High-techs learn some old rules

Survival: The dot-coms that are still standing are applying basic principles of marketing and business to stay that way.

January 21, 2001|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

The Baltimore offices of Advertising.com look the way you might imagine a dot-com to appear: The walls are red and yellow, the two founders' dogs roam among casually dressed workers and the fourth floor is being turned into a game room - complete with Foosball and Ping-Pong tables.

But Advertising.com, a 2-year-old company that runs advertising campaigns on the Web, is different from many other dot-coms simply because it is still standing. And despite recent layoffs and a decline in the click rate of banner ads, Advertising.com still expects to prosper this year.

Those who follow the industry closely say that when it comes to surviving in the aftermath of the dot-com bubble burst, the requirements in 2001 are the same as for any bricks-and-mortar company: a solid business plan and the capability to earn money.

"What we're really doing is applying the basic, underlying principles of marketing and business that have existed for many years, where some suggested that new rules were being written," said Michael Bronfein, a managing partner at Sterling Venture Partners in the Inner Harbor, a firm that invests in early-stage Internet companies.

New Economy companies are going to have to start behaving like Old Economy companies, Bronfein said. They should also have more realistic expectations for themselves, said attorney Newt Fowler, head of the technology group at the law firm of Venable, Baetjer and Howard.

"I think you'll see dot-coms have to face the hard reality that they're not all going to be IPOs, that many of them are not going to survive," Fowler said.

Matthew K. Work, vice president of Alexa Research, a San Francisco company that tracks and projects Internet traffic with a user panel of more than 500,000 people worldwide, said his company is seeing a trend where about half a percent of all Web sites get about 80 percent of the Web traffic. Those not in the top 50 or 100 sites - a category that's tough to move into - will find it very difficult to succeed, he said.

"In essence, the rich get richer and the poor get poorer," Work said.

More than 210 dot-com companies closed last year, according to Webmergers.com, which is based in San Francisco and follows mergers and acquisitions of Internet companies.

But this year's number will be lower, predicted Tim Miller, president of Webmergers.com. "I think by the end of the first quarter the worst will be over," he said.

John Ferber, co-founder and chief Internet officer for Advertising.com, says his company will prosper in 2001 because it provides value to its clients. Also, it never spends money frivolously and has a strong management team.

But this year has brought major layoffs for the company: On Jan. 4, Advertising.com cut its work force by a quarter, letting go 72 of its 287 employees.

Still, officials at the company contend that their business will survive, and that the staff reduction will strengthen the company's business position for this year and beyond. Chris Doherty, a company spokesman, said Adverting.com will be profitable this year and that the layoffs are "not a signal that we're weak in any way. We're really confident about our balance sheets."

Claudio Marcus, who covers online advertising for a Connecticut-based Internet research firm, the Gartner Group Inc., said layoffs are happening across the industry because investors, once more interested in seeing a larger customer base, now are demanding profitability.

"The layoffs are not necessarily an indication that the markets are going to go away," Marcus said. "In fact, the market is expected to grow."

Experts say the revenue will start coming from brick-and-mortar companies, rather than dot-coms.

The click rate - the percentage of Web-surfers that click on ads to get to advertisers' Web sites - is going down for banner ads. It dropped from between 3 percent and 5 percent in 1996 to 0.5 percent now, according to Laura Mitrovich, who covers interactive marketing for the Yankee Group in Boston. But Mitrovich says click rates are not the only way to measure online advertising.

Advertising.com grew out of a technology that Ferber, 26, was using to run ads on the Internet for an online game he invented while in college. The game wasn't selling, but Internet marketing firms and advertising agencies became interested in the technology.

Ferber's brother, Scott, 31, came on board and they began to build a company that offers its clients online advertising through such forms as e-mail, Web sites and wireless devices.

Using mathematical calculations, Advertising.com's technology can figure out which sites are the best spots for certain ads. The technology plans, places and tracks the advertisements so companies know how effective they are. Marcus, of the Gartner Group, said it is this technology that gives Advertising.com its competitive advantage in the market.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.