IQ Interactive Special Report: Follow The Money

Customers flock to giveaway sites, but it's marketers who have the most to gain. While some dot-com players are scanning the horizon for clouds or lashing themselves to the tiller following grim forecasts and noteworthy failures, online promotions sites see only smooth sailing ahead. No wonder, since for consumers these sites offer a chance to win cash or merchandise without having to make a purchase or lay out cash for a lotto ticket. For marketers, they offer what no real-world promotion can: one-to-one marketing based on either opt-in or user preferences. A recent survey by Jupiter Communications shows that about 93 percent of all commerce sites involve some sort of promotion, which could be anything from discounts to sweepstakes to $10 million giveaways. "Any way you slice it," says Steve Krein, president of Promotions.com, "that's an amazing number. It speaks very clearly to the fact that the Internet is a medium compatible with promotions." The stream of money from marketing coffers flowing into online promotions is growing, principally because more offline promotions war chests are being spent online, and more advertising dollars, on and off, are being spent on promotions, according to The Promotions Commotion, Forrester Research's April report on the phenomenon. According to the Cambridge, Mass.-based consultancy, marketers will spend $1.8 billion dollars on Internet promotions this year, double last year's amount. By 2005, they'll spend $14.4 billion. "Marketers tell us online promotions drive site traffic, grow e-mail promotions, strengthen customer relationships, build brand awareness and coax new Web users to make their first purchase online," says Charlene Li, author of the report. But there's another big driver: A highway billboard offering a chance at a free CD player can't target the third car from the left. Online promotions can. "I don't believe the Net per se is a great advertising medium," says Kevin Aronin, president of FreeLotto.com, a popular online lotto-style sweepstakes site. "If you want to sell Tide detergent, you should go buy a 30-sheet billboard by the side of the road. But if you want to conduct a personal conversation with somebody, the Internet's interactivity makes that very worthwhile." Benefitting from this are integrated promotions vendors, especially those who set up shop before the rush and enjoyed first-mover advantage, such as Aronin's site. FreeLotto.com has consistently been a leader in the promotions category, according to Reston, Va.-based PC Data Online, a ratings and analysis service listing site categories by reach. In April, the top promotions sites were FreeLotto.com, garnering 17.6 percent reach; Webstakes.com with 12.1 percent reach; and MyPoints.com grabbing 11.3 percent, according to PC Data. According to Nielsen/NetRatings, FreeLotto is also consistently in the top 25 most visited Web properties. For the month of April, it was the 20th site overall, first in the sweepstakes category, with 13.4 million unique users. For the week of May 13, it was the 16th Web site overall, with 6.7 million users for the week alone. Other sites, such as Santa Monica, Calif.-based iwin.com, a sweepstakes site with a Hollywood theme, offering entertainment-related prizes (a chance to go backstage or grab a walk-on part) and cash giveaways, has experienced a remarkable 1000 percent growth, last October through April, according to Media Metrix. "Beyond sex," says Doug McFarland, senior vp and general manager of New York-based Media Metrix, "what people like best is 'free.' " Media Metrix, ranking promotions sites during the period beginning April 1999 through April 2000, shows both iWon.com and FreeLotto.com leading in reach. "People love gambling and chance," he says. "Go to Atlantic City or Vegas--at the best table your odds are about 140 to 1. But people sit down and play. And online, at sites like FreeLotto.com, it's free." Between October 1999 and April 1999, according to the consultancy, FreeLotto grew almost 1400 percent. SHOW ME THE MONEY Launched last June, New York-based FreeLotto.com now has 8.5 million registered players and Aronin says he expects to have about 18 million by the end of 2000. Now, with over 18 percent reach, it's a heavyweight among promotions sites. "When they launched," says PC Data analyst Jeff Moulton, they were getting only .2 percent reach. Each month, the trend has been to increase its percentage." FreeLotto.com's million-dollar sweepstakes is modeled on the New York State Lottery, says Aronin. He claims the site's popularity is driven to a large extent by its ease of use. "When you get to our page, you know what we want you to do: pick six numbers to win a million bucks tonight. Same format as the old New York State lottery, with the same odds." It means a chance of a cash award for players, but with registration-driven data mining and opt-ins for focused advertising, it's a gold mine for marketers. "Aronin has done something really interesting with his site," says Moulton. "He's compiling a database of names whom he can target later. That helps other companies target individuals with products and services, and that's how he's going to come out a winner in this thing. He has the ability to attract marketers and say, 'Who do you want to hit, this is who I've got. Let's go get them.' That's invaluable if you are trying to market a product or service." FreeLotto.com's marketing model borrows a lot from Aronin's background of nearly 30 years in the direct marketing business. He explains that the benefit of the Internet is that while TV programming nets an individual demographic, the Internet nets an individual. Aronin says FreeLotto.com maintains a database for each player based on answers to questions and their behavior on the site. "Then we use that to serve them advertising they are likely to be interested in." After the initial online registration, a player can play other games, including a $50,000 car giveaway and a $10,000 giveaway, also with opt-in registration. Further questions posed during play, while used to direct focused advertising, are also opt-in and don't preclude further participation. "You might see a question like, 'Do you plan to buy a computer within the next 90 days?' If you say yes, chances are you'll see a banner ad for Gateway." Five players have come away from the site millionaires, and there have been countless winners of everything from $1 and up. "I wrote 600 checks last month," says Aronin. "My goal: give away a million dollars a day." Prize money comes from advertising dollars generated by clickthroughs. "We generate a couple of million banner clicks a day and charge 20 cents per click." The Forrester analysis notes that more promotions vendors are evolving to offer more than one promotions solution for marketers. In April, according to PC Data, Promotions.com's sweepstakes site Webstakes.com, achieved 12.1 percent reach, up more