Marketcol/turner/27″/mike1st/mark2nd
If 1998 was the year Internet companies really started taking off, this is the year they’re starting to advertise.
Which seems like great news for a local ad industry that’s been fairly stagnant over the past two years and in many ways it is. But dot-coms can be dangerous.
There are few local ad agencies that haven’t at least pitched for an Internet account this year, and many of the larger agencies have already picked up a handful. More are on the way.
Flush with cash from initial public offerings and venture capitalists, the dot-com entrepreneurs know they have to spend a bundle of it on advertising and quickly. In a year, maybe two, a shakeout is inevitable, and only those companies that have built a strong brand identity or have very deep pockets will survive.
Trouble is, few of these people know the first thing about advertising. For many, funding is shaky and the future uncertain. They haven’t determined who their customers are, and don’t want to invest in market research to find out. They expect an almost immediate turnaround on their campaigns (creation, planning, production and media buys), because everything in their industry happens so quickly and they want to build an identity very fast before Wall Street’s attraction for Internet offerings dries up.
In short, they’re often a big headache for the ad agencies that take them as clients.
“There are always risks inherent in working with these companies,” said the head of one local agency that recently won an Internet account and is pitching for others. “Will they still be around next year? How much backing do they have?”
EarthLink Network Inc.’s advertising account was L.A.’s highest-profile hot potato earlier this year. Two separate agencies, first Mendelsohn Zien Advertising in West L.A. and then Ground Zero in Marina del Rey, won the business, only to resign it soon afterward. EarthLink finally landed at BBDO West in May.
Agency executives complained that the people at EarthLink were unwilling to sign a contract. They seemed to be looking for small test projects, rather than a coherent campaign, and were unwilling to part with much money.
It has become a familiar story in L.A.’s advertising industry.
“The problem we keep running into is, we get a dot-com company that calls and says, ‘We’ve got $3 million to $5 million to spend on launching our Web site.’ But then you sit down and talk with them, and it’s never really $3 million to $5 million,” said Glenn Sagon, president of Sherman Oaks-based Sagon-Phior Group. “They’re so protective of their funding; they don’t want to spend any of it. They want to know what you can do for $5,000 or $10,000.”
Even more worrisome to some local ad executives is the instability of the companies. It’s very easy to start an Internet business because overhead is low and funding is plentiful right now, but not all the people getting into the business know what they’re doing.
The result is that agencies are being extra cautious. Many demand up-front payments from Internet clients, rather than doing the work and waiting for a check that might not ever come.
Murray Kalis, creative director at Kalis & Savage Advertising in Pacific Palisades, says that after meeting with a large number of Internet executives, he’s careful to check a company’s pedigree before accepting an account meaning he wants to know who its financial partners are.
“We didn’t get burned, but we did do a lot of developmental work that didn’t go anywhere,” Kalis said. “It’s kind of like movie scripts: Everybody’s got one in development, but a lot of times they don’t pan out. There are a lot of promises.”
Wild, wild Western
Michael Kassan’s dismissal from Western Initiative Media Worldwide is either a case of suspicious financial dealings at the top of the world’s biggest media buying agency or a nasty power struggle between executives on the East and West coasts.
What’s certain is that Kassan’s departure marks the end of any pretense that Western remains headquartered in Los Angeles. The majority of the company’s employees might still be based here, but the shots clearly are being called from New York.
The Kassan saga started in late July after someone leaked some explosive information to both advertising trade publications (Adweek and Advertising Age): Western’s owner Interpublic Group of Cos. was conducting a financial audit of the company. And the audit coincided with Kassan, the company’s former president and chief operating officer, being forced to take an extended leave of absence.
Was it all a set-up? Kassan claims it was. On Aug. 13 he sued Western and Interpublic for $63.5 million, claiming that Western was attempting to breach a five-year contract he had signed just a few months earlier and that the leaks were intended to destroy his reputation.
A few days later, Western announced that Kassan had been fired. Nobody’s talking now, as the dispute moves to the courts.
Western founder Dennis Holt hired Kassan, his former attorney, to help engineer the sale of the company to IPG in 1994. Last fall, IPG merged Western with its Initiative Media Worldwide, creating Western Initiative.
The result, according to insiders, was a power struggle between executives with Western and Initiative. Kassan, who continually maintained that Western was still based in Los Angeles, wanted to report directly to IPG Chairman Phil Geier. Instead, New York-based Larry Lamattina, who had been a top Interpublic executive, was made CEO of Western Initiative and Kassan’s boss.
The merger of Western and Initiative was not a smooth one. The two companies had very different cultures and practices. According to one press report, executives within the company complained that while Initiative was a well-run organization, Western needed work.
During what one insider described as a power struggle between Lamattina and Kassan, Holt was sitting on the sidelines. Although the titular chairman of Western Initiative, Holt is said to have little say over the company’s day-to-day operations. He did not return calls.
Western executives announced that Kassan’s title has been assumed by Michael Letito. He is based in New York.
Assistant Managing Editor Dan Turner writes a weekly column on marketing for the Los Angeles Business Journal. He can be reached via e-mail at [email protected].
