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ENTREPRENEUR PROFILES

2.9.98  
POINT, CLICK--AND HERE'S THE PITCH
Yoyodyne uses prizes to get you to read those online ads

Seth Godin may be the ultimate entrepreneur for the Information Age. Instead of widgets or car parts, he specializes in ideas--usually, but not always, his own. Can't remember the call letters of Mary Richards' TV station on The Mary Tyler Moore Show? Take a look at his The Encyclopedia of Fictional People. Want to send a quick message to Newt Gingrich? Consult Godin's E-Mail Addresses of the Rich & Famous.

Those books, and dozens of others that Godin either wrote or dreamed up, were produced by his book-packaging firm, Seth Godin Productions Inc. The company, which has grown into a modest success, is best known for developing the Beardstown Ladies investment guides, which Godin helped launch.

Now, the 37-year-old graduate of Stanford University's business school is taking his ideas to the Internet, where the stakes are higher and the competition a lot more brutal. Godin's three-year-old online venture, Yoyodyne Inc., is one of many direct marketers working on the same problem: how to get consumers to read ads on their computer screens. Someday, when E-commerce has developed and consumers' online habits are better understood, there undoubtedly will be a few standard methods for doing this. Right now, players from established ad agencies to yesterday's startups are trying everything from simply paying people to read ads over the Internet to luring them with whiz-bang Web sites.

''I really believe that we're making a fundamental difference in how products get marketed,'' Godin says, leaning intently across a conference table in Yoyodyne's spacious loft offices on the Hudson River in Irvington, N.Y., 25 miles from Manhattan. Rather than bombard consumers with yet another unwanted commercial, Yoyodyne markets only to people who have agreed to receive and respond to online product pitches. How? By offering them the chance to win big jackpots. Yoyodyne--named for the mysterious toymaker-turned-defense-contractor in Thomas Pynchon's novel The Crying of Lot 49--uses E-mail trivia games, scavenger hunts, and instant-win sweepstakes to sugarcoat old-fashioned product pitches.

MAKING TAXES FUN. So far, more than a million Net surfers have tried Yoyodyne games, vying for prizes ranging from a trip to the Caribbean to a bag of gold. Along the way, hundreds of thousands of potential customers have voluntarily visited Web sites and waded through product information from concerns that include Sprint, Reader's Digest, and Major League Baseball. ''We basically wanted to combine taxes and fun, which is pretty hard to do,'' says Fred Halfpap, director of online marketing for H&R Block Inc. He says their contest last spring, in which Block paid $20,000 toward the winner's federal income tax bill, increased traffic to the Block Web site and usage of its tax services.

Yoyodyne's financial performance so far has been respectable, though not spectacular. The staff has grown to 34, and revenues doubled last year, to $3 million. The company expects to turn its first monthly profit by the end of this year. But with competitors scrambling to sew up the Internet, respectable just isn't good enough. ''We discovered that getting consumers to do what we want isn't a problem,'' Godin says. ''Getting advertisers is.''

To build the business faster, Godin has come up with a new strategy. Instead of designing and running custom games for one client at a time, as it has in the past, Yoyodyne is creating branded, multisponsor game sites for specific product categories. Now, when consumers get E-mail from Yoyodyne, it will urge them to visit the new sites to shop, get detailed product information, and, of course, rack up entries in a Yoyodyne sweepstakes. That's a major conceptual shift: It makes Yoyodyne more like a TV game show and less like Publishers Clearing House sweepstakes.

CORNER OFFICE. While the old custom games had an eight-week lifespan, Godin plans to run the new multisponsor games at regular intervals, with new sponsors cycling in and out. EZSpree, a shopping site currently sponsored by American Express Co., went live in October and offers a gateway to 200 online merchants, offering discounts and specials for AmEx cardholders. By using AmEx cards, they earn chances in a drawing for a $100,000 shopping spree.

Adapting to circumstances is something Godin is good at. Other than a short hitch as a brand manager for Spinnaker Software Corp. in Boston, he has supported himself by his ability to turn his ideas into cash. In 1986, when his fiancee wanted to live in New York, he chucked his job in Boston, moved to Manhattan, and used his $20,000 in savings to start Productions in a corner of his studio apartment.

Although Productions dealt mainly in books, Godin never felt limited to print. Drawing on his software background, in 1990 he created a game for the fledgling Prodigy Inc. that ran for almost eight years. That convinced him that games were a powerful online tool. ''So I did what I always do when I want to learn about something,'' Godin says. ''I got a publisher to advance me money so I could research it.'' The resulting book, eMarketing: Reaping Profits on the Information Highway, led him to form Yoyodyne.

