The contrasts were striking, which was the point: the imposing but smiling bulk of Los Angeles Lakers superstar Shaquille O’Neal seated next to a tiny but gruff-speaking baby, who was spouting off about the virtues of Internet service provider FreeInternet.com.

Debuting around the time the Lakers were making their championship run last spring, the television ads featuring Shaq and “Baby Bob” were a huge success, helping make FreeInternet.com the fifth-largest ISP in the country. Newspapers ran articles about the spots and Good Morning America devoted a long segment to the Baby Bob phenomenon.

It was a tremendous achievement for Siltanen/Keehn, the El Segundo agency that created the ads a firm that was less than a year old at that time.

But despite raising millions of dollars in venture capital and adding millions of new subscribers, FreeInternet.com filed for Chapter 11 bankruptcy protection this month, possibly leaving Siltanen/Keehn high and dry. The creators of Baby Bob are now creditors, owed $1.9 million by the troubled Seattle-based company.

Siltanen/Keehn has gotten caught up in the huge trickle-down effect that the dot-com meltdown is having throughout several industries. Advertising firms are being particularly hard hit. The huge risks of taking on dot-coms as clients are coming home to roost, making ad agencies a lot more careful before signing on the dotted line.

“I’m disappointed in FreeInternet .com,” said agency founder Rob Siltanen. “I think they hurt a lot of people.”

So what would he do differently if taking on another Internet startup as a client? “Insist on being paid in advance.”

The wave of capital that flowed into Internet startups over the last few years meant lots of money to spend on promotion. But as FreeInternet has shown, even well-funded Internet companies may quickly get overwhelmed by market forces. The agency that succeeded unquestionably in developing a flashy advertising campaign could well end up in trouble as a result.

Marketing blitz

“Starting a couple of years ago, there was a tremendous infusion of dollars into advertising, the result of the staggering infusion of capital into marketing budgets of dot-coms,” said Murray Kalis, marketing director of Pacific Palisades advertising firm Kalis & Savage, which has worked with such companies as Futurestep.com, GreatDomains.com and eToys Inc. “Now, what we’re all talking about is, how do you recover money, how do you see (a dot-com failure) coming and how do you protect yourself?”

It’s a dead notion that an expensive publicity campaign can quickly develop brand loyalty to an Internet company, and ensure financial success. Priceline.com’s much-lauded spots with “Star Trek” captain William Shatner intoning deliberately bad Beat poetry haven’t prevented that company’s stock from plummeting from a high of $104.25 a share in March to about $5 a share as of late last week. Pets.com’s Sock Puppet ads are similarly memorable, but the company’s stock has been in free fall since its initial public offering and late last week was trading for 53 cents a share. And can anyone remember the names of any of the e-companies that paid millions of dollars for clever but obscure ads during the Super Bowl?

“I’m not sure there’s a single case of an agency helping turn a dot-com into a viable business,” said one local advertising executive, speaking anonymously so as to not alienate his own Internet clients. “The whole industry has a big mess on its hands.”

Although the kind of public debacle caused by FreeInternet.com’s bankruptcy is rare, some ad agencies are finding it harder to collect on fees owed by Web clients. That’s at least partially due to the fact that such client companies are under pressure from venture capitalists and other investors to rein in costs. Kalis & Savage, for instance, has a couple of disputes on its hands.

“We’re in discussions with a couple of dot-coms with regard to money we say is owed us and they say is not,” said Tom Hall, the agency’s director of client services.

Getting the money

Advertising executives around town all agree that the only way they’ll work with Internet companies now is by insisting on money up front. In the past, that has meant making sure the budget for buying spots on television, radio and in the print media is in hand before commitments are made. But the money that Siltanen/Keehn is owed is not for media buys it’s for several months of creative work that went unpaid. So the agency is now demanding its dot-com clients to pay at least a percentage of the creative fees up front, before the process is started.

“We’re talking with a couple (Internet companies) right now; we’re scrutinizing them very carefully,” said Jim Smith, managing partner of Ground Zero in Marina del Rey, which counts Lucy.com and Go2.com as clients. “Due diligence is more important than ever.”

Due diligence could have helped Siltanen/Keehn, but its eagerness to land a large account apparently overshadowed everything else. The deal was announced as a $50 million account, a terrific coup for a new agency, and one that brought both parties notice once the “Baby Bob” spots took off.

“It was hugely successful,” Siltanen said. “It brought FreeInternet over 1 million new subscribers, and it was one of the most talked-about campaigns out there. (FreeInternet) got $25 million in free publicity. The spot on ‘Good Morning America’ went on for six minutes; they aired three of the spots. ‘Entertainment Tonight’ did us four times. ‘USA Today’ wrote three articles.”

Surviving the fallout

But a high-profile success makes any subsequent fallout into a high-profile event as well. Siltanen said that despite being owed $1.9 million, his firm will be fine. His agency’s billings have been cut in half from $100 million and even that doesn’t tell the whole story. Billings refer to the size of the marketing campaign; an ad agency’s cut of that is never more than 15 percent, and is often less. So if Siltanen was supposed to get at most $7.5 million from the FreeInternet campaign, and it’s due $1.9 million, it’s a good bet the loss cuts into profits severely.

“It’s going to kill them to take that kind of hit,” said one industry executive, who also doubts that the original FreeInternet campaign was actually $50 million. “There’s always a lot of hot air in announcing these deals. I’d be surprised if it was more than $30 million.”

Inflated or not, Siltanen/Keehn claims to still have $50 million in accounts, including Round Table Pizza. Last week, Siltanen said his firm was in the running for a $26 million ad campaign for weight-loss chain Jenny Craig. Moreover, Viacom Inc.’s CBS network is still going ahead with its development of a sitcom centered around Baby Bob that Siltanen is helping to develop. O’Neal is not involved in any way in that show.

“It’s going to be called ‘The Baby Bob Show,'” Siltanen said. “The pilot should start shooting soon.”

But the public relations fallout from FreeInternet.com’s failure is hurting the creators of its major legacy. And it’s too early to tell whether others will avoid the same fate.

“It’s a cautionary tale,” Ground Zero’s Smith said. “The truth is that (FreeInternet.com), since Day One, had been a highly dubious proposition. I don’t know if we’ve seen the end of highly dubious propositions. If an Internet company says, ‘I’ve got funds,’ half the agencies around town will show up ready to do a pitch next week. It’s a tough business world.”