Net Branding: The Name's The Thing
Picture this: Thanksgiving morning, and the family gathers around the TV for the Macy's parade. There are all the famous cartoon characters bobbing down Broadway: Bullwinkle and Mickey Mouse and Spiderman and, look, it's...Jeeves? Who? The pin-striped butler--the make-believe spokesperson for the Ask Jeeves Inc. Internet search service--is elbowing his way into the pantheon of commercial icons, the first time a company has tried to buy instant brand awareness with a giant parade float.
The rolling Jeeves ploy is just one sign of the times as newly minted Net companies scramble to become national brands, alongside Coca-Cola, Kodak, and McDonald's. Scores of companies that you never heard of are spending tens of millions on advertising and marketing to establish their brands. For example, the little dot.com startup behind Jeeves has also hired Hollywood superagent Michael Ovitz to put it on the marketing map.
According to Forrester Research Inc., dot.coms will double their spending on national ad campaigns this year, to $1.7 billion. Startups routinely devote as much as 90% of the capital they raise in public offerings to advertising and marketing. "A lot of companies are saying, `We have to make it big, fast, or we're not going to make it at all,"' says Jay S. Walker, vice-chairman of Priceline.com Inc., a heavy advertiser.
CLUTTER. And it's not just the upstarts. Amazon.com Inc., the online bookseller whose brand is recognized around the globe, announced on Oct. 27 that it may triple ad spending, to more than $100 million, for the fourth quarter--just to keep its brand name on top as the clutter of messages from wannabes piles up. Now, Amazon says it will rack up $1 billion in cumulative losses before it sees a profit.
America Online Inc., the biggest brand in cyberspace, has always invested heavily in brand marketing and has no plans to lighten up. Analysts say it will spend more than $900 million, or roughly 14% of its revenues, next year to keep its name out there. But, even AOL execs are startled by the frenzy now under way. "The AOL brand was a decade in the making," says Stephen M. Case, chairman of America Online Inc. "What's happening now is a dramatic compression of that process."
AOL, Amazon, and Yahoo!, the "first movers" among Internet brands, have broken the top ranks--all among the top 60 of global brands, according to Interbrand Group. But how many of the dot.com masses can make the cut? "The early success of Yahoo! and Amazon set a level of expectation about branding on the Web that proved to be ephemeral," says Roger McNamee, a general partner at Silicon Valley venture firm Integral Capital Partners. Two years ago, he says, it was possible to build a Net brand for $10 million to $30 million. Today, McNamee says, "it can cost hundreds of millions. That's scary."
"TOO MUCH NOISE." And, notes Shelly Lazarus, chairwoman and CEO of Ogilvy & Mather Worldwide Inc., advertising alone won't do the trick. Building a real brand takes years of effort that involves creating an identity for a product or service at every point of contact with the customer. "There's nothing as expensive and as difficult as imbuing meaning into a brand," she says.
Even now, seasoned ad executives, venture capitalists, analysts, and brand consultants say a big chunk of the money is being wasted. The ad campaigns might give a Web company's name a momentary buzz, but it's quickly drowned out by the rising cacophony. Meanwhile, scores of wannabes keep crowding into e-biz markets. In the third quarter alone, $5 billion in venture funding was pumped into Web businesses, double the amount for all of 1998. The result: multiple brands fighting for dominance in every possible category, from home furnishings to pet care to drugstores. Says Henry Blodget, an Internet analyst at Merrill Lynch & Co.: "You won't see a lot of brands built...There's too much noise."
But you will see brands die. On the Web, brands are born, force-fed to maturity at a terrifying rate, and then vanish. For bamboo.com Inc., the arc from promising startup to disposable brand was a scant nine months. The Palo Alto (Calif.) provider of interactive video tours of real estate merged with InteractivePictures Corp. on Oct. 26. Both companies are losing money hand over fist as they promote their brands. But despite spending a combined $25 million on marketing for the first nine months of the year, the new company may wind up dumping both brands and picking a new name, says bamboo.com founder and Executive Vice-President Kevin B. McCurdy.
It's not like bamboo.com and its executives are making up their own marketing rules as they go along. The company's advisers include Peter Sealey, former director of global marketing for Coca-Cola Co. "I never would have considered throwing a brand away at Coke," says Sealey, who spent a decade building up Sprite. But Net companies can justify scrapping their investments in brands and starting all over, he says, because franchises are being established at a much faster pace.
There's no question that building brands in cyberspace is a daunting challenge. Dot.coms can't reinforce their advertising the way traditional companies do--through the Crest toothpaste tube you see in the morning or the Buick logo on the steering wheel.
How do you put across a cyber-brand's advantages? E*Trade Group Inc.'s strategy, for example, is built around the need to shine in the overcrowded e-broker market. To stand out, the company has fashioned itself into a financial portal, complete with stock quotes, financial news, and company releases--for free. The core idea? Be the place that empowers the small investor to trade like a pro. But to pound that idea into the minds of consumers, E*Trade--which lost $54.4 million on sales of $621.4 million in fiscal 1999--spent $200 million on marketing. "It's really the experience on the site that defines the brand," says Jerry Gramaglia, chief marketing officer at E*Trade.
Indeed, technology alone won't do it. Ask AltaVista Co. Savvy Internet users praised its search engine's superior capabilities, but its former corporate parents, Digital Equipment Corp., then Compaq Computer Corp., did not follow up with sufficient marketing. Yahoo! quickly dominated, and AltaVista languished. Now, Net holding company CMGI Inc. will spend $120 million on marketing in 10 U.S. cities over the next nine months to put AltaVista back on the digital map.
So, the e-brands keep buying up ad time, sometimes squeezing out the traditional consumer brands. "There's increased demand to get onto shows where companies can reach very large audiences," says Timothy M. Callahan, a vice-president for beverages and business development at Campbell Soup Co. Gary Stibel, founder and principal at brand consultants New England Consulting Group, has advised some of its old-line clients to drop out, at least until after cyber-Christmas, and make a little money by selling slots to the dot.coms. "Between now and the Super Bowl, more money will be misspent on advertising than any of us have seen in our lifetime," he says.
But the upstarts do have something to aim at. AOL's brand value--the contribution to market capitalization that's attributed to brand--is greater than that of Apple Computer, Chanel, or Burger King, according to Interbrand. Yahoo! and Amazon rate ahead of Guinness and Hilton Hotels. And remember: Yahoo! and Amazon didn't even exist five years ago. "When you can market the message directly to the individual customer, you can establish a brand presence much more rapidly," says Christopher E. Vroom, an analyst at investment bank Thomas Weisel Partners.
Does the flood of aspiring Net brands with money to burn mean the rules of marketing are being rewritten? Not likely. And so far there's not much evidence that traditional companies with established brands have ceded any ground to the upstarts. Indeed, the thing to watch now is how traditional companies can transfer their brands to the Net. Says Dan Latimore, a consultant at Mainspring Communications Inc., which advises companies on e-commerce strategies: "We tell our clients: `When you look at what some of the Net players are spending to establish a brand, you're sitting on a gold mine."' And it's getting more valuable every day.
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