At lunch one day in the college cafeteria, then University of North Carolina-Chapel Hill senior Rob Jewell overheard some people talking about wanting free condoms. Entrepreneur that he was, Mr. Jewell began thinking about how he could build a business model around their needs. He hooked up with friend Peter Martin and the two started a Web site called freecondoms.com, which made money by signing up users for PayPal with the reward of free condoms. PayPal paid them $10 per new customer.
Today, Messrs. Jewell and Martin own Gratis Internet, the flagship of which is FreeiPods.com. They work with customer-acquisition agencies and directly with marketers in a pay-for-performance business model that grossed more than $20 million in 2004.
They also started a craze that shows little sign of ending. Apple CEO Steve Jobs likely never intended it, but thanks to that first FreeiPods.com pitch, the iPod has become the ultimate come-on in online incentive marketing. The sleek machine has been offered up as bait for the purchase of vacations, cars, credit cards, bank accounts, and magazine subscriptions.
It's actually an extension of the Apple halo effect. Electronics accessories makers have capitalized on the iPod's popularity by introducing a plethora of add-on devices, and so too have marketers looking to grab cachet with a link to the ubiquitous white player. Gratis counts among its clients AOL, Blockbuster, Citibank, BMG Music, Stamps.com and Netflix. Consumers must sign up for an offer and refer several friends who must also sign up. The customer gets the free iPod and Gratis gets paid an estimated $40 to $60 per person.
Although sometimes derided as a scam, it's not, at least through Gratis and a few other established players. The process may be time consuming or include difficulties persuading friends, but the legit ones do pay out the iPods when the customer completes all the steps.
Part of the reason for the popularity is the demographic involved, mainly 18-to-24 year olds, Mr. Martin said, although they are trying to expand to an older group. To the younger group, social networking on the Web is their way of life and that contributes to the word of mouth as well. Destitute (or denied by parents) young people head online to ask friends and network associates to help them complete referrals and get that player. This youthful networking has in turn helped spawn an entire cottage industry of pay-for-referral Web sites and "conga lines" where people put their names on a list and are bumped up as the top person gets their referrals and collects their iPod prize.
FreeiPods is also cashing in on the trend of customer acquisition. And the grown-up sibling of those offers -- the online customer acquisition business -- is only just beginning its zenith. Lead generation and referrals are the fastest-growing segment of the online advertising business, according to the Internet Advertising Bureau, jumping more than 200% from the first half of 2004 to the first half of 2005, going from $114 million to $347 million and from 2% to 6% of all online marketing spending.
Companies such as Prospectiv and Advertising.com work for marketers to obtain names -- leads -- of interested consumers and entice them to register as a member of that specific content community. Marketers call those databases of interested consumers "house files" and the house file forms an increasingly important forum of dedicated customers.
Jere Doyle, CEO-president of Prospectiv, said e-mailing to house files competes with search as the most successful online marketing tactic for the last three years in an AdTech survey of its participants.
"With a good house file, you can reach your audience for tenths of a penny, and they want to hear from you," he said. "So it's not only inexpensive, it's also effective because you're reaching the right consumer."
It's also likely to continue to grow. The Direct Marketing Association projects that by 2009, more than $1.1 billion in direct marketing-driven sales will have come through lead generation vs. a 2005 total of $854 million.
Experts do caution against unrealistic expectations: Quality leads should be viewed as just one component of a marketers' online strategy.
"I think it's a little shortsighted to focus only on lead generation and if you only use search for customer acquisition, you're missing some opportunities," said Forrester Research analyst Shar Van Boskirk. "The most savvy marketers understand there are lots of really good tools that can be used to reach consumers, and they're strategic about how they use them together."
And what about the iPod ploy? It's been going strong for two years, and while Mr. Martin said his company is working on offering products "not even on the market yet," some wonder about the overuse of the tech-giveaway technique. "The whole iPod giveaway thing is about six months to a year away from jumping the shark," said Mike Vorhaus, managing director at research consultancy Frank N. Magid Associates. "My guess is that if you went out and found young trendsetters in their 20s and talked about an iPod giveaway, they'd say, 'Come take one of the ones lying around my house.'" Maybe, but hipsters aside, the reality is that the allure exists for marketers as well as consumers.
"For marketers what it comes down to is it's hard to say no to someone who is providing you a steady stream of leads," said interactive analyst Gary Stein.