jrolsen
06-25-2000, 10:51 AM
Thought this concerns a lot of people on this forum. Senior members - Am I out of line posting this here, or is it reasonable for the gotdeals forum since it involves alladvantage (which almost all of the gotdeals people use or have used at some time)?
http://www.fortune.com/fortune/technology/daily/0,3467,617000619,00.html
______________________
June 19, 2000
The Dumbest Dot-Com
Mark Gimein
April's Internet crash stranded dot-coms. With their IPO hopes put on indefinite hold, many lie suffering like huge, beached whales bleeding cash. Just recently the talk was of who would have the biggest IPO. Now, the talk has changed to who will be bought next, who will die next, who will blow up with the biggest boom, and what was the silliest idea to start with. In the last two categories, there is no better answer than AllAdvantage.
Right now AllAdvantage is the fattest whale on the dot-com beach. It might take some months for the game to play itself out, but if you care to bet on the biggest private company blow-up in Silicon Valley-- a blowup at least as spectacular as the ill-fated Boo.com and Digital Entertainment Network--put your money on AllAdvantage. In close to one year of operation, AllAdvantage raised $135 million and has already spent the bulk of it, losing $66 million in the first quarter alone. But sheer numbers don't really convey the magnitude of the folly. There are other companies that manage to lose huge amounts of money. What sets AllAdvantage apart from the others is that of all the big dot-coms that have come out of Silicon Valley in the past two years, AllAdvantage might be the purest expression of Net frenzy: It signed up millions of members, and paid them to surf the Web--literally giving away money in the hope that simply having enough users would magically make it profitable.
When members sign up on the AllAdvantage site, they download an advertising bar that stays on their screens as they surf. For every hour that a member browses around with the AllAdvantage bar on his screen, he gets 50 cents. And, if that user refers another member to AllAdvantage, he gets 10 cents more an hour for every hour he surfs. So, he gets more money for every member that he refers, on to several levels of referrals. Members with a big "downline"--lots of referrals--could make several thousand dollars a month.
So how was AllAdvantage supposed to make money? In theory, it was easy. It would collect information about its users' surfing habits and use this to target advertising. Known as an "infomediary"--a site that collects and aggregates information from a lot of users remains a popular one among theoreticians of the Net. Started by two newly minted Stanford Business School grads, a computer science Ph.D., and investor/entrepreneur Jim Jorgensen (who signed on as CEO), AllAdvantage had all the neatness of a business school project. How do you get users to look at a lot of ads on the Web? Pay them for it.
But anybody who is familiar with multilevel marketing can guess where this story goes next. AllAdvantage expected 30,000 members after four months. Instead it got millions. Eight months after its launch, at the end of the first quarter, AllAdvantage had 2 million active members, each costing $6.49 a month in payments and referral fees. Member payments in the first quarter ran over $40 million. And the numbers just keep growing. While other dot-coms can cut down on marketing costs and cancel big planned television campaigns to trim costs, the AllAdvantage model calls for it to pay even greater sums as more members sign up.
As for advertising, in the first quarter AllAdvantage took in less than $10 million in revenue--less than a quarter of what it paid out in member payments. That's no surprise: Each hour of "active surfing" winds up costing AllAdvantage about 60 cents, after referral payments are taken into account. In comparison, that's more than a television network gets for showing a viewer about 30 commercials (some with big-name stars) in an hour of TV. And advertisers aren't exactly lining up to pay that much money for banner ads across the bottom of users' screens. (To make up the difference, between what it pays members and what it gets from advertisers, AllAdvantage has started selling ads that appear on members' screens when they're not actively surfing and so not being paid. This gives AllAdvantage even more ads to sell, but has done little for the company's bottom line.)
Meanwhile, the prospect of "highly targeted" ads that would take advantage of the information that AllAdvantage collects about users' surfing habits is still a dream. The information is in AllAdvantage's data banks, but only a tiny fraction of it is actually useful to advertisers. And to top it all off, Internet advertising rates are falling across the industry.
So where does this leave AllAdvantage? Depending on whom you ask (citing SEC rules, the company would not comment because it still hopes for an IPO), AllAdvantage still has $50 million to $65 million in cash. But much of that money is already committed to member payments. In other words, despite the cash on hand, AllAdvantage still owes members many millions of dollars for their surfing time in May and June. On June 1, AllAdvantage announced that it would reduce member payments (its contract with members does let it alter the terms) and pay members on a longer cycle--a sign that the company is trying to manage its cash position. But it can't reduce payments so much that members stop using the advertising bar because getting paid to surf was the original idea. And while it can use a number of techniques to delay payments, eventually AllAdvantage will have to pay up or go broke.
AllAdvantage filed for a public offering in February. As with so many other dot-coms, the hope was that raising over $100 million would at least postpone the moment of insolvency and give the company a chance to dream up some plan for profitability. For now, the offering is delayed, leaving investors to watch in horror as the $135 million they have already given up circles the drain. Now those investors and especially Softbank Capital Partners, the late stage investment fund that has sunk $70 million into this venture, get to decide how much good money they are willing to throw after bad. Sources familiar with the company believe that it has enough cash to keep going until the end of the year. Even if that is true, the huge liabilities building up on its balance sheet might push its net value far below zero even before the cash runs out.
The only winners in all this are the few members who have taken AllAdvantage for thousands of dollars apiece. There is some delicious irony to the thought that these more or less ordinary Net surfers should be the beneficiaries of a scheme in which some of Silicon Valley's hotshot financiers so thoroughly outsmarted themselves.
