Promotions Companies Continue to Shrink

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The list of companies that announced layoffs in the Internet marketing realm this month has been a who's who of promotions and loyalty firms.


The latest to the crying game is loyalty-marketing provider MyPoints.com. Along with its quarterly earnings report, the company quietly announced it has given nearly 10 percent of its employees their walking papers.


With this announcement, here's a recap of recent downsizings:


• At MyPoints.com, 76 of its 425 employees went to MagnaCash, which was spun off from the company, and 47 were laid off.


• Beyond Interactive, an interactive agency that handles Internet promotions and media placement, slashed 63 people from its staff of 225 in the United States.


• Promotions.com announced it was letting go 13 percent of its 180-person staff.


It appears that a fickle stock market, fading dot-com companies and a drought of venture capital funding have begun to affect the stronger players in the Internet promotions categories.


"Companies have folded or are cutting budgets, and others' business development didn't pan out. It caught up with us," said Darian Heyman, co-founder of Beyond Interactive, Ann Arbor, MI. "It's due to market conditions. In general, advertising gets hit really hard when the public market tanks, because it comes right out of the bottom line. [Plus many companies view] online advertising as more experimental."


Most of Beyond Interactive's cuts were junior-level people in the account services, media and creative departments.


While spending on Internet advertising is still strong, there also is a changing of the guard, said Jim Nail, senior analyst at Forrester Research, Cambridge, MA.


"The sense I'm getting is that clearly the lavish dot-com guys are not spending $10 million on a quarter's [advertising] buys, but there is consistent growth in the number of new guys advertising on the Web for the first time," said Nail, who is working on a report on the Internet promotions industry.


"There's going to be a disconnect, because the new guys aren't going to come on as fast or at as high a level of spending as the cutbacks are going. We're likely to see growth is dramatically slower, but for the long term it's positive."


MyPoints claims the cutbacks are nothing more than trimming the fat.


"It's not the tightness of the market," said Geoff Ossias, vice president of corporate relations at MyPoints.com, San Francisco. "It's more the operating efficiencies we've always intended to achieve when we acquired CyberGold. We saw there were redundancies." It acquired CyberGold in August.


MagnaCash, a company created by CyberGold that enables micropayments, is being spun off because "it's not core to our business," Ossias said.


Promotions.com cited similar reasons for its layoffs, claiming it realized that it only needed two divisions instead of three.


Poised for rapid growth, these companies were caught overstaffed when the market climate changed for the worse, Nail said.


"It's reasonable cause and effect. This was based on inflated valuations and aggressive growth goals they had set and that the venture capitalists expected them to reach," he said. "Companies bulked up way beyond what they needed to service their existing businesses.


"They have to adjust their staffs to the reality of what their business situation calls for. Their new valuations are either more realistic or in the dumpster, depending on how you look at it."


Beyond Interactive, which is a partner company of Grey Global Group, is diversifying its client base by courting business-to-business companies and traditional bricks-and-mortars.


MyPoints.com announced that its third-quarter profits are expected to fall between $13.5 million and $14.5 million. Its losses are expected to range between $14 million and $16 million.
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