cuts staff to stem losses

A US company that pays millions of Internet users - New Zealanders among them - while they surf, has been forced to trim its sails.

          Soon after started paying users to surf the Web, the company grew quickly to 7 million registered members. AllAdvantage set up offices worldwide, and what seemed a novelty 16 months ago when the company started caught on, with copycat sites springing up.

          Like all things Internet, the novelty wore off quickly. Last week, AllAdvantage announced it had fired 60 workers, or about 10% of its staff, to cut costs, consolidate departments and push the company toward profitability. The latter is easier set as a goal than done. AllAdvantage paid $US32.7 million to Web surfing-members from December of last year through March of this year, but earned $9.1 million in the same period from advertisers.

          The company compiles profiles of members' surfing habits, tailoring advertising to their interests. AllAdvantage users, who are paid 53 cents an hour to surf, endure personalised banner ads that run constantly across their computer screens. Only about 2 million of the company's 7 million members actively participate, according to the company.

          Now AllAdvantage and other companies paying people to learn their habits are taking a new, critical look at how to make money from that knowledge.

          "The question really is, who is $7.50 a month really going to appeal to?" said Harry Wolhandler, vice president of research at Web marketing analysis firm ActivMedia Research in Peterborough, New Hampshire. "I can't see that it's taking over the world. People aren't going to want to give up their privacy and let people know everything about you. It takes a lot to motivate people for micro-payments."

          There are people willing to be paid to look at advertising, but most would probably rather avoid seeing banner ads. "It's a niche market. I would rather pay not to see advertising at all," he said. "Looking at who is likely to use a service like this, I don't see it going anywhere."

          People who earn money surfing do so as a lark or are students or don't have much income, and so want the money rather than the personalised advertising, Wolhandler said. Such Web surfers aren't likely to spend money with online advertisers because they simply don't have the money to spare.

          "It's just another form of grabbing eyeballs," he said of the pay-to-surf business model. "The question I would ask is, are those the eyeballs you really want?"

          The companies themselves seem to be asking the same question. AllAdvantage withdrew its bid for an IPO (initial public offering) on July 3 because of unfavorable market conditions, said company spokesman Alex Gourevitch.

          Other companies trading on personal information that have gone public suffered this year as well. The per-share price for Engage Inc., which helps advertisers target customers, is down to $12.83, more than 85% from its high of $94.50 in March. The better-known DoubleClickhas steadily fallen from its January high of $135, trading near $35 now. DoubleClick tracks Web user information using cookies set at Web sites that are DoubleClick customers.

          But the companies had room to lose.

          "Everybody had free money to grow with," Wolhandler said of the market. "Shrinking isn't going to hurt these companies. They were bloated. This will impose discipline."

          Interestingly, some companies that pay users to surf, including AllAdvantage, deny that paying users to surf is their objective.

          "Pay-to-surf is not our business model," said AllAdvantage's Gourevitch. "We help consumers get the benefits from the information they create. It creates value for our members and our advertisers."

          The pay-to-surf label is misleading, Gourevitch said. He said the company is moving away from paying surfers a fixed amount. Recent changes in the company's pay rate and restrictions on the number of hours paid for surfing will save the company 30 percent on costs, he said.

          Meanwhile, AllAdvantage delivers its personalised advertising service to its members without having to reveal their identities to the advertiser. They only share demographic, profile data, not names and other specific personal information -- so privacy is protected even as the personalised service is being delivered, according to AllAdvantage. But questions about the business model remain.

          "Are people willing to buy into our services rather than just getting paid to surf? That's one of the challenges," Gourevitch said.

          Competitors apparently face the same challenge.

          "All the companies that think of themselves of pay-to-surf Web sites are toast." said Thomas Leavitt, chief operating officer of Inc., the owner of, a Web site which, nonetheless, pays members to surf.

          "It's not about getting paid to surf. It's about building customer relationships with advertisers," he said, noting that some surfers may want to see advertising, but only the advertising they want or need. "A lot of (companies) are flooding the market with undifferentiated (banner) advertising that's one step ahead of spam."

          Leavitt said Clickdough's click-through rate, or the frequency at which users actually click on a banner to visit an advertiser's site, is between .75% to 1%, which he said is a good percentage. He and other pay-to-surf executives said the rate has been falling.

          However, click-through may not always be the best measure of an advertisement's success, said Wolhandler. "Among other things, click-through isn't always the purpose of an ad. Ads can support brands that sell through channels, like Compaq (Computer), or for positioning, like car sales."

          Assorted Web sites still look at variations on the pay-to-surf business concept for profits. Several simply offer members a percentage cut of the advertising revenue surfers draw to the company, rather than a fixed sum. Inc. splits its advertising revenue with its paid-to-surf members, but shies from the pay-to-surf image. ValuePay President and Chief Executive Officer Gulshan Bahl called his company an "infomediary," a broker for consumers to reach the advertisers they want, as does AllAdvantage.

          Pay-to-surf companies face the task of reinventing themselves in light of the technology market's movements, and the public's increasing discomfort with companies compiling data on their personality and habits and trading it like fruit in a farmer's stall.

          It's a challenge AllAdvantage and sites like it will have to overcome before the market makes a financial about-face impossible. "There were a lot of me-too companies," said Bahl of ValuePay, which is seeking a first round of venture capital right now. "They're going to get into the same situation as AllAdvantage. It is hard for everybody right now."

 Inc., in Hayward, California, can be reached on the Web at

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