than 133 percent from the preceding six months. The site attracted 9.1 million unique visitors during April, and was the 36th most-visited site on the Web. "The beauty of the Internet," says CEO Steven Krein, "is that it allows a marketer to leverage the power of direct marketing for promotions." In contrast to FreeLotto.com, Promotions.com focuses on merchandise. Krein says that tangible prizes are more valuable as a marketing tool. "The end game of this whole thing is data and permission. How much data do you collect on someone who wants to win $1 million? How much do you collect on someone entering every day to win a Palm VII, or a gift certificate to Sears or a year's worth of movies?" He started the company four and a half years ago after running promotions for the National Law Journal and New York Law Journal. "We started the company with the idea of helping companies execute Internet promotions on their Web sites and e-mail campaigns," says Krein. He explains that the idea is to use targeted incentives to attract targeted audiences. "While you might be able to attract more people with a big cash incentive, what are you learning from the interaction that is beneficial to your clients?" he asks. After establishing the Custom Solutions Group as a promotions consulting group to provide marketers such as Netscape, Toshiba and Hyundai top-to-bottom promotional packages, Krein launched Webstakes.com in 1996 as a way to make targeted-prize offers to a broad base of consumers, linked with sponsorships designed to serve clients targeted customers--Autobytel, for instance, sponsoring an automobile giveaway. Its newest division, Promotions.com Direct, is a data-mining service offering marketers access to demographic profiles acquired through daily Webstakes.com promotions. Site sponsors also have access to a permission-based direct-marketing platform, called iDIALOG, allowing sponsors to deliver e-mail offers to prospects who have opted-in. "Our belief is very much that Internet promotions, as more and more of our clients come from the real world, will be integrating real-world assets," says Krein. The company runs online promotions for the World Wrestling Federation, which integrates those promotions into its live events; the Sharper Image, which integrates promotions into its stores and catalogs; and NBC, which integrates them into its broadcasts. "It's about running Internet promotions that are real-world enabled," says Krein. His three rules regarding what every promotion must do? "Collect information, dialogue with the audience and get permission." Krein is quick to note that although data provided to clients is anonymous, the company uses registration information for its own demographic modeling. "We can draw models against different subsets and groups based upon the real data, so we have full demographic data on every consumer in our database, upwards of 5.4 million consumers. But, the cornerstone of the company's philosophy is privacy." According to Media Metrix, Webstakes.com has grown 127 percent in the 6 months since last October. CASH AND CARRY Launched last October, iWon.com is a hybrid lotto site/portal that links a daily incentive-based cash sweepstakes to portal functionality, while offering the biggest consistent cash giveaway on the Internet: $10,000 a day, $30,000 a week, $1 million a month and $10 million on tax day. "People are attracted to the site to win money," says co-CEO and founder Bill Daugherty, "and they stay because of the content." According to Media Metrix, the site experienced a 277 percent expansion in user base October through April 2000. What makes the site different than game sites is that it takes the risk-free lotto idea a step further. Not only do you not have to pay to play, you don't actually have to 'play' to play. All you have to do is show up and accrue points toward daily drawings simply by engaging in typical portal activity: searching the Web, reading the news, checking e-mails or tracking stocks. Entry-tracking technology appears at the top of each page providing users with a tally of the entries they have accumulated toward the cash giveaways. It is frequently on Nielsen/NetRatings' top 25 most-visited Web properties, with users at home and at work. "It's a portal with a drawing as the driving force. It's just like Yahoo!, but it's driving traffic with the incentive of a lottery," says Moulton. The company's marketing campaign is backed by CBS and the site has received a total of $200 million in private equity financing, including $100 million in private equity secured this February. "Reach is important," says Daugherty, "but what you want is a large, loyal group of customers. That's what we are building and that's why advertisers are attracted to us." Looking ahead, Forrester predicts that the analytical benefits of online promotions--coupled with their ability to influence behavior in crucial targeted audiences--will shift dollars away from traditional ad spending on TV, radio and newspapers. Moulton says that users will continue flocking to the sites. "You gotta be in to win," he says. "The mind set is instant gratification: win $1 million, win $10 million. All you have to do is enter your name, e-mail address and a couple of other things and you're good to go." n Who plays? Half of all online sweepstakes players are men and half are women, according to PC Data's Jeff Moulton. He says the largest group of users is between 35 and 54 years old and 24 percent of players are between ages 18 and 34. Though the majority of players are not unique visitors but consistent players, the market is broadening. "When you look back to October 1999," he says, "you are seeing a reach of 27 percent--meaning 27 percent of the home Internet users based in the U.S. visited sweepstakes sites." In March that number rose to 35 percent. "That means 17.5 million unique users are going to this category of sites, growing to almost 24 million unique users by March," Moulton says. Don't look at it just in terms of men and women, but also age-break skews, says Doug McFarland, senior vp of Media Metrix. The largest category of players, he says, is women 35 to 54. He adds that FreeLotto.com's largest demographic group is women between the ages of 35 to 54, constituting 27.5 percent of the audience. Men ages 25 to 34 constitute 9.1 percent of the site's audience. "Women buy slightly more lottery tickets than men and the older you are the more likely you are to buy a lottery ticket," he says. The picaresque-minded may imagine lotto and sweepstakes players living hand-to-mouth, desperately seeking an infusion of cash, but the numbers show otherwise. Most players are bringing home--if not the whole hog--at least the bacon. According to PC Data, 47 percent are making $35,000 to $75,000 per year.--K

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IQ Interactive Special Report: Follow The Money

Karl Greenberg

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