote about the justice system, is about to find out about it first hand since it declared bankruptcy in July.

For the agencies in the middle of the frenzy, it was quite a ride. They saw 20-somethings with great ideas but vague notions of how to pull them off. 'There were a lot of people happy to see this happen,' adds Coker.

'There's a lot of resentment across the country at 20-something multimillionaires.

It's bred a short-term mentality where people weren't thinking about business models, but about IPO models. The investors finally got smart and started scrutinizing some of the fundamentals of these businesses. I think it's good to clear out the irrational exuberance.'

The agency chiefs say they saw a correction coming around the turn of the year. Kay Hart, Burson-Marsteller's acting chair for its tech practice, says, 'When you get to your 15th pet.com company, it's clear that a correction is coming. It did feel as though the nirvana of that particular market would come to end someday.'

When the spring correction began, many agencies took their lumps. AltaVista laid off 50 employees and said sayonara to Copithorne & Bellows (and Porter Novelli). Neale-May says that when the assets of one e-tailer client were sold to another company, his agency was forced to accept 25 cents to the dollar on what it was owed. 'The site had great technology but it had development delays. We were just about ready to launch them (for an IPO) when the major investors tanked.'

'PetPlace went dark because of the money situation,' says Steven Cody, managing partner of New York's PepperCom, referring to one of PepperCom's former clients. 'We had others that went under because they didn't get second-round funding.'

The PR agencies in the hi-tech world are otherwise picking up the pieces.

They look a bit more worn and wiser, but by initial appearances, the agencies seem to have weathered this storm.

That's because rather than just sit there and take it when the dot-coms became dot-gones, the agencies reacted. For example, in the first quarter of this year, PepperCom started demanding payments a month up front (now raised to two months). Dovetail avoided using retainers; instead, it set up its clients with a monthly budget from dollars 20,000 to dollars 30,000 and didn't do any work beyond that.

Pardon me, what's your P2P?

The situation has made PR agencies much more wary. Any company relying on ad revenue to survive is considered a goner. Some agency heads say they're avoiding the 'flippers' - those companies being built merely to go public and score a quick profit. The agencies are also looking at the P2P - the path to profitability.

'P2P is the new rallying cry,' says Cody. 'That's the number one tire-kicking issue. The first thing we've done since the correction is say, 'Show us the path to profitability.' There's much less of this 'master of the universe' type of ego.'

One major shift is a stampede out of the business-to-consumer market and into the business-to-business arena, considered to be more stable.

'Try to find anyone who says they're in the consumer business - they won't admit to it,' jokes Bob Angus, president and managing partner of A&R Partners, New York.

B-to-c dot-coms were not considered good bets, and for many reasons.

Says Cody, 'Words do not describe it. There were 23- and 24-year-olds from Stanford or Wharton who would guarantee it to be the greatest thing since sliced bread. They paid the high fees, but they wanted our staff to work 24/7 as well.'

Maura FitzGerald, owner and CEO of FitzGerald Communications, says her agency resigned only one client. 'But it wasn't because they didn't have money. It was because of how they treated our staff.'

'We're now helping many bricks and mortar companies to convert and adapt to the Internet economy,' says Fleishman-Hillard CEO John Graham. 'These are stable, solid companies.

They're not going to go out of business overnight.'

'They were typically the most challenging and the most demanding clients,' says Neale-May. 'There wasn't a huge barrier to entry. So from our standpoint, it was like surfing a wave. We rode the b-to-c; we pulled out and went into b-to-b with 'brick-to-brick' clients.'

Even more than b-to-b, agencies are climbing aboard the infrastructure train; they are concentrating more on companies developing the technologies that make e-business and dot-coms work. These companies are in fiber optics, wireless, storage space, e-commerce applications, interactive television and other areas.

It can't be all bad

One reason the agencies aren't hurt so badly by the dot-com dive is that they are so busy they've been turning down business anyway. The situation might have even been beneficial in terms of recruitment. Over the past few years, the PR agencies lost talent to dot-com start-ups that promised the world in stock options. Now there are reports of anywhere from 5,000 to 10,000 layoffs in the Internet world as a result of the spring correction.

