Free-Sweepstakes Sites Starting to Pay a Price in Online Shakeout
The harsh realities of the “dot-com” world are beginning to cut into the Web’s fantasy of riches.
Free-sweepstakes Web site Iwin.com, one of the most popular sites on the Internet, has abruptly laid off more than a quarter of its staff, including its president, in an effort to turn a profit by the end of this year.
“We’re faced with reality,” its chief executive, Fred Kreuger, said Tuesday. “We couldn’t afford to be in the mode we’re in. We had to take a very tough look at our cost structure.” He said the company, which had grown to 105 employees from 30 in the prior three months, let 28 of them go in May.
The steps taken by Iwin, which says it expects to be profitable by the end of this year, reflect market conditions that have led to carnage among less well-capitalized Web sites in the last month. These include many that had been riding a wave of adulatory publicity.
Iwin, based in Los Angeles, awards users points for viewing commercials and playing online games that they can spend on sweepstakes chances.
Meanwhile, giveaway site Surfbuzz.com, which was founded by two brothers (one a teenager) on profits from day-trading of stocks, abruptly informed its customers Tuesday that it would no longer “continue to exist” because a financing deal had fallen through. The site allowed users to build up points by visiting sponsors’ sites and clicking on advertisements, and then to use those points to bid on merchandise in cash-free auctions.
Although the site was still apparently accepting free registrations Tuesday, Alex Meshkin, one of Surfbuzz’s co-founders, told The Times by e-mail that the company “has chosen to reduce costs and shift resources,” but that he and his brother were no longer members of the management team and were not involved in the decision.
On one level Surfbuzz’s closing is surprising because the giveaway sector is one of the hottest on the Web. Seven free lottery and sweepstakes sites were among the top 50 in visitor counts in April, according to the market survey firm MediaMetrix.
On the other hand, Surfbuzz, based in Baltimore, was apparently a distant also-ran among the online sweepstakes players. “I asked my people here about it,” said Keith Cohn, president of the sweepstakes site Jackpot.com, “and nobody had even heard of them.”
The online shakeout is spreading rapidly. Late Tuesday, the Torrance-based retailers Toytime.com and Babytime.com announced they were suspending operations and would accept no more orders. Rather than offering toys and children’s books, their Web site invited visitors to place bids for the companies’ assets.
Another highly touted site, the crime information site APBnews.com in New York, fired its staff of 140 on Monday and said it had been unable to line up crucial financing, despite having festooned its site with such celebrity columnists as Marcia Clark and Hollywood security expert Gavin de Becker.
Sites such as these are facing cutbacks because the recent nose dive in the Nasdaq Stock Market has dashed their hope for offering stock to the public any time soon--formerly a source of cheap capital. The Nasdaq Composite Index, a standard gauge of the health of high-technology stocks, has fallen more than 25% since reaching its peak on March 10.
The financing crisis has forced many online companies to reconsider their staff levels, their promotional spending, and their basic business models.
Not long ago, for example, Iwin.com, sponsored a promotional party featuring the rock group Goo Goo Dolls at Hollywood’s House of Blues. The event cost the company $350,000.
“We were spending a little lavishly,” Kreuger said.
To a certain extent that was with the blessings of the high-tech sector’s financial backers, who were encouraging Iwin and other companies to pump their cash into marketing.
“Three months ago our investment bankers were saying, ‘Don’t be profitable,’ ” Kreuger said, “because they didn’t want us to be judged on a multiple of earnings. The model has suddenly changed. Now it’s increasingly important to have business models people can see will be profitable within six months.”
Kreuger and other Web site executives say the mounting body count among marginal Web sites will improve conditions for those that survive.
Several privately owned free-lottery sites, he said, may already be profitable.
Others are lining up to take advantage of their rivals’ retrenchments.
“We’ve already got some resumes from people who were at Iwin,” said Jackpot.com’s Cohn.
