Don't blame the banner ad for shrinking dotcoms

By Kristie LuStout and Nic Hopkins
CNN Interactive Writers

HONG KONG (CNN) -- Job losses have surged in the global dotcom sector. But Asia's Internet industry isn't pointing fingers at the slumping online ad market.

Although a fresh round of layoffs at high profile Internet firms this month has seen many executives blame falling online ad sales, marketing gurus and leaders of Asia's Internet scene are rushing to defend the banner ad.

When the New York Times Digital cut about 400 staff from its payroll last week, management cited poor online ad sales. Days later, dotcom giant Yahoo! Inc blamed the weak market for a downgrade of its 2001 revenue outlook.

In Asia, slashing staff is nothing new to the region's Internet companies. China portals renren.com and tom.com and pan-Asian Net play chinadotcom have all cut to reduce their cash "burn".

Richard Robinson, marketing and sales vice president at the Beijing-based renren.com, says companies should blame themselves, not the online ad market.

"The layoffs have to do with more the whole cycle that was built up between the VCs and the dotcoms that culminated in the healthy correction. Dotcoms are failing not because online ads are failing, but because their models didn't work," he said.

More dollars to come

Patrice McAree, the new media director at media giant News Corporation's Australian division, News Limited, says more of Asia's advertising dollars will migrate to the Net.

"The advertisers see the value in online ads," he said. "They know the value and the attraction of the medium. We're convinced that more ad spend will shift to online."

Yahoo! Australia and New Zealand managing director Tony Faure says non-Internet companies are continuing to shift their marketing dollars online.

"They're the ones driving the growth in online marketing, while the dotcoms are cutting back their spending because of the weak market conditions," he says.

M Digital Hong Kong Managing Director Douglas Khoo is seeing more interest in Asian online ads from its traditional industry clients such as Kraft and Unilever.

"Biggest advertisers in the past has been IT and telecommunications, but we are seeing FMCGs (fast moving consumer goods) starting to use the Internet more," he said.

Explosive growth

Goldman Sachs Internet analyst Rajeev Gupta says expectations for online ad revenues are high because of recent explosive growth.

"People believe that it can continue to grow at 100 per cent year on year, which clearly cannot be the case with anything once it becomes as large as it has," he says.

Yahoo!'s Faure says online ad sales remain a viable source of long-term income, and companies can turn a profit on the back of banner ads alone.

Improvement in sight

Gupta predicts the online ad market in Asia will pull out of its downward spiral within months, and "approaching the third and fourth quarter it should increase quite handsomely."

Khoo estimates that the online ad spend for Asia Pacific (ex-Japan) will be approximately US $200m in the 2000, and US $450m in 2001.

Though the total online ad pie is comparatively small in Asia, Patrice McAree points out that it has always been shared between only a handful of Web sites.

"In Asia, a leapfrog effect had happened," he says." The ad money has always been held by a few portals.

"It will be different than what happened in the U.S. The trend is positive. The traditional advertisers will quickly find the value and will not compete with dotcoms for advertising space."

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