Marketing Yourself To Death - Industry Trend or Event

Industry Standard, The, March 19, 2001 by Paul Bonanos

After a binge of overspending, the marketing departments at new-economy companies are cuffing back to save themselves.

Two years ago it was the perfect symbol of the new economy's wacky math: Internet companies routinely spent more on sales and marketing than they collected in revenue. Now, some sense seems to be creeping in. Data from 16 well-known Internet pure-plays show they spent an average of 45 percent of their revenue on sales and marketing (their SMR ratio) in the last quarter. In the first three quarters of 1998, that average was well over 100 percent. Three firms (Amazon.com, America Online and NextCard) spent less than 20 percent in the fourth quarter of 2000, while three (Ask Jeeves, Salon.com and CBS MarketWatch.com -- all content companies) spent more than 80 percent. Most companies are spending less than they did in the same quarter the previous year. Soon-to-be-defunct eToys cut its SMR by 54 percent over the fourth quarter -- to no avail. For the first time in the past three years, none of the 16 companies spent more on sales and marketing than it earned overall.

                   Marketing Expenses Fall Toward Earth
                Average SMR Ratio [*] for 16 Net Companies
1Q98 148%
2Q98 153%
3Q98 125%
4Q98  85%
1Q99  87%
2Q99  88%
3Q99  75%
4Q99  65%
1Q00  62%
2Q00  57%
3Q00  47%
4Q00  45%
(*.)SALES AND MARKETING EXPENDITURES EXPRESSED AS A PRECENTAGE OF TOTAL
REVENUES.
SOURCE: THE STANDARD FROM BLOOMBERG DATA AND SEC FILINGS
                 Marketing Remains a Giant Operating Cost
       Fourth-Quarter 2000 Sales and Marketing Expenditure Analysis
                           FOURTH QUARTER 2000
                                                SALES AND
                                                MARKETING
COMPANY (TICKER)                REVENUES [1]   EXPENSES [1] SMR RATIO [2]
Ameritrade (AMTD)                 $130.7           $57.5      44.0%
Amazon.com (AMZN)                 $972.4          $186.2      19.2%
America Online (AOL)            $2,059.0          $322.0      15.6%
Ask Jeeves (ASKJ)                  $23.0           $19.3      83.6%
eBay (EBAY)                       $134.0           $49.0      36.6%
E-Trade (EGRP)                    $333.8           $97.9      29.3%
eToys (ETYS) [3]                  $131.2           $72.2      55.0%
Inktomi (INKT)                     $80.5           $47.4      58.8%
Internet.com (INTM)                $15.6            $4.8      31.1%
CBS MarketWatch.com (MKTW)         $14.7           $13.1      89.5%
NextCard (NXCD)                    $71.7            $5.2       7.3%
Priceline.com (PCLN)              $228.2           $34.5      15.1%
RealNetworks (RNWK)                $58.2           $24.0      41.3%
Salon.com (SALN)                    $2.3            $2.0      86.2%
The Street.com (TSCM)               $6.3            $4.4      69.6%
Yahoo (YHOO)                      $310.9          $122.3      39.3%
                                         REVENUE                CHANGE
                                          GROWTH      4Q00     IN SMR,
                               4Q99       (YEAR-      STOCK    4Q00 VS.
COMPANY (TICKER)           REVENUES [1] OVER-YEAR) PERFORMANCE   4Q99
Ameritrade (AMTD)            $114.4       14.2%       -60.6%    -14.3%
Amazon.com (AMZN)            $676.0       43.8%       -59.5%    -27.8%
America Online (AOL)       $1,618.0       27.3%       -35.1%     -2.9%
Ask Jeeves (ASKJ)             $10.9      111.4%       -87.3%    -34.7%
eBay (EBAY)                   $73.9       81.3%       -52.0%     -7.0%
E-Trade (EGRP)               $273.1       22.2%       -55.1%    -33.0%
eToys (ETYS) [3]             $106.8       22.9%       -96.5%    -11.0%
Inktomi (INKT)                $36.1      122.8%       -84.3%     -3.7%
Internet.com (INTM)            $7.5      107.7%       -80.8%    -19.7%
CBS MarketWatch.com (MKTW)    $10.0       46.6%       -62.5%    -22.0%
NextCard (NXCD)               $13.9      415.8%       -12.0%    -87.8%
Priceline.com (PCLN)         $169.2       34.8%       -88.9%     13.8%
RealNetworks (RNWK)           $43.5       34.0%        78.1%      9.8%
Salon.com (SALN)               $3.0      -24.8%       -65.4%    -53.9%
The Street.com (TSCM)          $5.1       22.5%       -36.1%    -38.8%
Yahoo (YHOO)                 $203.1       53.0%       -67.0%     19.2%
                            CHANGE
                           IN SMR,
                           4Q00 VS.
COMPANY (TICKER)             3Q00
Ameritrade (AMTD)           75.0%
Amazon.com (AMZN)          -11.7%
America Online (AOL)         3.6%
Ask Jeeves (ASKJ)           16.2%
eBay (EBAY)                  0.9%
E-Trade (EGRP)               8.8%
eToys (ETYS) [3]           -53.8%
Inktomi (INKT)              17.9%
Internet.com (INTM)         -5.5%
CBS MarketWatch.com (MKTW)  36.9%
NextCard (NXCD)            -47.5%
Priceline.com (PCLN)        10.4%
RealNetworks (RNWK)          0.7%
Salon.com (SALN)            15.5%
The Street.com (TSCM)      -35.7%
Yahoo (YHOO)                 9.2%
(1.)IN MILLIONS.
(2.)SALES AND MARKEING EXPENDITURES EXPRESSED AS A
PERCENTAGE OF TOTAL REVENUES.
(3.)TRADING HALTED FEB. 26. 2001.
SOURCE: THE STANDARD FROM BLOOMBERG DATA AND SEC FILINGS