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Is Zunch Communications' Bankruptcy a Sign of Things to Come?

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Zunch Communications has declared bankruptcy, but Zunch Worldwide lives on. The new entity bought the assets and took on some of the debts of SEM firm Zunch Communications in October 2006, and that company finally filed for bankruptcy last week.

While clients that stayed on with Zunch Worldwide were not affected, any unsecured creditors were basically hung out to dry, left to muddle through a bankruptcy process that is bound to be fruitless, since the Zunch Communications entity has no assets to speak of, other than the payments that Zunch Worldwide will make over a period of time.

Zunch is spinning this bankruptcy as a part of a larger trend coming to the industry, but others say that's not the case.

Zunch Worldwide spokesperson James Sadler said this was a direct result of a slide in business precipitated by the departure of six key executives in October 2005. When they left to start Kinetic Results (now Dexterity Media), Zunch lost some clients, including one spending more than $1 million a year.

"Essentially, Zunch Communications never fully recovered from that split. Zunch Communications fell further behind both in paying its obligations and in servicing its clients," Sadler said.

The other side of that story is that those executives left because they saw that it was headed toward this path. According to Tony Wright, VP of client services at Dexterity Media and one of the six, "We left because we saw the company was doing some things that we didn't agree with. For them to infer that the bankruptcy is the result of us leaving is absurd."

Others left the company before those six, notably Mark Jackson, Zunch's former president, who's now president and CEO of Vizion Interactive. Jackson left Zunch in March 2005, and similarly expressed his differences of opinion with Zunch CEO John Sanchez.

"There were some decisions made with the finances that I did not agree with," Jackson said. "At one point in time, we had a great company, doing great work for great clients."

Sadler said that given the SEM landscape today, more bankruptcies like this should be expected. That could mean consolidation, if there's value to be had. Reprise Media is the latest SEM firm to go that route. But Sadler says he expects the more common fate to be dissolution.

"I'd be surprised if there wasn't some kind of shakeout over the next couple years," he said. "The trend seems to be that people go to work for an SEM company for a while, then think they've got it all figured out, so they go start their own company. That's a lot of diluted talent chasing after the same ad dollars."

While there is certainly something to the idea of an over-saturated market, that doesn't appear to be the cause of Zunch's problems. Both Vizion Interactive and Dexterity Media are doing well in the same Dallas-Fort Worth market that Zunch is based in, as are many other SEM firms.

"There's a small percentage of companies out there engaging in search marketing, and many of them are using agencies that don't understand how to manage their campaigns to ROI goals," Jackson said. "We continue to add to our team and add clients. It's not been an issue for us."

Dexterity Media is also thriving, according to Wright. "If you look at the growth of the search market overall, there are so many people out there whose Web sites really need help. We don't have any problems finding business," he said.

Disclosure: Jupitermedia, former corporate parent of Search Engine Watch and Search Engine Strategies, is an unsecured creditor in the Zunch Communications bankruptcy, as are Wright and Jackson.


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