Dot-com plunge leaves agencies with questions

It was a moment many had predicted - but it came as a bitter dose of reality all the same....

It was a moment many had predicted – but it came as a bitter dose of reality all the same.

On April 14, high-tech stocks on the Nasdaq dropped a stunning 11% at one point. Pundits called it the beginning of the end of Wall Street’s dot-com boom.

This wasn’t the first sign of trouble, either. Days earlier, Cambridge, Mass.-based Forrester Research had issued a study warning that "weak financials, intense competition and investor flight" would drive many online retailers out of business by 2001. That echoed other industry reports offering similar predictions about the financial fate of many well-known dot-coms.

For those advertising agencies that have aggressively pursued dot-com accounts, these events have raised questions about the time, resources and effort being devoted to clients in this new category. Indeed, reports from the U.S. suggest that some agencies south of the border have been badly hurt by the Nasdaq plunge.

Here in Canada, agencies say they will continue to court dot-com business – albeit a little more cautiously than before.

It’s probably wise to tread carefully, rather than getting caught up in the hype, says Andrea Southcott, managing director of Vancouver-based Bryant, Fulton & Shee. But agencies that choose to steer clear of the category altogether run the risk of missing out on desirable opportunities.

"There are a lot of dot-coms with solid business plans," she says. "You just have to look at the numbers and find confidence in a solid business proposition."

"E-commerce is here to stay," says Frank Palmer, president and CEO of Vancouver-based Palmer Jarvis DDB, which currently gets about 15% of its business from dot-com clients, including Savingumoney.com and Click.com. "Some of the companies may fall by the wayside, but I’d like to think that when we take on any client, our business decisions are sound ones."

Analysts and industry players are quick to point out that online business-to-business ventures generally have solid foundations, and should continue to flourish. It’s the dot-coms operating in the consumer space that are expected to experience a major shake-out in the months ahead.

This country has generally lagged behind the U.S. in the e-commerce race – a fact that may work in favour of Canadian dot-coms, suggests Chris Staples, one of the partners of Vancouver-based Rethink, which has done high-profile work for Stockhouse.ca.

Canadian e-tailers currently on the launch pad, he says, may be able to learn from the dumb mistakes that some American dot-coms have made (such as blowing a sizeable chunk of their ad budget on a single spot during the Super Bowl).

Canadian agencies, too, can look to the examples set by their U.S. counterparts and avoid similar missteps. Many, says Bob Stamnes, president of Vancouver-based Glennie Stamnes Strategy, simply got caught up in the dot-com euphoria, and were burned by clients who failed to spend what they’d promised – or who simply couldn’t pay for the completed work.

Some agencies have also opened themselves up to potential liability by agreeing to accept options or stocks from dot-com clients in lieu of cash payment, Stamnes adds.

Glennie Stamnes, like many Canadian shops, has done a few stock deals, he says – but nothing that would precipitate a financial crisis for the agency should the stock’s valuation drop.

Agencies that take shares in lieu of fees invariably argue that it brings them closer to the client by creating an opportunity to share in their future, notes Jean-François Bouchard, president of Montreal-based Diesel Marketing.

But in fact, the decision is often "motivated a lot more by greed than by sound business practices," he says.

Money, however, isn’t the only factor that has attracted agencies to the dot-com category.

According to Philippe Garneau, one of the partners with Toronto-based Garneau Würstlin Philp Brand Engineering, many agencies believe that adventurous dot-com clients will offer them the freedom to create the sort of edgy creative that can be difficult to sell to traditional clients. And, for that freedom, they’re willing to accept the possibility that they won’t make any money from the account.

"A lot of [agencies] are giving away free time and creativity to dot-com companies so they can create ‘cool’ ads," Garneau says. "And they’re morons for doing it."

There’s no question agencies are drawn by the opportunity to do memorable work that will win awards, affirms Domenic Caruso, president and CEO of Toronto-based MacLaren McCann.

Still, there are also sound reasons for shops to be pursuing dot-com accounts, even if these ventures aren’t necessarily going to be as profitable in the short-term as many first imagined. Agencies are businesses, he says, and they must pursue any viable new opportunities for growth – especially given the decline in ad spending in many traditional categories.

"Is it opportunistic? Absolutely. If you don’t think opportunistically, you’re foolish. It’s not greed – it’s business."

From Karen Howe’s dining table: Creativity, COVID and Cannes

ICYMI, The Township's founder gathers the best of the best campaigns and trends so far.

Cannes Base Camp

By Karen Howe

I’m attending Cannes from the glory of my dining room table. There’s not a palm tree in sight, yet inspiration and intel are present in abundance.

Cannes Lions is a global cultural pulse check. The social course correction in the wake of the murder of George Floyd and BLM has delivered far greater diversity in the judging panels as well as the work. And we are all better for it.

I’m proud to say that creativity defeated COVID, which speaks to its power. Great work and big ideas flourished, despite unimaginable odds.

The work from the past two years spans a vast emotional range. From the profundity of Dove’s “Courage is Beautiful” to the hyper exuberance of Burberry’s “Festive,” they are opposite ends of the spectrum, but each answered a need in us.

Take note, the ascendency of gaming cannot be understated. Smart brands have embraced the channel. It makes sense, because gamers participate to meet others around the world, not just to play. And they represent a huge and powerful community. That’s why QSR Wendy’s gamified their iconic gal in RPG’s Feast of Legends.

Burger King sponsored the unknown Stevenage Football Club, transforming the team into online heroes and vaulting BK into the fray at the same time. Once again, the brand embedded itself in culture.

The birth of gaming tourism arrived when Xbox snuggled up to travel guides and created a brilliant baby: a travel guide for gaming worlds. It, too, embedded itself in culture.

From the standpoint of social good, Reporter Without Borders showed how it worked with Mindcraft for its “Uncensored Library” to bypass press censorship, with Minecraft providing a loophole to a space where young people could be educated. It provided youth with a powerful tool to fight oppression: truth.

COVID changed us in unexpected ways. We learned how to pay attention again and there was a notable lack of 30-second commercials. Instead, longer format content thrived. Apple’s WFH was seven minutes long. Entertainment reigned king, so we find ourselves returning to our advertising roots.

Seeing competitive brands form partnerships was one of this year’s other great surprises. The brilliantly simple “Beer Cap Project” by Aguila to reduce binge-drinking saw the brand reach out to competitive beers to join in. Aguila put incentivizing (keyword: free) reminders to drink water, eat food and get home safely on its bottle caps from all sorts of fast food chains, ride-share co’s and H2O brands.

On a personal level, I’m so proud of Canada again this year. Given that it was two years of work from all over the world being judged, even making the Cannes shortlist was an accomplishment. Canada is herding in the Lions in tremendous numbers – and it’s not even over. Fingers are crossed.

KAREN-HOWE-PIC-higher-rez-300x263Karen Howe is a Canadian Cannes Advisory Board Member and founder of The Township Group