Internet portals are turning to a staple in the offline world to bolster their e-commerce strategies: loyalty programs.
Trying to shake a laggard label in e-commerce, Infoseek and Disney today unveiled Go Shop, the first phase of a broad online shopping strategy. It's not about loyalty yet, but the partners in Go Network are dropping liberal hints about their frequent-user plans.
America Online pioneered the concept of rewarding Internet consumers for buying at one location, just as frequent flier miles are given to air travelers, and many have followed. Yahoo has a loyalty program for its Visa card, MSN Shopping and Yahoo are working with online incentives firm Netcentives, and Lycos expects to add loyalty incentives this year.
Excite and Netcenter offer no incentives, but Netscape's portal is evaluating the issue and could adopt AOL's program when the acquisition closes.
"Loyalty is definitely catching everyone's attention in the portal space," said Jupiter Communications analyst Fiona Swerdlow, who wrote a report about online loyalty programs in October.
"The portals are realizing that it's one thing to have great utility--email, stock quotes, or whatever--to keep users coming back frequently, but when it comes to shopping, the idea is to drive repeat purchases. That's where an online loyalty program becomes a necessity," she added.
Some analysts think giving away freebies, another effort to buy loyalty, is just a marketing ploy, and not a very effective one. But frequent flier programs and supermarket chain loyalty programs are well established in real-world commerce.
On Monday an Infoseek executive disclosed plans for a repeat-user program at an investor conference, and a Go Network's e-commerce executive elaborated today.
"A really good Go Network loyalty program would not just allow you to earn points when you buy products but also earn points when you register for the network, set up a personalized home page, or participate in chat rooms and communities," Michael Baum, Go Network vice president for e-commerce market development, told CNET News.com today.
That would mimic AOL's approach for its proprietary service, which gives loyalty points for taking tutorials, completing a survey, or buying something, Swerdlow said.
Baum said Go Network users also could cash in loyalty points not just to buy goods or services but also to host a celebrity chat room or conduct another activity online.
Loyalty points are meant to increase portals' e-commerce revenues, working as an add-on for their second-generation online malls, which let shoppers use a common shopping basket and pay once for purchases from different storefronts within a portal's shopping area.
For Go Network, Go Shop helps catch up to the competition, Baum acknowledges. The shopping service works across Go Network's multiple properties, including Infoseek's search engine, Disney, ABC News, ESPN.com, Mr. Show Biz, ABC.com, and Family.com.
"They have raised the bar on the integration between content and commerce," said Forrester Research analyst Kate Delhagen. "To the extent that they can do content/commerce integration and own a customer for a longer time, that's a huge win for them."
"I am very bullish on user loyalty incentive programs, especially from the vantage point of not just commerce but a network perspective," Baum said. "We are a network, and we do have a much longer time in front of users during their whole experience, not just when they're buying products."
AOL is the acknowledged leader in that area, and it's not lost on competitors that AOL users spent $1.2 billion over the holiday season at merchants hosted on AOL.
But portal efforts in loyalty program face two major stumbling blocks, said Richard Turcott, manager of Lycos Network Corporate Rewards program, who's trying to work through those issues.
"We've put quite a bit of work on financial modeling and infrastructure for loyalty programs," Turcott said. "If you talk about points and rewards, how is that financed? How much does it take off your margins to do it?"
Loyalty points essentially become a currency all its own with implications for online statements, credit card programs, and data transfers between the back-ends of participating merchants, he observed.
Merchants that pay 3 to 15 percent of gross receipts to a portal aren't eager to give away incentives, noted Jill Frankle, e-commerce analyst at International Data Corporation. "They're basically paying you to participate and spend time on their site, in hopes of getting you to buy, but you need buy-in from merchants "
"Maybe part of a loyalty program is [a cost] Go Shop would have to eat," she said, speaking of Go Shop's longer-term plans for loyalty points. "They need to have a way to tie their merchants together, so it's not just a group of shops there. A loyalty program is one of the major ways."
Adds Lycos' Turcott: "The trend on the Internet is from customer acquisition to customer retention, and the customer loyalty programs help meet that need nicely."
To set up such programs, the big sites are talking to vendors like Netcentives or Intellipost, which have expanded from their own branded rewards programs into private-label versions for customers like the portals.
"We branched into custom loyalty programs for major portals and brands," Netcentives CEO West Shell said earlier this month. "We are going to develop and operate large customer loyalty networks. We have not announced any deals so far, but we're negotiations with most of the major portals."