Dot-Com Bubble Begins To Deflate--Again

by Joe Mandese, Jun 27, 2007, 8:39 AM

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For the first time since the bubble burst, ad spending by so-called dot-com brands is expected to decline this year. The decline--a drop of about 4% to $4 billion--isn't nearly as severe as the 52% drop that occurred in 2001 when the dot-com market crashed, or even the 19% reduction that happened the following year in 2002, but it reverses a four-year upswing that has made dot-com advertisers' brands, products and services that are marketed primarily via an online destination one of the fastest-growing and most significant advertising categories for the overall media marketplace in recent years.

At least part of the slide is due to comparisons with recent years, when the dot-com category was expanding at its fastest rates since the pre-bust run-up, said Bob Coen, senior vice president-director of forecasting at Universal McCann, as part of his mid-year presentation Tuesday updating his outlook for the advertising economy.

Dot-com advertisers--which have been a boon for traditional media, which they use to drive traffic for online commerce--grew 12% last year, 34% in 2005 and 25% in 2004, according to Coen's estimates.

But it now seems to be running out of steam, along with many other major ad categories, as the overall ad industry experiences what appears to be a significant and protracted slowdown that is impacting most media, with the exception of online. That's ironic, because some of the slowdown is due to the fact that dot-com marketers are beginning to shift more of their budgets out of traditional media and into online advertising--especially search--much the way offline marketers have been.

"Search marketing, which offers greater geographic flexibility, has probably cut into traditional media budgets of dot-com retailers and some other categories," Coen wrote in his official report. "In 2007, full-year results could be better than the first quarter when some dot-com marketers had temporary problems, but the era of large increases is probably ending."

Coen said the surge in dot-com spending started to abate near the end of 2006, and that the slowdown is becoming more pronounced as the year progresses.

Consumer Ad Spending By Dot.Com Brands
1998	$0.654 billion	+77.0%
1999	$3.086 billion	+372.0%
2000	$5.597 billion	+81.0%
2001	$2.662 billion	-52.0%
2002	$2.150 billion	-19.0%
2003	$2.210 billion	+2.8%
2004	$2.762 billion	+25.0%
2005	$3.700 billion	+34.0%
2006	$4.155 billion	+12.0%
2007	$4.000 billion	-4.0%
Source: Universal McCann

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