As dot.coms pour money into advertising, traditional advertisers look below the line
The dot.com companies are learning about the "mousetrap fallacy." Conventional wisdom holds that if you build a better mousetrap, the world will beat a path to your door. Not so. First off, the world needs to know about your superior approach to rodenticide; it also needs to know where your door is.
There has been a flood of advertising from Internet-based companies trying (and often failing with comical misery) to describe their mousetraps. They do, generally, succeed in telling us where the door is, since these companies typically have the same name as their Web site.
This wave of new ad business has had at least two immediate consequences and, beyond that, may produce interesting long-term effects.
First, these new advertisers are spraying money across the media landscape.
That's fine for some, but the increase in ad prices is creating problems for many everyday advertisers. Established companies with tight ad budgets are being crowded out by the newcomers. And, since the newcomers believe there's a first-mover advantage, they can't spend the money fast enough. Smart media, aware that some of their new big customers will someday be defunct ex-customers, are trying to accommodate their long-term clients, but it's hard to turn away all that money. (And ad agencies, also aware of the risk of eventual client defunctitude, are asking for, and getting, payment up front.)
The price pressure faced by conventional advertisers could encourage them to explore nonadvertising alternatives to their marketing communications needs. A direct-response program or a sales-promotion campaign can be an attractive and economical alternative when ad prices soar beyond reach. Indeed, the pressure from rising ad prices stands to encourage advertisers that have only flirted with below-the-line techniques to use them for real.
A shift toward basing ad agency compensation on client sales results, rather than on client ad spending, can hasten the adoption of new techniques. It would assuage agency fears of trying something new, even at shops that, to date, have only worked on advertising.
Below-the-line disciplines have been growing faster than conventional advertising for at least the past decade. These now account for half, or more, of the total revenues of Omnicom and WPP. Both companies, in their discussions of recent financial results, point out how conventional advertising, though growing, continues to decline in relative size.
And what will happen when the dot.com business crests? A lot will depend on the timing. If it happens soon, we may see a quarter or so of media and agency revenue softness with things soon reverting to normal. If the price pressure continues for more than a year, enough clients perhaps would have broken their dependence on conventional advertising and think twice about coming back, which might force the ad industry to come up with a better mousetrap.
Alan Gottesman is principal of West End Consulting in New York. He can be reached at westendal pobox.com.