Alex Meshkin was driving up Georgia Avenue toward Rockville with his mother last winter when the idea popped into his head. The 18-year-old Howard County youth grabbed his cell phone and called his older brother, Brian, who had been pestering him to think up a novel Internet business that might turn the Meshkin family into billionaires.
"I've got it!" he recalls telling Brian, 23, who took the call on his cell phone. "We will give everything away for free."
"What do you mean?" Brian Meshkin asked.
Alex Meshkin outlined his vision of a Yahoo-like Web site that would reward surfers with points for reading news and e-mail. People could then use their accumulated points to bid on merchandise in special auctions.
"It will be a way to give back some of the advertising dollars we get to consumers--only it will be more exciting because it's an auction," Alex explained.
So began Surfbuzz.com, which will be launched on the Web in a few weeks. With 17 employees and $3 million in seed funding, Surfbuzz.com is the latest example of a slew of companies creating point systems to reward consumers for online activities. Most are designed to encourage loyalty to particular sites, much as frequent-flier miles do offline.
The key problem point systems are meant to address is how little attention surfers are paying to banner ads, the main revenue source for many Web sites. On average, surfers click on fewer than 1 in 100 ads they are shown, prompting Web marketers to seek new ways to attract and retain their attention.
The points are intended to reward consumers for their time by giving them the electronic equivalent of the old S&H Green Stamps--something they can trade for merchandise or services at a variety of Web sites. The trouble is, there are so many systems for earning and spending points online that it's as if green stamps came in a rainbow of colors, none of them interchangeable.
Oodles of creativity--and high-risk capital--are pouring into these companies creating electronic loyalty systems. Some of the points apply only at one Web site--such as Surfbuzz.com's planned auction--while others are "earned" and "spent" across a network of sites. Most are used to lure users back to one site, because people like seeing their balances increase as they make purchases or do other activities.
The Internet's three biggest point-based networks went public this fall with stock offerings--
Netcentives, MyPoints.com and Cybergold. None is anywhere near profitable. Each has between 2 million and 4 million members--consumers who have opened "bank" accounts to accumulate points. MyPoints rewards people for accepting e-mail ads, while Cybergold redeems points for hard cash. Netcentives allows consumers to trade Web points for airline miles.
One of the newest players is trying to make its points so valuable that people might actually use them as digital currency. Beenz.com, which started in March, sells electronic tokens called "beenz" to Web sites for a penny each. Britain's biggest market research company is using beenz to reward people for taking surveys; MotleyFool.com offers them for registering to use its financial services.
"This new concept called e-currency goes way beyond loyalty schemes," said Philip Letts, chief executive of the New York-based company. "Loyalty systems have simply been a way to offer discounts, not payment. We mint a currency and provide a global clearing system for businesses around the world and customers to interact with each other."
Previous attempts at creating electronic cash systems online have failed miserably, and there are still barely 200 Web sites issuing beenz. Still, Beenz.com has raised $36 million from an impressive list of international investors, and analysts believe that if such a system did catch on, it might go a long way to helping the global Internet economy sort out security concerns and exchange-rate issues.
The Meshkin brothers, meanwhile, are trying to devise a point system that will bring advertisers to them, rather than distribute their points as a Web-wide currency. They spent the 1998 holiday season polishing their business plan, went investor-shopping in the spring and snagged a small California lender, Dry Creek Advisors. The lender brought in a seasoned marketing executive from Coca-Cola to turn their notion into a business.
Surfbuzz.com envisions its auctions as a place where advertisers can experiment and gauge consumer interest in various goods and pricing levels. The site will let participants accumulate "BuzzPoints" in a "buzz bank" by clicking on items--e-mail messages, say, or sports scores. The idea is to reward consumers for activities they would do online anyway, with "free" points they can use to bid in a game-like auction.
It remains to be seen whether people will find this anywhere near as entertaining as the Meshkin brothers do--the brothers call it "infotainment." Or whether people will find the site at all, because with nearly 10 million Web sites vying for attention from more than 200 million surfers worldwide, it is getting increasingly tough to build online audiences.
That's the challenge facing Mike Jensen, the 33-year-old Coca-Cola Classic brand manager who signed on as Surfbuzz's chief operating officer. He hired two other marketing veterans away from Coke, then raided a six-person electronic commerce team from Novell Systems Inc. to design the electronic system for earning and spending BuzzPoints.
"Our idea is to let consumers set the value of our currency as they bid on goods," said Jensen. His team is creating formats for the auctions that he compares to television programming; they will vary by time of day, duration of bidding and type of merchandise.
The company may stage "mystery" auctions in which bidders wager points by choosing among a batch of windows--with a real Porsche Boxster, say, hidden behind one.
The Meshkin brothers moved to Atlanta this year because that's where the Coke team lives. Alex Meshkin, now 19, said the company's new managers chastised him into giving up the risky behavior that helped give rise to Surfbuzz.com.
Meshkin said he got the money and Internet insights that led to Surfbuzz by taking the funds his parents had saved for his college tuition and wagering it in the stock market. After his day-trading boosted his parents' investment more than 20 times, he says, and he spent hundreds of hours researching Internet business plans, he decided to delay attending the University of Maryland to plot his own Internet strategy.
"I am not day-trading anymore," he said. "No one in the company will let me."