At NBCi, Brand on the Run

Everyone on the Internet would like a brand that's as solid as a bricks-and-mortar dwelling. But compared with company labels that have real-world roots, a lot of the dot-com start-up brands look more like houses made from straw.

That's one of the lessons to be learned from NBC Internet's (NBCI Quote - Cramer on NBCI - Stock Picks) announcement Monday that it will be phasing out its Snap.com and Xoom.com sites in favor of an all-inclusive portal dubbed NBCi.com. In response to that news and an earnings warning, investors blew NBCi's house down Tuesday, slamming the stock down 7, or 28%, to 17 5/8.

The move to jettison the name of Snap.com, a property that CNet (CNET Quote - Cramer on CNET - Stock Picks) launched in 1997, is a sign that even some of the best-known Web brands with no-longer-infinite financing may be no match for companies with cachet predating the Internet. And that could spell bad news for small, unaffiliated dot-coms, as well as larger portals like GO.com (GO Quote - Cramer on GO - Stock Picks) and Excite@Home (ATHM Quote - Cramer on ATHM - Stock Picks), which are trailing industry leaders America Online (AOL Quote - Cramer on AOL - Stock Picks) and Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) in the quest for advertising and e-commerce dollars.

Consolidation Calls

NBCi CEO Will Lansing says the decision to drop Snap.com was easy once the company accepted the concept that to maximize the impact of marketing and promotion dollars, it should consolidate its spending on a single brand.

"NBC is head and shoulders a stronger brand than anything else in the portfolio of assets," he says. "You couldn't build a brand like NBC for billions of dollars." NBC parent company General Electric (GE Quote - Cramer on GE - Stock Picks) is NBCi's largest shareholder.

And, of course, consumer-focused Internet companies don't have access to billions of dollars these days. "We don't have the resources to support multiple brands," Lansing says.

Building even a single brand on the Internet is too difficult to be done anymore, says Lansing, despite the successes of companies like Yahoo! and Amazon.com (AMZN Quote - Cramer on AMZN - Stock Picks). "I think the days of starting in a garage and building an Internet brand from scratch are over," he says. "I think the last one that did it was eBay (EBAY Quote - Cramer on EBAY - Stock Picks)."

Teaming Up

Instead, if smaller companies want to survive, they'll have to team up with a larger property that can deliver the traffic that a strong brand might have under other circumstances, Lansing says.

Other people -- even those not affiliated with a relatively large property like NBCi -- agree. For a small Internet company to create a memorable brand, "it takes an awful lot of money, and very clever people working for you," says Allen Kay, chairman of advertising and marketing firm Korey Kay & Partners. A better strategy, he says, is "nesting" in a larger site and taking advantage of what Kay calls the inertia of people already going to that site. "It is very difficult today to create your own inertia."

GO Fish

The task has proven too much even for larger companies. NBCi's experience echoes that of Disney (DIS Quote - Cramer on DIS - Stock Picks). After taking over the portal Infoseek, the company launched the general-interest GO.com portal to be an umbrella site for several of its Internet properties, including ABCNews.com and ESPN.com. But after heavy promotion of GO.com, the company said earlier this year that it would pull back from being a general-interest portal and focus instead on entertainment and leisure.

"It's really tough to build a brand online, just as it's tough to build a brand off-line," says Robertson Stephens Internet analyst Lowell Singer. "If you could do it in three months, Procter & Gamble (PG Quote - Cramer on PG - Stock Picks) would have figured it out 50 years ago."

In an illustration of how hard it is to build brand loyalty on the Internet, Net consulting firm Digital Idea recently released research indicating that the percentage of many sites' users that can be classified as loyal is rather low. Among portals, Yahoo! showed the highest rating in the study, with 23% of its user base categorized as "loyal." The corresponding figure for Snap.com was 3%.

In another recent illustration, video retailer Hollywood Entertainment (HLYW Quote - Cramer on HLYW - Stock Picks) said Monday it was closing its Reel.com online retailing operation because it was unable to fund "rapid customer acquisition."

Singer says NBCi is taking a big risk by getting rid of the Snap.com and Xoom.com brands, given the sites' loyal memberships. Consolidating under the NBCi brand, he says, will be challenging for NBCi. In the wake of NBCi's disclosure of its new strategy, as well as its warning that revenue and earnings will be lower than expected in the second quarter and in the full year, Singer cut his rating on NBCi from buy to long-term attractive. Robertson Stephens was a co-manager of NBCi's IPO.

But branding appears to be a challenge for everyone. "There is no answer to this," says Catherine Schulte, vice president of the Brand Momentum Group marketing services firm. "Everybody wants the same thing. You want a lasting brand."