Dot-Com Bubble Begins To Deflate--Again

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.

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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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