RealTime IT News

Internet Creates Double-Edged Sword

The explosion of information and opportunity that is the Internet has forged a double-edged sword for businesses.

On the plus side, a company can quickly and economically reach millions of potential customers through its own Web site and through banner ads and hyperlinks strategically placed on innumerable other sites in cyberspace.

On the minus side, so can every other company. This creates a wealth of choices for consumers, and a huge challenge for Web entities trying to retain customers and build repeat business.

Enter companies like MyPoints.com, which provides online direct marketing and loyalty programs for cyber-merchants combating churn and itchy mouse fingers.

The San Francisco-based company, known until last month as Intellipost, filed an IPO last Thursday to raise $69 million. MyPoints.com plans to trade on Nasdaq under the ticker symbol MYPT. Underwriters are BancBoston Robertson Stephens, Bear Stearns, Salomon Smith Barney and Wit Capital.

MyPoints.com claims to have a database of 2 million customers who have filled out profiles detailing their interests. By filling out the surveys, customers - or members - agree to allow MyPoints.com to e-mail them product and service pitches on behalf of client advertisers.

Sounds like an invitation to be spammed, but the payoff for customers is that when they click on these "BonusMail" ads, they can accumulate reward points that can be redeemed for gifts. Among the 200-plus companies working with MyPoints.com are Barnes & Noble, Disney, eBay, Macy's, Nissan, Sprint and Tower Records.

Advertisers pay MyPoints.com a fee based on ads delivered, generated leads and completed online transactions. In return, MyPoints.com provides them customer acquisition and retention tools.

Given the current uncertainty among online businesses about the value of banner ads, this direct marketing approach may become more popular. MyPoints.com cites a forecast by Forrester Research that direct marketing could comprise up to half of total online ad dollars by 2001. Last year, Forrester reports, direct marketing made up 21 percent of online ad spending.

If you accept projections from Forrester and other research firms that online advertising expenditures will run from $5 billion to $10.5 billion within four years, then MyPoints.com has achieved a critical prerequisite for a successful company - it's squarely in a large market.

This increases the odds that the company can grow into profitability, and it will need to, for MyPoints.com has accumulated $11.2 million in debt since its inception in November 1996. Revenue in 1998 - the company's first full year of commercial operation - was $1.29 million.

MyPoints.com's greatest competitive threat comes not from similar companies such as CyberGold and Netcentives, but from portals and uber-etailers such as Amazon.com, which has shown a voracious appetite for multiple revenue streams.

While its target market and strategy are a sound combination, MyPoints.com is very much an early-stage company. To build revenue momentum, it must rapidly establish the MyPoints brand. Since it's essentially starting from ground zero, that's a tall order.