Feature: Does The Collapse Of Boo Signal The End Of The Dotcom Boom?

The collapse of online fashion retailer boo.com a couple of weeks ago sent a wave of alarm through the internet industry as many pessimists saw in boo’s fate an intimation of what may be in store for many of the other businesses that have sprung from the dotcom boom. A recent report by PriceWaterhouseCoopers has claimed that a quarter of UK internet companies will run out of cash within the next six months and the majority of dotcoms could run dry within 15 months.

It seems that boo.com, which ambitiously launched in 18 countries simultaneously, may have pretty much marketed itself to death, as the huge overheads of making an advertising splash in 18 countries were not nearly offset by sales revenue. In 1999 Boo spent £2.3 million advertising its name, making it the fifth largest dotcom company in terms of adspend for the year. The top-spending Net company last year was book retailer Amazon, which ploughed £3.5 million into marketing its brand.

Source: AC Nielsen MMS

The huge growth in the number of dotcom companies has seen new and traditional media alike enjoying a surge in demand for their inventory, as these new businesses attempt to make themselves known. Advertising revenue for ITV, for example, has shown significant year on year growth due to the spend of these internet companies (see Feature: Cost Of ITV Increases As Audiences Fragment Across Digital Media). Dotcom expenditure last year was heaviest in the press, which took 39% of all internet companies’ spend; TV took 25% and outdoor accounted for a healthy 22%. Radio and cinema took 12% and 2% respectively.

Could boo.com’s collapse cause other internet companies to tighten up their marketing budgets for fear of finding themselves in a similar situation to boo, where advertising spend eclipses returning ecommerce revenues? If so, could press, TV and outdoor see their new-found source of income diminish? Richard Helyar, media research director at Continental Research, believes that new internet businesses have little choice but to market themselves as much as possible, but that perhaps the advertising they use may have to become more effective:

“I haven’t seen any evidence for a downturn in the likely ad expenditure by the dotcoms. They really have no alternative, a new dotcom lives or dies through its awareness and so I think they just have to bite the bullet and spend – and fill the coffers of the traditional media owners! Maybe the boo.com failure will instill some sense of reality though and campaigns will need to be more accountable in future,” says Helyar.