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FIREFLY: THE WEB SITE THAT HAS MAD AVE. BUZZING

The Internet startup takes word of mouth to a new level

Picture all the people whose judgment and taste you trust the most when it comes time to buy a new car, select a mutual fund, replace the television, or pick up a book. Now imagine that group of reliables swelled by hundreds or even thousands of strangers--all of whom like the same things you do and prove it every day by making similar purchases.

Word of mouth--one of the most powerful levers in marketing--has been largely limited to a set of friends, relatives, and colleagues who, for any one of us, might fill up a living room. But Boston-based Firefly Network Inc., a one-year-old Internet company, has hit on a way to expand that valued group. Using ``intelligent agent'' software developed by researchers at the Media Laboratory of Massachusetts Institute of Technology--and taking advantage of the Internet to communicate directly with individuals--Firefly builds vivid profiles of the people who use its Web site (firefly.com). Then it sorts them to recommend new selections based on the likes and dislikes of one's nearest psychographic neighbors. Initially, it is focusing on music and movies, but over time, it plans to expand into mutual funds, restaurants, and books. It also uses the information it has about individual preferences to showcase its advertisers' banners in front of those most likely to be interested in their products.

Firefly offers the ability to inexpensively gather customer data that go beyond standard demographics based on zip code, age, and gender and zero in on groups with well-defined preferences. That has caught the attention of some big-time marketers such as Merrill Lynch, a backer, and MCI, an advertiser. ``After a while, they know what you would like to have better than you do yourself,'' says Kai G. Wussow, a director of Eutelis Consult, a German consulting firm, which is evaluating Firefly for Deutsche Telecom and France Telecom.

HOLY GRAIL. Using psychographics to ferret out potential customers isn't new. Marketers have been sifting through computerized databases for years, trying to move beyond zip codes to isolate consumers with similar tastes. But marketers say the software agents developed by Firefly could move them closer to their Holy Grail by providing a way to predict what customers are likely to want next--and the means to reach them with a customized pitch that could cost a tenth of more traditional direct-marketing programs. ``It's a fundamentally cheaper way to identify customers, sort them, and sell to them,'' says John Sviokla, a marketing professor at Harvard business school who is working on a case study about Firefly.

At the heart of Firefly is its agent technology, developed at MIT's Media Lab by Pattie Maes, who wanted a way to track down new music when she moved to Boston from her native Belgium. The software agents developed by Maes, who today sits on the Firefly board, began as a Web site called RINGO that evolved into Firefly. It works like this: Visitors to the site assign themselves an alias and begin to register their likes and dislikes in movies and music. Software programs known as intelligent agents take over, sifting through similar lists logged in by others users, locating ``nearest neighbors'' and using that information to recommend other films and music, free of charge. Robert Love, an editor at Rolling Stone, which recently signed a deal to offer its music reviews on Firefly, calls the service ``automated word of mouth.'' Firefly sells CDs online and, with an estimated 300,000 users since the site was launched in January, has attracted a stable of big-name advertisers in addition to MCI, including AT&T, Honda Motor, MasterCard, and Columbia Records, which pay $100 for every 1,000 people who click on their ads.

Firefly users get more than a shopping list. The site helps them to put up their own home pages without charge, write reviews, chat online, and use the agent technology to find others who share their tastes. That leads to a sense of community that keeps people coming back. It also leads to some surprising connections. Richard D. Fuller, a 57-year-old inventor and former Marine who lives with his wife in Glen Ellyn, Ill., struck up an online acquaintance with 26-year-old Maggie Mukuch, who emigrated from Poland six years ago and works in Connecticut as an insurance agent. When Mukuch asked Firefly to find other people interested in Shakespeare, it led her to a list of names, including Fuller's. Now they exchange E-mail and speak frequently by phone. ``Obviously, we're going down different paths in life,'' says Fuller. ``She likes David Bowie. But I like David Bowie, too.''

``BRILLIANT.'' Firefly CEO Nicholas A. Grouf and six other Media Lab alumni hold a majority stake in the company and MIT collects some royalties. Backers include Japanese software company Softbank Corp., Dun & Bradstreet, venture capital firm Atlas Ventures, and Merrill Lynch. Grouf says advertising has provided the startup with small but growing revenues, though the company is not yet profitable. But he views the popular Firefly site primarily as a showcase for the company's agent technology. In August, Firefly started licensing its agents. Among the first to sign up were other Internet businesses. Reuters New Media plans to use the technology to help subscribers locate news stories based on what their nearest neighbors found relevant. Yahoo!, the Internet search engine, aims to make recommendations about Web sites. And Ziff-Davis Publishing Co.'s ZDNet will use Firefly technology to steer users to free software they are likely to want from ZDNet's vast library of shareware. ``Our technology enables a brand to do two things: get the information you want to get to the right people, and build affinity groups around your brand,'' says Saul Klein, Firefly's vice-president of marketing.

Analysts and other marketers say Firefly is perhaps a year ahead of others working on similar agent software. After spending hours on Firefly, Bill Gross, CEO of educational software maker Knowledge Adventure Inc., launched an ambitious attempt to push the predictive capabilities of software agents to another level. His new company, RecomMentor Inc., will try to predict which brands of computers, cars, and other items will appeal to consumers based on their preferences in entirely different product categories, like music, wine, even breakfast cereal. He calls Firefly ``a brilliant step forward.''

Of course, for such sites to work, consumers must be willing to reveal a lot of personal information online, a thought that makes many people uneasy. Firefly says it has acted aggressively to shield the privacy of users. Individuals never have to share their real names, ages, and mailing addresses unless they choose to. Firefly promises to keep confidential the profiles it builds of each user and the company has hired Coopers & Lybrand to conduct twice-yearly audits to assure that it does so. Firefly can't force its partners to adopt the same measures, but it does have the right to revoke a license if it detects abuse. ``That's exactly the process that we would like to have in place, with some teeth behind it and a third party ensuring that they are complying,'' says Lori Fena, executive director of the Electronic Frontier Foundation, a strong advocate of privacy for Internet users. Consumers don't pay money for the services on Firefly, but in the electronic age of marketing, personal information is the new currency. How it's used will determine if the price is fair.

By Paul C. Judge in Boston


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Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.
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