The agency chiefs say they're noticing the difference. Some say they're seeing a trend back toward them and are finding good employees.

Neale-May says that while he's not seeing the PR pros rush back to the agencies, he doesn't feel as much pressure to retain the staff members being lured by stock options. 'They see it's almost better to stay on the agency side where you're working with 30 or 40 companies and you're not locked into one bet,' he explains.

Tony Sapienza, co-chair of Shandwick's technology practice group, says it's still a tight market but he's beginning to notice some benefits from the shake-out and has hired two dozen staff members this year. 'We're hearing about PR pros who have begun to question the start-up promised land - seeing options and opportunities come up short of expectations.'

Whatever downside the PR agencies did experience from the market correction, some observers say they have only themselves to blame. After all, they got tons of credit for the publicity when these dot-coms launched. But none of the PR pros interviewed offered any apologies. 'We've always been in the business of representing companies that are often on the cutting edge, and there are no guarantees that any company will live up to its expectations,' says Sapienza.

Angus says if the PR agencies were guilty, it wasn't the good ones that were doing it. 'The culture of hype may be at an all-time high in Silicon Valley, but the best agencies don't practice this brand of PR,' he comments.

'I think agencies have helped raise awareness for new and, in some cases, untested companies, but I think the news media and most investors are smart enough to separate substance from fluff.'

Other PR pros are quicker to blame the media. FitzGerald says a 'herd mentality' characterized coverage of the emerging Internet economy and its companies. 'Time made Jeff Bezos 'Man of the Year' - that was ridiculous!' she says.

Overall, the agencies took their lumps, but they see the spring correction as a minor blip. The Internet is not going away any time soon, pros observe.

'It's like salmon spawning,' says Neale-May. 'All these companies are going upriver. If you siphon off some water, there's still a lot of salmon.'

WEB WOES: A SELECTION

COMPANY NAME   COMPANY''S PROBLEMS           AGENCY

AltaVista      Layoffs; IPO postponed;

               parent CMGI''s stock tanked   Copithorne & Bellows/Porter

                                            Novelli (former)

APBNews.com    Bankrupt                     Trylon Communications

(former)

Boo.com        Bankrupt                     Connors Communications

                                            (former)

Buy.com        Stock reached dlrs 35

               after Feb. IPO, now around

               dlrs 3                       In-house

CarOrder.com   Cash problems                Miller/Shandwick

Technologies

                                            (former)

CDNow          Stock once over dlrs 30,

               now under dlrs 3             Shore Fire Media

DrKoop.com     Stock once reached

               dlrs 46, now around dlrs 1   Blanc & Otus (former)

Egghead.com    Stock once reached dlrs

               108, now around dlrs 2       In-house

Fogdog.com     Cash problems; stock hit

               high of dlrs 22,

               now at dlrs 1                Fineman Associates

Furniture.com  Layoffs; IPO postponed;

               parent CMGI''s stock tanked   Middleberg & Associates,

Lori

                                            Freed & Associates

Garden.com     Stock had 52-week high of

               dlrs 24, now under dlrs 2    In-house

Healtheon/

WebMD          Stock once at dlrs 94,

               now under dollars 13         Alexander Ogilvy

HomeGrocer.com Lack of cash; bought by

               Webvan                       Waggener Edstrom

Kawama.com     Cash problems, layoffs       NCG Porter Novelli (former)

KBKids.com     Layoffs                      Fleishman-Hillard (former)

Petplace.com   Cash problems                PepperCom (former)

PlanetRx.com   Layoffs; stock reached

               dlrs 36, now under dlrs 1    Niehaus Ryan Wong (former)

Quepasa.com    Cash problems; stock once

               over dlrs 26, now under

               dlrs 1                       PepperCom

Salon.com      Stock once at dlrs 15,

               now about dollars 2          In-house

Streamline.com Cash problems                Gavin Anderson & Co.

TurboLinux     Cash problems                Alexander Ogilvy (former)

Value America  Filed for bankruptcy

               on Aug 11                    Porter Novelli

Stock prices quoted as of the close of Aug. 23, 2000.

Cash problems according to reports by one or more analysts this year.





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