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HolidayBuyer's Guide
Internet

Will direct-marketing sites hit target?

Companies harvesting Web shopper information in exchange for coupons, airline mileage points, and sweepstakes entries are launching public offerings that could prove to be their own version of a Publisher's Clearinghouse windfall.

Companies harvesting Web shopper information in exchange for coupons, airline mileage points, and sweepstakes entries are launching public offerings that could prove to be their own version of a Publisher's Clearinghouse windfall.

Online sweepstakes start-up Webstakes, for instance, began trading today after pricing its IPO yesterday at $14 per share. And shopping incentives site CyberGold, which went public yesterday, saw its shares close at 12, up 3 points, or 33 percent from its $9 price.

Incentive sites generally email advertisements from companies such as Barnesandnoble.com, SmarterKids.com, and CDNow to a pool of registrants. Customers can then earn rewards for browsing and registering on the advertiser's site, buying items or just reading advertisements.

Using marketing techniques long used offline, these incentive programs offer Web companies a new way of luring and keeping customers. Their direct-marketing efforts could prove more successful online and ultimately provide companies with much more detailed and specific research, analysts say. But whether these new companies can execute a profitable business model is an open question.

Cybergold, for one, lost $3.95 million on $1.29 million in revenue during the first two quarters of this year. Still, the business model is "too new" to judge whether it will work, said Thomas Weisel Partners analyst Christopher Vroom.

"I'm not sure whether it makes a ton of sense," Vroom said.

The incentive sites range from Webstakes, which offers customers the chance to win gifts and prizes, to Cybergold, which offers customers cash for browsing Web sites and making purchases on affiliate sites. Other companies--such as MyPoints.com, which went public last month, and Netcentives, which filed for its IPO in July--offer frequent flier miles for browsing their partners' sites.

Businesses use these programs to help draw and keep customers, which usually is a huge expense for online stores. With so many online retailers, stores must spend huge sums to build brand recognition. And once they draw customers to their site, there's no guarantee they will return, considering that the competition is only a click away.

For example, Amazon.com, which has been among the most successful at drawing and retaining customers, spends about $37 to acquire a new customer, according to Argus Research analyst Alan Mak.

But not every company can afford Amazon's investment. Instead of spending $100 million on a television ad campaign, online incentive programs allow companies to target specific market segments. Barnesandnoble.com, for instance, could offer a special deal to women between the ages of 30 and 50, or CDnow could target college students.

They also use frequent-flier miles, cash, or points to give shoppers an incentive to return and hopefully buy more.

MyPoints.com chief executive Steve Markowitz said the company has some 3.7 million members, as well as merchant partners including Sprint, Blockbuster, and Eddie Bauer. MyPoints.com ranked eighth in Media Metrix's listing of top Web sites in August, with more than 4 million unique visitors.

"We target customers in ways that no one else on the Net can facilitate," Markowitz said.

MyPoints.com posted a net loss of $15.79 million during the first six months of this year on $3.94 million in revenue. According to regulatory filings, the company has lost some $36.8 million dollars since its inception in November 1996.

Other incentive companies also have reported big losses. Netcentives lost $16.15 million on $3.02 million in revenue through the first six months of this year. Webstakes lost $4.39 million on $3.05 million in revenue over the same period.

Keenan Vision analyst Vernon Keenan said he expects the field of players to thin out, with only the strongest incentive companies surviving. The programs that will succeed will be "simple, easy to use, and translate into some sort of reward that people want," he said.