The first way entrepreneurs are bringing their spending under control is by scrutinizing advertising outlays, says H. Albert Napier, a management professor at Rice University in Houston who sits on the boards of two dotcom start-ups. The emphasis is now on focused advertising as opposed to the mass-market campaigns that blanketed the media in 1999 and early 2000. "[In early 2000], I could drive down the freeways and it seemed like every other billboard was a dotcom," says Napier. "I don't see those anymore. They're also cutting back on the TV and the radio."
What's taking the place of mass-market advertising is a better-targeted, more cost-conscious promotion style. "We keep a very tight lid on our advertising budget," says Closner. "We make sure the dollars are spent as effectively as possible." For BabyUniverse, that means purchasing banner ads and featured sponsorships on family and parenting Web sites instead of Super Bowl spots shot-gunning the entire population. "I don't want a 24-year-old single guy coming to my site," he explains. "I spend the dollars to attract the specific user that I need."
Dotcom entrepreneurs are also more careful, testing ads to see which are most effective before committing to full runs. They're emphasizing targeted direct e-mail campaigns to people who have opted to receive them. They're putting more public relations into the promotion mix and replacing expensive outside PR agencies with in-house communications staffs.
One of the biggest changes has to do with online banner ads. Whereas dotcom entrepreneurs once bought advertising willy-nilly, they're now paying close attention to their banners' performance as a result of high costs and low rates of delivering paying customers. Mike Domek, president of TicketsNow.com, a 24-employee online entertainment ticket broker in Woodstock, Illinois, says he's cut his online banner budget by $330,000 for 2001 and is only pursuing campaigns when tests show double-digit click-through rates. "Anything under 10 percent we're dumping for 2001," he says.
An increasing number of dotcoms favor commission-based referral programs with other Web sites. These marketing arrangements require advertisers to pay for placements only when customers actually make purchases after clicking through to the advertiser's site from the banner ad on the partner's Web site. "It's basically pay-for-performance advertising," explains Domek, 31. "You have no investment, so it's limitless how much you can do."