You've probably read about the craziness in the Initial Public Offering (IPO) market with dot com stocks taking off to huge valuations despite the fact that they not only don't have any revenue, they don't have any projections of revenue. It's a world where it's impossible to calculate a price earnings ratio because there are no earnings to put into the equation.
Well, it turns out that the same kind of foolishness is cropping up in the world of advertising spending. The dot com, Online only companies, have figured out that they're not going to drive all the traffic they need to their site with just Online marketing alone. Gosh, they probably need television or print some of those retro-media.
So what they're doing is cranking up the spending engine using the money they've generated from venture capital or their initial public offerings. Check out these examples.
Cnet is reported to have budgeted one hundred million dollars of advertising for a 12-18 month period. That doesn't sound unusual for national media advertising campaigns until you realize that that figure is equivalent to the total sales revenue the company is likely to record this year. Just so you won't think they've gotten anywhere closer to sanity, they're about six months into the spending program, there hasn't been a rise in audience growth, and the spending continues.
I thought that was about the wackiest thing I'd heard when I read about it in the Wall Street Journal. Then I went a little further along in the article and found the story of send.com. That company has made commitments for 20 million in commercials on top-rated network television shows during the holiday season. The only problem is that it doesn't have the money. So far, send.com has only raised 10 million dollars in venture capital funding.
WALLY's COMMENT . . .What can you say? At some point, this house of cards has to come tumbling down, and there are folks who are going to get hurt. Somehow, we got the idea that when we put business on the Net, it ceased to have to be business. Suddenly, revenues and profits didn't matter -- only traffic counts. This is pure, unadulterated, dangerous nonsense.
This insanity affected everybody who buys ads for the Super Bowl. Those rates have always been high, but dot-com spending was one reason why 30?second spots on the Super Bowl, average prices rocketed from $1.6 million on Fox TV last January to $2 million for ABC's broadcast in January 2000.
There were 17 dot-com commercials during the Super Bowl, and I kept thinking about the old gambling adage: "Desperate money never wins." A lot of that money looked really desperate. Like the company who's site was coming live the day the Super Bowl ad ran and who had staffers busy stuffing the ballot box at USA Today's voting on the ads.
Date Published: 1 February 2000
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