Friday, October 27, 2000

Dot Com Decline a Function of Marketing Disconnect

Richard Edelman, CEO of reputable Edelman Public Relations Worldwide, blames Dot Com woes of the past nine months on conventional marketing. In the last several years Edelman has been at the nucleus of Dot Com activity, effectively raising the profiles of numerous New Economy companies including the launch of Bluetooth and Microsoft’s Encarta. Speaking at an American Chamber of Commerce lunch on October 23rd, Edelman provided an insightful, compelling perspective on the current Dot Com state of affairs, pointing the finger at his own industry and investment bankers for failing to self-regulate.

Edelman’s formula for Dot Com Victory:

Dot Coms failed miserably with execution and establishing credibility, but vision they had. Internet companies arrived on the scene “focused on conventional marketing after having a huge vision of making a difference,” Edelman explained. He argued that conventional marketing could never have executed the mighty vision Internet companies had in theirs sights. Most Internet companies spent 50% - 70% of their available cash on traditional marketing techniques, and 85% of that cash on advertising, which “was the wrong thing to do,” Edelman claimed, and a complete waste of money.

Edelman sited numerous statistics and anecdotes that demonstrated the merciless beating Dot Coms have received during 2000. He offered up an equal number of statistics and stories illustrating how ineffective Dot Coms had been at marketing.

For example, during the 2000 Super Bowl, the average commercial cost $ 2.5 million USD for thirty seconds of network time. Despite the flashy, sexy advertisements that always grace television networks during the Super Bowl, not one of this year’s commercials received higher than a 7% recall when tested after the highly hyped annual American football event. In addition, Edelemn explained, everyone in the industry knows that Super Bowl commercials are the most expensive to produce, most expensive to buy airtime for, and repeatedly produce low recall. Edelmen criticized his industry harshly (more than once) by saying such flagrant mis-direction of Dot Com cash was a “huge condemnation of (my) colleagues commitment to their industry.”

Moreover, the Dot Com Craze took place in a highly hyped, loud environment. Edelman cautioned that the marketing methods used by Dot Coms never work in a loud marketing environment. In a loud, hyped environment a business (1) cannot buy customers (2) cannot promise the world (3) cannot saturate its competitive advantage and (4) cannot build a business based on hype. Successful companies that survived the boom did so by generating positive customer experiences that created authentic marketing buzz – such as E-Bay and Flooz.Com. Flooz.Com pioneered on-line gift giving, establishing a reputation based on creating value, public relations and viral marketing. Flooz, who never advertised, instead used Whoopi Goldberg as a spokesperson. They also never went public, which probably helped them stay alive, Edelman noted.

The hype and loud environment contributed to a mass hysteria that the Internet revolution would be over before anyone knew what hit them. As a result, Edelman explained how marketing efforts were “done on the basis this revolution was all happening in five minutes” with a terrible mis-use of Dot Com cash. Edelman pointed the finger at investment bankers for allowing companies to go public too soon at unrealistic valuations and with unrealistic marketing and business plans. Edelman explained how Dot Coms hired three types of experts: Web Designers, Investment Bankers and Advertising Agencies. The latter two, Edelman chastised, “was like putting the wolf in the chicken coup… (and) the public relations industry defaulted to the easy way out by allowing the hype notion and deifying CEOs.” Edelman believes that in the end, individual investors are the ones who have suffered.

Now, with failed Dot Coms, and surviving Internet companies holding perilous cash positions, the world is currently witnessing scrutiny in the capital markets and skepticism in the eye of the stakeholder. What do Dot Coms now do and how do they build a brand?

Return to Value

Dot Coms need to return to value and focus on Edelman’s above formula. First, if a pure play Internet Company currently has no bricks and mortar component in its business model, either build one fast or find an Old Economy partner. (Preferably the latter.) Also, stop and ask yourselves, “Are we really spending our money on the right things?”

Edelman provided the following excellent tips:
  1. Dot Coms need to differentiate with a clear, competitive message.
  2. Back-up your plan with a pragmatic, clear path to profitability.
  3. Refresh your story often, but remain consistent.
  4. Develop Third Party advocates who can support/endorse you.
  5. Address issues before they become a crisis. (Doubleclick lost 90% of its value in one year because they were conceited and failed to address obvious customer issues, claims Edelman.)
  6. Never hide from bad news – get in front, and in control of, a downward spiral.
  7. “Get out there, be believable, be everywhere” with employees and customers. CEOs, CMOs and CTOs need to be the chief communicators but Edelman cautions about attempting to brand/deify a CEO. In the long term that rarely works because the CEO will be vilified if the pendulum swings against the company, which the market is seeing right now. Get a spokesperson or celebrity instead.
  8. Align your company with “Six Pack” innovators such as ASP, broadband, and wireless solutions providers. Infrastructure is hot and will continue to be reports Edelman.
  9. Create online promotions with a public relations tie in.
  10. “Guerilla and viral marketing cannot be overlooked,” says Edelman. These marketing strategies create the most compelling force for people to visit a web site.
Edelman claims that public relations firms have the potential to provide tremendous value while the market regains confidence. Edelman concluded by saying, “the press is like the scorned lover” with Dot Com Death stories being over hyped as much as the success stories were. Therefore, take everything in stride and focus on value.

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