An earlier version of this story may have implied that AllAdvantage has tried to avoid payment to members for surfing time. That is not the case.
http://www.fortune.com/fortune/technology/daily/0,3467,617000619,00.html
______________________
June 19, 2000
The Dumbest Dot-Com
Mark Gimein
April's Internet crash stranded dot-coms. With their IPO hopes put on indefinite hold, many lie suffering like huge, beached whales bleeding cash. Just recently the talk was of who would have the biggest IPO. Now, the talk has changed to who will be bought next, who will die next, who will blow up with the biggest boom, and what was the silliest idea to start with. In the last two categories, there is no better answer than AllAdvantage.
Right now AllAdvantage is the fattest whale on the dot-com beach. It might take some months for the game to play itself out, but if you care to bet on the biggest private company blow-up in Silicon Valley-- a blowup at least as spectacular as the ill-fated Boo.com and Digital Entertainment Network--put your money on AllAdvantage. In close to one year of operation, AllAdvantage raised $135 million and has already spent the bulk of it, losing $66 million in the first quarter alone. But sheer numbers don't really convey the magnitude of the folly. There are other companies that manage to lose huge amounts of money. What sets AllAdvantage apart from the others is that of all the big dot-coms that have come out of Silicon Valley in the past two years, AllAdvantage might be the purest expression of Net frenzy: It signed up millions of members, and paid them to surf the Web--literally giving away money in the hope that simply having enough users would magically make it profitable.
When members sign up on the AllAdvantage site, they download an advertising bar that stays on their screens as they surf. For every hour that a member browses around with the AllAdvantage bar on his screen, he gets 50 cents. And, if that user refers another member to AllAdvantage, he gets 10 cents more an hour for every hour he surfs. So, he gets more money for every member that he refers, on to several levels of referrals. Members with a big "downline"--lots of referrals--could make several thousand dollars a month.
So how was AllAdvantage supposed to make money? In theory, it was easy. It would collect information about its users' surfing habits and use this to target advertising. Known as an "infomediary"--a site that collects and aggregates information from a lot of users remains a popular one among theoreticians of the Net. Started by two newly minted Stanford Business School grads, a computer science Ph.D., and investor/entrepreneur Jim Jorgensen (who signed on as CEO), AllAdvantage had all the neatness of a business school project. How do you get users to look at a lot of ads on the Web? Pay them for it.
But anybody who is familiar with multilevel marketing can guess where this story goes next. AllAdvantage expected 30,000 members after four months. Instead it got millions. Eight months after its launch, at the end of the first quarter, AllAdvantage had 2 million active members, each costing $6.49 a month in payments and referral fees. Member payments in the first quarter ran over $40 million. And the numbers just keep growing. While other dot-coms can cut down on marketing costs and cancel big planned television campaigns to trim costs, the AllAdvantage model calls for it to pay even greater sums as more members sign up.
As for advertising, in the first quarter AllAdvantage took in less than $10 million in revenue--less than a quarter of what it paid out in member payments. That's no surprise: Each hour of "active surfing" winds up costing AllAdvantage about 60 cents, after referral payments are taken into account. In comparison, that's more than a television network gets for showing a viewer about 30 commercials (some with big-name stars) in an hour of TV. And advertisers aren't exactly lining up to pay that much money for banner ads across the bottom of users' screens. (To make up the difference, between what it pays members and what it gets from advertisers, AllAdvantage has started selling ads that appear on members' screens when they're not actively surfing and so not being paid. This gives AllAdvantage even more ads to sell, but has done little for the company's bottom line.)
Meanwhile, the prospect of "highly targeted" ads that would take advantage of the information that AllAdvantage collects about users' surfing habits is still a dream. The information is in AllAdvantage's data banks, but only a tiny fraction of it is actually useful to advertisers. And to top it all off, Internet advertising rates are falling across the industry.
So where does this leave AllAdvantage? Depending on whom you ask (citing SEC rules, the company would not comment because it still hopes for an IPO), AllAdvantage still has $50 million to $65 million in cash. But much of that money is already committed to member payments. In other words, despite the cash on hand, AllAdvantage still owes members many millions of dollars for their surfing time in May and June. On June 1, AllAdvantage announced that it would reduce member payments (its contract with members does let it alter the terms) and pay members on a longer cycle--a sign that the company is trying to manage its cash position. But it can't reduce payments so much that members stop using the advertising bar because getting paid to surf was the original idea. And while it can use a number of techniques to delay payments, eventually AllAdvantage will have to pay up or go broke.
AllAdvantage filed for a public offering in February. As with so many other dot-coms, the hope was that raising over $100 million would at least postpone the moment of insolvency and give the company a chance to dream up some plan for profitability. For now, the offering is delayed, leaving investors to watch in horror as the $135 million they have already given up circles the drain. Now those investors and especially Softbank Capital Partners, the late stage investment fund that has sunk $70 million into this venture, get to decide how much good money they are willing to throw after bad. Sources familiar with the company believe that it has enough cash to keep going until the end of the year. Even if that is true, the huge liabilities building up on its balance sheet might push its net value far below zero even before the cash runs out.
The only winners in all this are the few members who have taken AllAdvantage for thousands of dollars apiece. There is some delicious irony to the thought that these more or less ordinary Net surfers should be the beneficiaries of a scheme in which some of Silicon Valley's hotshot financiers so thoroughly outsmarted themselves.
An earlier version of this story may have implied that AllAdvantage has tried to avoid payment to members for surfing time. That is not the case.