In April, Ron Streeter discovered a company that would pay him just for surfing around and looking at ads on the World Wide Web. It was a pittance, really--50 cents an hour--but then he learned that if he signed up his brother Tom, or anyone else, the company would pay Streeter a 10-cent commission for each hour those "referrals" spent online.
And for all the people his brother referred--and for their friends and even the friends' friends--Streeter would collect another nickel per hour each.
The group Streeter initiated into AllAdvantage.com now numbers more than 10,000 people. His reward? He got a monthly commission check for $2,044.43 in the mail the other day.
Streeter and millions of others are cashing in on the latest Internet marketing craze. AllAdvantage and dozens of other companies are rushing to build big audiences by handing out cash to people willing to let advertisers track their Web surfing and send them ads tailored to their habits.
"It takes no investment except one's own time, and you make money even if you don't work at it," said Streeter, 44, a Syracuse, N.Y., graphic artist. "It's really the gold rush of the '90s for the average person, if you know what you're doing."
The pay-to-surf companies essentially pass on to users a portion of their revenue from selling ads. The theory is that cash payments will not only attract more "eyeballs" but also let the companies raise ad rates because surfers will respond more frequently to ads that interest them. But analysts are divided over whether the scheme is born of ingenuity or insanity.
Supporters say it promises to transform online marketing by making it more efficient and personal. Rich LeFurgy, chairman of the Internet Advertising Bureau and a partner in the venture-capital firm backing AllAdvantage, said the television industry would gladly pay audiences to watch commercials if it could monitor consumer reaction. But until the Internet came along there was no mechanism for direct dialogue between advertisers and viewers, he said.
"AllAdvantage turns the traditional media-and-audience model on its head," LeFurgy said.
Skeptics, though, counter that the pay-to-surf business resembles off-line pyramid marketing. And they wonder how successful it will be for advertisers since it is inherently difficult to make sure people really pay attention to the ads, which flow into a window the users must keep open on their computer screens.
Some members, for example, simply block out the ad window with masking tape. Others cheat, using software programs that simulate Internet surfing by automating mouse movements while they are away from their computers. Several versions of a program called "FakeSurf" are available to download for free off the Internet. From Georgetown to Stanford, whole floors of college dormitories are full of monitors lighted up with fake surfing programs, allowing students to literally make money in their sleep.
Phillip Greenspun, a Massachusetts Institute of Technology researcher who teaches advanced Web programming, said companies face a constant battle with the fakers. "I would expect any of my students to build a near-perfect spoofer," he said. "If they couldn't, I would give them an F."
Officials at pay-to-surf companies brushed aside those concerns, insisting they can detect fake surfing.
If success is measured by audience size, the companies are wildly popular. More than 3 million people have signed up for AllAdvantage.com since it launched April 1. About 2.5 million have flocked to GoToWorld.com, which pays members to surf and chat. Two dozen copycats with names such as DesktopDollars.com and ePipo.com are recruiting hundreds of thousands of members. Moonlighting programmers working out of their basements have launched several companies. One, UtopiAD.com, is based in the homes of 16 employees scattered across Northern Virginia.
To join AllAdvantage, members download a free software program that opens a one-inch-high horizonal window across the bottom of their screens. The company can then record where the member goes on the Web and send a constantly changing array of ads matching the member's interests.
Privacy advocates worry about how pay-to-surf companies might use this data. But AllAdvantage chief executive Jim Jorgensen said his company will not sell personally identifiable information to other firms. He said he also has hired a "chief privacy officer" to help protect consumers.
Each individual who signs up for AllAdvantage.com is paid for a maximum of 25 hours of surfing time a month, so the real earning possibility lies in referrals. While the average check last month was for $30, AllAdvantage said its top member drew more than $4,000. Streeter ranked fifth.
One active member is Joshua Dowden, a 16-year-old high school sophomore in Sacramento. He recruited 13 friends when he signed up in September, then pulled in nearly 400 referrals in October by creating a Web page.
Dowden said he's not bothered by the ads he must view because they "are full of cool things to try out on the Web."
