By Steve Weinstein
By Devon Maloney
By Tessa Stuart
By Alison Flowers
By Albert Samaha
By Jesse Jarnow
By Eric Tsetsi
By Raillan Brooks
When a company swallows halves of subway cars and plasters them with identical ads, the biz calls these "brand trains." Tristate tech start-ups shell out $150,000 apiece for monthly placement in a single car on 10 percent of the city's fleet. The ads, designed to drill Web addresses into potential users, are excruciating, oozing preternatural joy, electric colors, and obscure hope onto the grim commuter crew below. "Their music drowns out the evil voices in my head," says a disembodied face in one brand train. Others read, "Go deep." Or the haunting "Think it. Do it."
But these companies' creative directors and financial managers speak different languages. Crafting the reports companies must file with the Securities and Exchange Commission before going public, the financial heads write more entertaining copy. To find the latest underappreciated work of these scribes, head to www.sec.gov/edgarhp.htm, where you can check out ditties like this one from Hotjobs.com: "We may not be able to effectively manage our expanding operations." Or this snappy little Wall Street number from StarMedia: "We have never made money, and expect our losses to continue."
"We have lost money every quarter and every year, and we expect to lose money in the future."
Breezy, multicultural youth jostle one another over the warm phrase "Tu comunidad en Internet" in the ads for StarMedia, a New York-based enterprise that sponsors Web, broadband, and wireless services and buys up Internet companies in Latin America and Spain. But while the company has built a "virtual central plaza" in Barcelona, Bogotá, Buenos Aires, Caracas, Madrid, Medellín, Mexico City, Montevideo, Pereiro, Rio, San Juan, Santiago, and São Paulo, its SEC report says StarMedia racked up a deficit of $149.3 million by the end of 1999.
According to the report, five advertisers accounted for a striking 16 percent of StarMedia's income, and 27 percent more came from trading ads with other companies, exchanges that generate no cash. Sales and marketing expenses soared to $53.4 million, 266 percent of the total revenue. Flowing scarves on distant beaches are no more breathtaking than the report, which warns that political conditions in Latin America could lead to unexpected losses. "Although our revenues have grown in recent quarters, our expenses have grown even faster and we expect to increase our spending significantly," the report says. "Accordingly, we will need to generate significant revenues to achieve profitability. We may not be able to do so."
Hotjobs, a recruiting site, runs an omnipresent subway campaign with placards that advise, "Go places" and "Two weeks notice." "Our name is intuitive, but it has a little edge," says Marc Karasu, the company's director of advertising. "The word hotcombined with the word jobscreates a general imagery that our jobs are fresher, newer, deeper, and better than those at other job sites. We play with different creative messages using the O. That O is also beginning to test well with people. Not that we'd use it without the name. Nike wouldn't use just the swoosh for many years. But it's nice to have."
But inside the O is a hole of more than $37.2 million, as of the end of last year, and an estimate filed with the SEC that the drain will continue for the "foreseeable future." Still, the company had $15.9 million locked up in advertising until the end of this year. Its document vibrates with an uncertainty that reaches down to the roots, with statements such as "The Internet is not a proven recruiting medium," "We may not be successful in our plan for international expansion," and "We may experience reduced visitor traffic, reduced revenue and harm to our reputation in the event of unexpected network interruptions caused by system failures."
The financial statements these companies file are stark love letters to the new economy. About.com has "knowledgeable human guides" and a deficit of $81.8 million as of the end of last year. As the company puts it, "We have lost money every quarter and every year, and we expect to lose money in the future." Aether Systems, the company that cofounded OmniSky last fall to offer wireless e-mail, writes, "We reported net losses of $2.7 million, $4.7 million, and $30.7 million for the years ended December 31, 1997, 1998, and 1999, respectively." OmniSky, in turn, reported a net loss of $5.7 million for its first few months of existence.
Amid this quicksand, the ads assaulting public space in New York can be explained as elaborate mating calls to the Wall Streeters who can keep a company's burn-rate above sea level. But in the cold calculus of an Internet economy, the ads are also an unavoidable drain on the coffers. "What you should stress is not what they cost, but what companies get for it," says Jodi Senesi, executive vice president of marketing at TDI, the company that hawks transit ads for the city. "All of New York goes down there at one time or another in the course of a month. The average ride is 25 minutes, and there's a captive audience, viewless windows, and nowhere to look. People don't like to look at the person across from them. Everybody is just gazing up at the ads."
The ad buyers call their strips "virtual storyboards" and "virtual exhibits." They use argot like "impactful," "aspirational," "optimistic," "nurturing," and "edgy." They employ the word "captive," "but not in the negative sense." They do press interviews in groups, on speakerphones, with public relations people in the room. They write ads in which ironically out-of-place models beg, "Please make my band famous so I can be a sell out" over lime neon.
"In New York we're a little more open, crazier, more cutting edge," says Britt Ehringer, Soundbreak.com's creative director, from the company's office in West Hollywood, where the start-up runs a virtual radio station with a 24-hour live feed and, according to its SEC filing, pays about $36,000 for monthly rent. "What we do we can't explain in seven words or less, so we need to grab their attention, to pique their interest. . . . I wanted irreverence and humor. Get them to laugh or chuckle and they're on your side."
Merely tickling commuters may not be enough. Acacia Research, the West Coast tech incubator that funds Soundbreak and its advertised "aural pleasure," hurls fistfuls of cash at new media ventures. But it keeps a clear head as to where its money goes. "We generally invest in start-up ventures with no operating histories, unproven technologies, and/or products," the company reports to the SEC. "Because of the uncertainties and risks associated with such start-up ventures, our investors should expect losses, which could be significant, associated with any possible failed venture." Later, it adds, "We cannot provide assurance that Soundbreak.com will generate revenues or achieve profitability."
No "aural pleasure" there.