Even the checkout line tabloids would have trouble making this news sound surprising: A company that pays people to surf the Web is laying off workers. On the surface, it seems that if anything is shocking about this revelation, it’s that it did not come sooner.
The company, AllAdvantage.com, is sticking by its guns, saying that the 10 percent staff reduction — 60 workers in the United States lost their jobs — is simply a matter of trimming costs and restructuring its departments.
But in an era when some firms with relatively sensible business plans are being sucked under — companies that exchange goods for money, let’s say — can a company that pays people for nothing more than their attention really survive?
The answer to that question might be the only truly surprising aspect of this scenario, because it is yes. If carried out with caution and a good strategic plan, giving away money can be a perfectly logical way to make money, especially on the Internet. And especially in the new age of heightened concern about Internet privacy.
Tale of Woe — So Far
The layoffs are not the first sign of trouble at AllAdvantage. The California company recently yanked a planned IPO, citing market conditions, and has fiddled with its upper management as well.
So far the numbers just have not added up. During the four-month period from December of 1999 to March of this year, AllAdvantage paid out $32.7 million (US$) to customers but took in only $9.1 million from businesses. At the same time, the company was growing rapidly, adding to the cash drain.
Part of the reason for all the red ink is that AllAdvantage had to put the horse before the cart. The company could not begin selling ad space to other firms and could not begin charging a premium for those ads until it built up a strong base of users.
Checks Is (Almost) in the Mail
But things got out of whack in AllAdvantage’s effort to build up its base of potential ad viewers. Last month, the company reduced the number of hours its two million regular surfers can get paid for, and said they would have to wait longer for their money.
So, is it over? Maybe for AllAdvantage, but probably not for firms that can take the company’s basic premise and refine the idea enough so that money will not bleed out the doors and windows. The fact is, Internet advertisers will pay huge sums of money to reach their audiences. For proof, you only need to look back at the deluge of dot-com commercials during the Super Bowl.
However, the Super Bowl not only demonstrated how much money companies are willing to spend for advertising, but also proved how inefficient it is to market to a few hundred million people worldwide when all a company really wants is to grab the attention of a small target market. A brief look at the fate of the companies that plunked down $2 million-plus for 30 seconds of air time tells the story.
Some companies with appeal for a broad audience — like Pets.com — have thrived, but more specialized sites, such as Computer.com, failed to ignite. Others, like Essential Marketing — whose big Super Bowl ad was strictly a roll of the dice — have folded up shop.
The bottom line is that companies will pay big time for access to their target audiences. That is why customer lists are big business — and there’s the rub.
Among Internet concerns, privacy is number one with a bullet, likely to prompt a tidal wave of legislation and regulation in coming years. Marketers know that sharing customer information without consent is going to become more and more difficult. That makes the practice of buying or selling customer lists increasingly risky.
And that is exactly why any Web site or opt-in program that invites potential customers to willingly accept targeted advertising is going to become increasingly valuable. Opt-in e-mail is currently the rage among marketers, for good reason. The response rates are high.
With Media Metrix saying just this week that online advertising drives customers to retail sites, any plan that will get those most willing eyes on banner ads is starting to look very good.
But is it really necessary to give away the store to get those customers? Not exactly, but online shoppers are savvy bargain hunters who know a deal when they see one. Getting paid to spend time online, just for allowing advertiser messages on the screen, is a pretty good deal.
True, there is the glaze-over effect: The most willing surfers quickly get used to seeing banner ads and pop-ups wherever they go. But once they have committed to letting the ads into their lives, doesn’t it make sense that they would prefer to look at those that match their interests?
Naturally, a company must stop short of giving the customers all of its cash. Some holes are too deep to crawl out of. But making money is still one of humankind’s strongest incentives, and the Internet is one of the best tools for targeted marketing ever invented. Put the two together and the result is a strong argument that — despite its faltering — AllAdvantage might be in possession of the right idea after all.