Once outcasts on the Net, giveaway sites are showing they can get Web surfers to click on ads.
Forget e-mail, online bookselling and digital pornography. For the next big thing to attract customers, the Internet's entrepreneurs have turned the clock back to one of the oldest tricks in the book: sweepstakes.
It wasn't that long ago that the Web was extolled as the consummate medium for augmenting the human search for knowledge, like a limitless university library. In recent months, however, it has come to look more like an electronic midway of wheel-spinning, prize-giving, multimedia games of chance.
Sweepstakes, lottery and coupon sites litter the Internet like betting slips on the floor of a parimutuel parlor. Web surfers can win points toward sweepstakes entries for every Web search they do at IWon.com or every trivia answer they get right at WebMillion.com. They can play Web lotteries at LuckySurf.com, FreeLotto.com, IMustLotto.com and Iwin.com. Merely for leaving an advertising window perched on their computer screen while they surf, they can rack up points redeemable for prizes, sweeps chances or cash at AllAdvantage.com, FreeRide.com and many other sites.
Most of these Web sites are less than a year old and far from profitable, but they plan to make money, in media terms, the old-fashioned way. Their goal is to attract a stable audience of habitual users, which can then be sold, en masse or sliced into demographic segments, to advertisers.
"The object," said Gregg Rotenberg, chief executive of Jackpot.com, "is to get as many eyeballs as we can and monetize them."
That's why Web companies spend billions of dollars looking for ways to make their sites "sticky," that is, so alluring that users keep coming back. Many entrepreneurs think sweepstakes and lotteries are a winning ticket.
Cash-reward gaming "appears to me to be one of the "killer apps' on the Web," said Fred Kreuger, the founder and chief executive of Iwin.com.
Even by Internet standards, the rush to award prizes to Web surfers has been startling in its swiftness and power. Nine incentive sites ranked among the top 50 in number of unique visitors for the first week of March, according to a survey by PC Data Online. IWon.com, which was launched Oct. 5, hit the top 50 before January. By some estimates, about one-fifth of Web users visit lottery sites regularly, and some Internet professionals think the figure could easily rise to 50 percent.
Not surprisingly, these sites have made it onto the radar screens of the Internet establishment in a big way. In April, Idealab, the technology incubator in Pasadena, Calif., best known for creating such high-profile e-commerce sites as EToys and CarsDirect.com, launched Jackpot.com, which will give away $1-million in cash and other prizes every month to players of its slot-machine-style game.
That is a major change from the past, when the Internet establishment treated giveaway Web sites as if they were unsavory stepchildren.
"They were all outside the scope of traditional venture capitalists because they looked like offshore gambling," Kreuger said.
In a way, they still do. Although the sites do not require users to pay to play, which defines gambling, many do appropriate casino imagery, ranging from an animated slot machine that is the centerpiece of Jackpot.com's site to the keno-like boards employed by the lottery sites.
"It appeals to the same sense as gambling," said Charlene Li, an Internet analyst for market research firm Forrester Research, "but it's not quite as addictive." Most sites limit the number of times per day a player can enter, say, its lottery game, in part because advertisers want their potential customers "to not just sit there and gamble," Li said.
The rise of prize sites reflects an important development in Web demographics: Simply put, the population of Web surfers has come to resemble the population at large.
"A few years ago, surfers were techie white males with high incomes," said Peggy O'Neill, chief of research for Nielsen/NetRatings. But as the Web has evolved into a mass medium, women have consistently made up more than half of new online users. "And women tend to like sweepstakes more than men," O'Neill said.
Indeed, the sweeps sites say women not only make up a healthy majority of their users _ three out of four of FreeLotto.com's million-dollar winners since November, for example, have been women over 40 _ but they also have proved to be particularly enthusiastic online shoppers.
There's no denying that those eyeballs are devoted ones. Consider Brian Chow, a 24-year-old graduate student at the University of British Columbia. For the approximately 20 hours a week he spends trolling the Web for giveaways, sweepstakes and lotteries, he has racked up an impressive haul: prepaid phone cards, gift certificates to a dizzying range of shops and restaurants, free CDs and books.
"I never pay for clothes anymore because I can trade in my points," he said.
Never does a day pass in which he doesn't log on to FreeRide.com and MyPoints.com, which pay him cash or merchandise points for every minute he leaves an advertising window on his computer screen. He makes it a point to check out and report on every new sweepstakes or lottery site for his Web site, FreeStuffPage.com.
Of course, sweepstakes, coupons and promotional giveaways have been essential elements of mass marketing. The Web, however, allows marketers to figuratively follow consumers down the store aisles by tracking their mouse clicks and then show them ads and promotions to which they may be inclined to respond.
The direct marketers brought to the Internet the concept of culling demographic information from customers and using it to aim ads at them. That's one reason users of incentive sites often have to fill out lengthy questionnaires before qualifying for prizes and then find their e-mail boxes filling up with commercial messages.
"The Web is a direct-marketing channel on steroids," said Stephen R. Chapin, a former database executive at First USA, a direct-marketing credit card issuer, who founded LifeMinders.com in his basement and built it into one of the most successful consumer direct marketers on the Web.
By linking cash or merchandise prizes directly to the viewing of Web ads, advertisers hope they can more effectively buttonhole Web surfers, whose click-through rates on banner ads have fallen to an average of about one-third of a percent, meaning that three of every thousand viewers click on a banner ad for more information.
On many of the Web sweepstakes and lottery games, that sort of inattention won't do. At FreeLotto.com and many other sites, for example, a user's game entry is not valid until he or she clicks on a banner ad.
"That gives us a 100 percent click-through rate," said Kevin Aronin, founder of PlasmaNet Inc., the owner of FreeLotto.com.
The incentive site that has really made the Web community sit up and take notice, however, is IWon.com, the brainchild of Bill Daugherty, former marketing executive at the National Basketball Association, and Jonas Steinman, a partner at Chase Capital Partners, a venture investing arm of Chase Bank.
Their idea was to combine a sweepstakes promotion with a task most Web surfers perform almost daily: searching the Internet. The result was a search engine almost indistinguishable from Yahoo, Lycos, Excite and a dozen others, except that every search generates chances in a monthly $1-million sweepstakes.
"IWon is a very clever idea because unlike a lot of other sweeps sites it's disguised as a portal," NetRatings' O'Neill said. "There's actually a lot of useful content, so you can tell your boss you're just searching. And it has managed to come out of almost nowhere."
The burning question today among the prize sites is whether their sudden success will trigger an avalanche of competition. There are signs of an incipient war of escalating jackpots. FreeLotto has begun to promote itself as the site with the best odds, for instance, although its $1-million grand prize was trumped by IWon's $10-million tax day drawing.
As is usual in novel industries still testing formulas for success, a vigorous debate is going on about what will draw in advertisers and consumers and keep them coming back. Iwin's Kreuger contends the key is to keep consumers interested not by offering them the remote chance of a huge win, but through compelling games punctuated with frequent, if modest, rewards.
"There's a segment of people interested in winning the big $1-million prize, but another segment just wants to win $5 or get a $5 discount off a CD," he said.