ANALYSIS: Dot-Com PR - PR firms not fazed by the dot-com fallout/With headlines screaming about marketing budgets being slashed and the impending demise of several well-known dot-coms, are the PR agencies representing them doomed to suffer the same fate a

Analysts have been predicting a shakeout among dot-coms for months.

Analysts have been predicting a shakeout among dot-coms for months.

Analysts have been predicting a shakeout among dot-coms for

months.



But the recent news that several dot-coms are scrambling to slash

marketing expenses due to a lack of profitability, coupled with a 30%

dive in the NASDAQ since March, indicates that this is happening sooner

than expected.



According to a March 20 Barron’s report, 26 dot-coms will run out of

money within six months, including CDNow, drkoop.com and Peapod.

Forrester Research recently issued a report claiming that within the

next 20 months, most categories of online retailing will only have three

market leaders.



The report went on to claim that CDNow, outpost.com and

barnesandnoble.com ’will struggle’ to grow revenues fast enough to

maintain market share.



The New York Times detailed a litany of e-tailers that have recently cut

back on marketing expenses, such as Beyond.com, BigStar Entertainment

and Value America.





Impatient investors



’What’s happened that’s sort of surprising everyone is that this became

the year that people expected dot-coms to make money, or at least look

like they are,’ says hi-tech PR veteran Ed Niehaus, president and CEO of

Niehaus Ryan Wong. ’So many dot-coms were designed to make money quickly

or have a very patient investment community, but the investment

community became impatient all at once.’



Allen Adamson, managing director of New York-based branding consultancy

Landor Associates, says that a large percentage of the money spent on

dot-com marketing was wasted because companies were not using

advertising to build the brand. ’A lot of dot-coms did not know how to

buy strategic advertising,’ he says. ’They were not buying effective

advertising, they were buying ’Hey, look at me’ advertising or ’Hey,

isn’t this funny,’ advertising. They should have focused on running

their business, not winning advertising awards.’



With advertising budgets being trimmed at a fast and furious rate, it

begs the question - will PR firms remain to help struggling clients

weather the storm, or will they, too, be dumped in a desperate attempt

to cut expenses? Right now at least, PR agencies and clients aren’t in

panic mode.



’If you look at the percentage of money spent on PR vs. advertising,

cutting the PR budget is usually not going to make a difference,’ says

Adamson. ’It’s not the first lifeboat that they let go.’ However, with

fewer marketing communications dollars available, he says, companies

need to justify those expenditures - which raises the old specter of PR

evaluation.



While a recent Red Herring article claims that hi-tech companies are not

getting what they pay for from many PR firms, it suggests that

struggling companies will not look to off-load their agencies to cut

costs. ’Since PR has become so powerful, no company can afford to scrap

a PR strategy because of frustration with agencies,’ writes Kenneth Neil

Cukier.



RLM Public Relations SAE Linda Stephen thinks that the negative press

will only mean a stronger PR push. ’We have so many clients doing

knock-down drag-out PR because they find it’s a good way for them to

spend their budget,’ she says. But how likely is it that a decrease in

advertising will mean more money for PR? ’I don’t know that it

necessarily means more money for PR firms per se,’ says Pam Miller,

president and CEO of the KMC Group, a Seattle-based hi-tech boutique.

’In the short-term, it will not have a big impact. I haven’t seen a real

knee-jerk reaction.’



While several of the dot-coms singled out as having financial troubles

chose to remain mum on their plans for combating the negative press,

Niehaus says that it’s important for those companies to be open with the

press.



’If a company is having trouble, it’s better to pull the Band-Aid off

all at once - announce it and get it over with,’ he says, adding that

successful dot-com companies whose industry sector is struggling should

also practice this openness. ’We encourage clients in sectors that have

had trouble to not be afraid to maintain their voice.’



Value America VP of marketing communications Susan Littleton says that

the company has stepped up efforts to get positive news out to the

press, including its recent partnerships with IBM and Palm. At

Beyond.com, Laura Fulda, director of IR and corporate communications,

says that the company is in stealth mode to see what kind of information

is out there and to try to head off potentially bad press. ’The good

news is that there’s hardly a reporter that doesn’t know us by now, for

better or worse,’ says Fulda.



But there is little a PR team can do when a company is struggling

financially.



’They have to generate revenue pretty quickly, and if they’re not

generating revenue, I don’t know that repairing their image is that

relevant,’ Adamson says.



One phenomenon that seems to be arising is that as consumer-focused

dot-coms struggle, some are scrapping their business plans and

transforming into business-to-business companies. For example,

Beyond.com still continues to offer some business-to-consumer services,

but the focus of the company shifted to business-to-business in

January.



Jerry Swerling, a client/agency matchmaker, cautions that agencies

should be wary of such a move. ’They’re like chameleons, and we’re

seeing more of it,’ he says. ’Any agency worth its salt would want to be

careful about that.’ It’s not only the agencies that seem to be wary,

however.



’When you talk to journalists, they’re very ready to be skeptical of

that shift,’ says Niehaus. ’We’ve turned down prospective new business

that we regard as masquerading as b-to-b.’





Thinning the herd



While agencies insist they have always been careful about who they take

on, it would seem the financial problems dot-coms are experiencing would

make agencies even more gun-shy about taking on new clients. Middleberg

& Associates CEO Don Middleberg admits that the company has been taking

on more traditional companies moving into the dot-com space than

start-ups lately, in part because the traditional companies are expected

to be more financially stable.



Niehaus says that the nature of the new start-ups he is seeing has

changed, and that NRW is getting more requests from business-to-business

dot-coms than business-to-consumer. ’The consumer-oriented ones tend to

either be hopeless and not worth bothering with, or they have a

significant brick-and-mortar part to ensure success,’ says Niehaus.



However, with some agencies getting upwards of 20 new business calls a

day, it seems that a shakeout isn’t going to hurt the bottom line for

most of them. ’Fees sometimes continue to grow and sometimes you end up

not only replacing the client, but replacing it with one that will pay

more or have a better business model,’ says Niehaus. NRW and agencies

like it will remain loyal to a client in trouble - if the bills get paid

on time. At many dot-coms, that’s becoming a big if.



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