Company Taps into College Scene

A few years ago, a portal’s primary function was to act as a virtual gateway, “porting” users to other Web destinations. Yahoo! (YHOO), Excite, and Infoseek, among other leading portals, began realizing the flaws in that model. The original plan may have called for such “porting,” but the hubs (as they are now referred to) began realizing the advantages of “owning” users.

In the emerging Web economy, companies rely increasingly on advertising and e-commerce based revenues. Owning a substantial user-base is important and the ability to monetize that base becomes imperative. Consider America Online’s
(AOL)
purchase of the Israeli-based instant messaging service ICQ, which it acquired for nearly $300 million in 1997. ICQ had no revenues, but had a solid base of 12 million users and an IM service that had an uncanny ability to virally market itself. Its number of users has since grown to more than 50 million.

More recently, [email protected] (ATHM) announced it would acquire the online greeting card company Blue Mountain Arts for $780 million in cash and stock, with incentive clauses that may actually make the final deal close to $1 billion. Blue Mountain has virtually no revenue, but brings 9 million unique users to [email protected], thereby boosting traffic. The goal is to generate greater revenue through advertising to the users and enticing them to make transactions on the site(s).

Therefore portals are buying traffic, expanding their offerings and hoping to monetize new users’ eyeballs and wallets. But in the world of hits and clicks, it’s becoming evident that depth beats out breadth. The idea here is that vertical, specialized niches (10,000 feet deep, 1 foot wide) will become more popular among users than horizontal portals (1 foot deep, 10,000 feet wide). So they are going to ESPN.com before searching the sports offerings at Yahoo!, just as they shop for toys online at eToys (ETYS), not Amazon.com (AMZN). Indeed, Yahoo’s biggest fear from day one was “what would happen when people knew where they wanted to go?” Consumers are becoming more aware of what to expect and find on the www super-highway, and they’re surfing and shopping at the sites that provide the most specialized, in-depth offerings.

This breadth vs. depth debate is often labeled as Portals vs. Destinations. The winning approach seems to be where a site is focused on gaining critical mass in a particular market segment; a niche-focused portal. . .a vertical portal.

Vertical portals target a specific demographic, then focus the content and commerce offerings around that demographic. Obviously a benefit to consumers, and the approach becomes a primary competitive advantage for these players because they’re able to deliver a targeted, demographically-focused audience to advertisers, marketers, and e-tailers. Blanket banner advertising across leading broad- portals will die as vertical portals allow companies to get more bang for their buck.

An emerging vertical portal, Student Advantage (STAD) is focused exclusively on the college market. Student Advantage has become a preferred destination for college students and a point of a

ccess for advertisers and marketers to reach this attractive market. To date, Student Advantage has built relationships with more than 800 colleges and universities, as well as a network of more than 50 national and over 15,000 local business partners in over 125 cities across the country. Started in 1992 as a student discount program, the company has evolved into an offline/online media network, with content, community and commerce offerings for its robust user base.

College students are the most wired segment of the U.S. population. By year 2000, the number of college students online will reach 12.5 million, or 92 percent of all college students, according to Jupiter Communications. Net savvy, this audience surfs and spends online. In fact, Jupiter estimates the aggregated buying power of the college market to be $120 billion annually. Seventeen percent have already purchased online. . .and this number is expected to increase rapidly.

Fifteen months ago, Student Monitor LLC (a market research firm focused exclusively on the college market) surveyed 1,200 students and asked how many had made an online purchase in the last year; 4 percent responded they had. The same survey was done recently, and the students were now asked if they had made an online purchase in the past week; 10 percent responded they had.

[email protected] decided to take an in depth look at how Student Advantage captures and then monetizes the active, often elusive and lucrative college market segment.

A strong reason why we like the company is the synergies that exist between its offline and Web businesses. The company has existed for roughly seven years and has only recently launched its Web business (vertical portal) to further strengthen its brand, channel distribution, and to reach to its core user base. Both the offline and online initiatives act as effective tools to enroll students in the company’s Student Advantage Membership Program. This program is the company’s primary source of revenue. Cost of membership is $20 per year. STAD currently has more than 1.5 million members.

When students enroll they receive a copy of the Student Advantage Magazine (SAM), the most frequently read student-focused publication in the college market according to Student Monitor LLC. The big draw however, is the savings on products and services from the company’s large array of partners. Members receive exclusive discounts of 10-50 percent on purchases made at StudentAdvantage.com and at more than 20,000 national and local merchant locations. While attending college, I used my STAD card to receive 15 percent discounts on Amtrak rail fares when returning home for vacations. Amtrak, an exclusive national sponsor since 1995, now receives 2 percent of its total revenues as a result of its association with the Student Advantage Membership program.

While the membership program is attracting college students, the company’s aggregated base of consumer profiles, information and spending preferences/habits is attracting marketers and advertisers desperate to tap this young demographic. STAD continues to display its dominance in this market by bringing its target audience to the table and then monetizing the guests through the membership program, advertising and marketing solutions. For the nine months ended 9/30/99, total revenues rose 34 percent to $18.3 million while net loss totaled $14.2 million. [email protected] believes the company’s expansion into online operations will rapidly accelerate its ability to reach and monetize its Internet savvy audience.

Final thoughts

Student Advantage is operating on a vertical portal (online) model that is a long-term winning strategy in the Internet space. The combined online and offline offerings compliment and support one another while driving more and more college students to sign up for the Student Advantage Membership Program.

Also, its subscription program won’t deteriorate over time as Internet usage grows (deterioration will continue to happen in the access and content arenas.) STAD has a successful subscriber program in a lucrative market, where it is now able to monetize its user base by delivering the vertical audience to advertisers, marketers and e-commerce players.

Investors should understand the importance of STAD’s credit card relationship with its users. The relationship is expanded and considered more valuable with its entrance into online operations. The database of members, their personal information and now, their purchasing preferences/habits is clearly Student Advantage’s largest asset, and one they have yet to begin monetizing. With vertical approaches, it’s likely that people are concerned about growth opportunities.

Andrea Williams of E*Offering (an underwriter for STAD) likes the company’s opportunities. She believes that “growth will come as the company extends its demographic to include high- school students, recent college graduates, and International students.”

With a winning long-term strategy in a lucrative market, Student Advantage is likely to continue its successful pace in the college market. [email protected] will have an exclusive interview with Student Advantage Chairman, President and Chief Executive Officer Raymond Sozzi on Friday. See you then.

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