When dot-coms irk ad agencies, more often than not it's splitsville

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By Suein Hwang THE WALL STREET JOURNAL

SAN FRANCISCO – Advertising agencies, long steeped in backslapping relationship-building, are beginning to play hardball with maverick dot-com clients.

Increasingly, agencies are taking the harsh step of walking away from accounts – and huge stacks of cash.

WHILE THE WEB has brought a windfall to Madison Avenue and West Coast agencies, it’s also touched off a culture clash that is rewriting the rules on allegiance, payments – even quitting accounts. With dot-com loyalties turning on a mouse click, media buyers, newspapers and TV networks now often demand that Web clients pay up front, often months before ads are scheduled to run. They say they fear that Web start-ups will back out of their ad-purchasing commitments. And, increasingly, agencies are taking the harsh step of walking away from accounts – and huge stacks of cash. One recent dot-com dropper is Goodby, Silverstein & Partners. Late last month, it showed the door to client PlanetRx.com, an online drugstore with an ad budget of about $20 million, according to industry estimates. Executives for Goodby, with clients including Budweiser, Hewlett-Packard Co. and E*Trade Group Inc., say they simply got fed up with the start-up’s continual fickleness. Goodby General Manager Harold Sogard says the breakup, in the end, was “mutual.” PlanetRx says it shifted its account to New York-based Gotham Inc. because its campaign needed a new direction. In dumping clients, the advertising industry is turning the tables on the dot-coms, which have shown little hesitation themselves in switching agencies. Seattle-based Drugstore.com, another online drug company, has already burned through two agencies since the summer and is onto a third. Drugstore.com first used San Francisco-based LeftField, then Interpublic Group’s McCann-Erickson, which it says it hired on a temporary basis. It now uses Fallon McElligott, Minneapolis. “Our culture is that we’ll try this today and try something new tomorrow,” says a spokeswoman for Drugstore.com. “Nobody has a road map, so we’re all innovating and coming up with new approaches.” With multitudes of cash-flush start-ups clamoring for advertising space, ad agencies can be choosier than ever. Black Rocket, a San Francisco ad boutique known for its ads for Yahoo! Inc., quietly parted ways with online retailer Buy.com earlier this fall. People familiar with the breakup say the agency grew frustrated because it couldn’t get approval on a creative direction and so resigned the business. Black Rocket, which began the account in April, declined to comment, as did Buy.com, citing the quiet period before its initial public offering.

“In the old days, you’d be very reluctant to resign a business, because you’d worry about replacing the revenue,” says Tom Bedecarre, chairman of Havas Advertising’s Citron Haligman Bedecarre. “Now, when you have a lobby full of people trying to hire you, why stick around in a relationship that doesn’t work for us?” It took just a few meetings, for example, before Citron decided to drop one new Internet client that was vowing to spend $20 million in advertising. “There was no consistency between what the CEO had to say and what the vice president of marketing had to say,” says Mr. Bedecarre, declining to name the client. “We realized they were going to be fighting amongst each other about everything.” The last straw: The start-up’s vice president rang up a Citron executive late one night and began screaming and using “abusive language,” Mr. Bedecarre says. Many of the problems stem from the stark contrasts between the Web and advertising worlds, ad executives say. Unlike dot-com executives, who may be willing to deal with long hours and problem personalities in hopes of getting rich, most agencies are still paid by a flat fee. Little wonder, then, that salaried agency executives are less than enthralled when clients demand a meeting on Thanksgiving day – as one recently did – or insist they fly to the opposite coast for a 20-minute meeting. Particularly frustrating to ad executives are Internet executives with scant ad experience and little understanding of brands and marketing. Agencies say they worry about investing too much of their own resources to create a new brand image – only to see it walk out the door when the dot-com gets restless. Particularly frustrating to ad executives are Internet executives with scant ad experience and little understanding of brands and marketing.

“A start-up needs a lot more than just producing ads,” says John Yost, president of Black Rocket. “It can be as time-consuming to serve a $1 million account as a $20 million account.”

‘TOO DIFFICULT’ It was that risk that led Publicis & Hal Riney, creator of ads for eToys Inc., to offer its resignation to an Internet client just last week. “Given the size of the account, it became too difficult, because the company’s objectives were a moving target,” says Timothy Maleeny, senior vice president at Hal Riney, who declined to name the client. “At some point, you have to decide whether it’s worth it.” That’s the point executives at Goodby finally reached with PlanetRx. Problems that plagued the PlanetRx campaign, which Goodby took over in September, are typical in dot-com advertising, say executives familiar with their work together. At first, they say, PlanetRx insisted that its new campaign be on the air by early December. With a host of competitors touting their sites, PlanetRx was in a rush to get its name out there. But less than three months’ lead time precluded the agency from doing the kind of strategic research it usually does. Making matters worse, the executives familiar with the campaign say, PlanetRx officials just couldn’t agree on what image PlanetRx should broadcast. Grandiose? Down-to-earth and approachable? Funny? The December deadline came and went as the agency presented round after round of campaigns to PlanetRx officials, the executives say. In October, Michael Beindorff, previously head of Visa International’s Internet division, joined PlanetRx as chief operating officer and took responsibility for the campaign. Mr. Beindorff says he agrees the early effort lacked direction, though he says Goodby deserves some of the blame. “There wasn’t a clearly established target in terms of what we were trying to accomplish here,” he says. “We asked the agency for that, and we didn’t get it.” Mr. Beindorff says he decided that PlanetRx should do new exploratory research and retained Interpublic Group’s Gotham to do it. For Goodby, that was the last straw: Executives met Mr. Beindorff for lunch and suggested that they resign from the account. PlanetRx, which has completed its IPO and has a market capitalization of more than $1 billion, accepted its offer. Mr. Beindorff says that as far as he knows, his company had always planned to begin airing ads in late January. And since his company and Goodby parted ways, he says, “we’ve had absolutely no trouble determining what our positioning ought to be, and creating advertising against that.”

Another broad source of discord: Start-ups increasingly want to switch to big-name agencies – not as much to get more-creative work as to gain an aura of credibility that might attract more investors. Black Rocket’s Mr. Yost says he was taken aback when a prospective Internet client explained that if it succeeded in hiring the agency, the start-up would stand a better chance of luring venture-capital funding. “It’s the trophy-wife syndrome,” says Jon Steel, Goodby vice chairman. “You just have an instinct that some people are less interested in what we do than who we are.”