Pay-to-surf site hopes to ride a different wave

And like many Internet companies, the 15-month-old start-up is looking around for other ways to make money.

Hayward, Calif.-based AllAdvantage, which pays its roughly 2 million members to surf the Web while viewing advertisements, said it is launching a network to sell ad space for other services, including free Internet access provider FreeInternet.com. It will also expand its services so members can enter to win a daily $50,000 sweepstakes or donate the dollars they earn from the program to charity.

AllAdvantage's expansion runs in reverse of company cutbacks a month ago, however. It shaved 10 percent of its work force and withdrew its filing for an initial public offering.

"We're fighting for profitability," said Jacques Clay, the company's chief operating officer. "We believe our success resides on the growth of our membership and growing our revenue lines. We not only have advertising and member services but we have software solutions for companies who want to manage their customers."

The daily sweepstakes, which will give away more than $18 million annually, are a way to attract new members and, in turn, more advertisers and partnership promotions, Clay said. The ad sales, called the Advantage Network, will bolster the company's revenues through commissions and "expand the efficiency and reach of our sales force," he said.

AllAdvantage, along with other direct marketing companies, has been hit by the same investor skepticism that knocked the rest of the Internet industry on its side since the market malaise in April. To deal with this, many companies have looked toward other revenue streams to weather the market downturn.

"The most important change with Internet companies in the last six months is a movement toward diversified revenue streams rather than single-stream revenue sources," said Meredith Medland, a director and analyst for Jupiter Communications.

"And in the case of AllAdvantage, clearly their movement toward diversifying their revenue streams increases their likelihood for survival," she said.

Some companies in the industry have also changed their focus or have consolidated their efforts to better compete.

Publicly traded companies such as CoolSavings.com, MyPoints.com and Promotions.com have seen their stocks wither near their 52-week lows. MyPoints bought rival Cybergold in a $157 million all-stock deal in April, and last month, pay-to-surf company mValue changed its name to SweepSurf.com to give away prizes online instead of offering cash.

AllAdvantage has partnered with Net2Phone and others to resell low-cost products and services, such as discount phone cards, to its members.

The effort to expand its business model is a result of the high cost of paying members to surf the Web. In an early Securities and Exchange Commission filing, AllAdvantage reported paying $32.7 million to members from December to March but earned only $9.1 million in the same period.

The company's members download a program that delivers ads and promotions to them as they surf the Web. Members earn money by surfing and referring friends to the program.

Starting Sept. 1, AllAdvantage members will be able to choose between fixed payments to surf the Web or the chance to win $25,000.

Moving into online giveaways, however, is not always a guaranteed slam dunk. The market is already saturated with competitors such as iWon.com and now SweepSurf. Clay said AllAdvantage's benefits and daily cash prizes eclipse those offered by its competitors.