His father said he took a dim view when his son asked if he could sign up for AllAdvantage, which requires parental permission for anyone under 18. "I was worried he was wasting his time, and I always think in terms of 'Have you done your math homework?' " recalled Bradley Dowden, a philosophy professor at California State University at Sacramento. "But as I learned more, I saw that it was a great educational experience for him." And while the father still has not joined the son, he conceded, "I have been somewhat tempted."
AllAdvantage, based in Hayward, Calif., has raised $33 million from investors and now has 250 employees. Its sales force of three dozen people has sold the ad service to hundreds of companies and Web sites, including Microsoft Corp., DVD Express Inc., GolfWarehouse.com and Omaha Steaks International Inc.
Jorgensen, the chief executive and also the co-founder of the Discovery Zone play centers, said his business has the potential to generate hefty profits because it pays members far less than it rakes in from advertising. Each member costs AllAdvantage a maximum of 80 cents an hour in commissions--the 50 cents it gives the member, plus up to 30 cents paid in commissions to the people who referred the member. During that same hour, AllAdvantage shows the member about 200 banner ads, which it sells for $4 to $12.
AllAdvantage hopes eventually to build on its audience by transforming itself into more of a multi-feature Internet portal site, like Yahoo. It will add a search engine to its ad window in January and also plans to become a sort of a buyers' club, negotiating with retailers for volume discounts for its members.
Some of the company's competitors are upping the ante and starting to offer their members significantly more cash. GoToWorld pays up to $3 an hour, plus money for referrals. ValuePay.com in Winter Park, Fla., says it splits ad revenue 50-50 with members.
"We are creating a partnership between the advertiser and the consumer," said Brian Longest, 27, chief executive of Mesia.com Corp., which is based in Herndon and operates UtopiAD.com. The company pays its customers about 60 cents an hour, depending on the ads they are viewing.
For some industry analysts, click-for-cash systems are just another example of Internet mania, evident in the billions of dollars being spent to tout "dot-com" companies on television and through zany contests. They say the new Internet advertising middlemen lack staying power because their business plans are shaky.
One controversial issue is their pyramid-like pay structure, which critics say encourages people who aren't interested in the ads to sign up, defeating the purpose of the service.
Mike Jones, a freshman at the University of Virginia, said he and several dozen friends ignore the advertising. "We do it just for the check," said the 18-year-old McLean native. "I've never heard of anyone who has bought anything from the ads."
Omaha Steaks spokeswoman Sharon Bargus said the company is "just thrilled" with the response to their banners on AllAdvantage: 59 new customers since September. But Susan Daniher, vice president of marketing at DVD Express, was more skeptical about the business model and therefore decided to pay only on a "bounty" basis, based on a percentage of actual sales. "That way we don't have to worry about the details and it can save us a lot of money if the ads aren't successful," she said.
Another potential problem for the pay-to-surf system is that the Internal Revenue Service requirements for reporting the income are muddy. IRS officials are busy analyzing the various types of micropayments that are taking hold around the Internet. Pay-to-surf earnings are most definitely taxable, but people can easily cheat the system by not reporting it on their annual returns because it is unclear whether the companies themselves have to note individual earnings in their filings. Some of the businesses are not collecting the surfers' Social Security numbers they would need to report income.
One who doubts that the future of advertising lies in companies like AllAdvantage.com is John Backus, a managing partner at Draper Atlantic, the East Coast arm of the Silicon Valley venture-capital firm Draper Fisher Jurvetson. His firm funded Hotmail and a string of other free Internet services designed to attract audiences for advertisers, yet Backus is skeptical that AllAdvantage has the technical know-how or can pay people enough money to create a sustainable ad business.
"There are always a couple of people at the very top that do very well," Backus said. "But the masses are going to get checks of single-digit dollars."
Nice Pay, Pyramid-Style
New Internet services pay people by the hour to surf the Web as long as they keep open a window that streams in advertisements. Part of the popularity of these sites has been attributed to their multi-level pay structure, which rewards people for their own time as well as the time of their friends, the friends of the friends and so forth.
Ron Streeter, a freelance graphic artist from Syracuse, N.Y., got paid $2,044 in November by AllAdvantage.com. Here's how he earned his check:
25 hours@50 cents/hour $ 12.50
7,752 hours,@10 cents/hour $ 775.26
(3,365 people) 36 minutes
25,144 hours,@5 cents/hour $1,256.67
(7,522 people) 24 minutes