Godin's most important selling job may be to investors rather than clients. With online sales slow to materialize and profits rarer than a million-dollar jackpot, the ardor for Internet startups has cooled in recent years. Just a few months ago, investors pulled the plug on a would-be competitor to Yoyodyne called PowerAgent Inc. in Menlo Park, Calif.

Yoyodyne has been a lot more fortunate. In August, 1996, venture-capital firm Flatiron Partners invested $4 million in Yoyodyne in return for a 20% stake. Although Yoyodyne's growth has been slower than he expected, managing partner Fred Wilson continues to be a fan of Godin's. ''He has a vision of what the Net can do,'' says Wilson. ''The company's finally figuring out how to take Seth's vision and build a business around it.''

Next to building the business, Godin's hardest job is finding qualified employees who will mesh with the freewheeling Yoyodyne culture. New job openings are posted on the Yoyodyne Web site, and Godin personally interviews hundreds of people, mostly by phone or E-mail, for each job.

The recruitment effort isn't helped by the company's suburban location. It's a 45-minute train ride from Manhattan, home to most of the Net-savvy editors, writers, and marketing execs that Yoyodyne needs. ''It hurts us for sure,'' says Godin. But it also cuts his own commute to a matter of minutes, allowing him more time with his wife and two school-age sons. Like his counterparts in Silicon Valley, Godin sweetens the pot with stock, granting every Yoyodyne employee stock options that vest over three years. ''There are a bunch of people here who will make a ton of money someday,'' he boasts.

That is, if Yoyodyne turns out to have a winning formula. Right now, there's no industry consensus as to whether people who play a sponsor's online game will also buy its product. ''You're getting people who don't value their time as much as they value entering a sweepstakes,'' says Bill Bass, an analyst at Forrester Research Inc., a technology research firm in Cambridge, Mass. Bass argues that it's more effective to link products directly to content-heavy Web sites, much as Barnes & Noble Inc. has links on the book page of The New York Times Web site.

Others see incentives and discounts, including contests, as the best way to attract Net surfers. David Scott Carlick, a senior adviser at VantagePoint Venture Partners, which invests in Net startups, considers Yoyodyne ''one of the smarter companies pioneering this concept of incentivization on the Net.''

Godin's backers seem to agree, at least for now. In December, Flatiron and Robert H. Lessin, a vice-chairman at Salomon Smith Barney and a well-known Internet investor, anted up an additional $1 million. It was an important vote of confidence for Yoyodyne. Now if Godin can just come through with the jackpot.


By Mary Kuntz in Irvington, N.Y.

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RELATED ITEMS

TABLE: Yoyodyne's Game

TABLE: Games People Play

ONLINE ORIGINAL: THE EVOLUTION OF ONLINE PROMOTIONS

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TABLE: Yoyodyne's Game

THE COMPANY
Yoyodyne, a 34-person online marketing firm based in Irvington, N.Y. Founded in 1995. Revenues last year were $3 million, double the previous year.

THE FOUNDER AND CEO
Seth Godin, 37, author, book packager, online game pioneer. Has been exploring the Internet since 1976.

THE BUSINESS
Designing and managing online games to promote brand-name products.

THE PROBLEM
Convincing clients that online games can be a cheaper and more effective way to promote products than traditional direct-marketing techniques.





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TABLE: Games People Play

What's up at Yoyodyne's new game sites (www.yoyo.com)


NAME          CATEGORY     SPONSOR        PRIZE

EZSpree       General      American       $100,000 shopping
              Merchandise  Express        spree

EZWheels *    Cars         Volvo          $20,000 toward
                                          dream car

EZVenture **  Small        Inc. Magazine  $100,000 to
              Business                    invest in business

EZEdge ***    Computers    AT&T           High-end laptop
                           WorldNet       and desktop
                                          computers

Scheduled launch:

* end of February
** Mar. 15
*** 2nd quarter


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ONLINE ORIGINAL: THE EVOLUTION OF ONLINE PROMOTIONS

Like television and radio before it, the story of the World Wide Web's evolution is a collaborative one. Computer scientists, "futurists," pornographers, and profiteers -- among many others -- have helped build what has become an entirely new medium. Not to be forgotten in this new medium, of course, are the pitchmen. They helped transform the fervently anticommercial Internet environment -- populated almost exclusively by academics, scientists, and the military -- into an electronic bazaar, rife with banner ads, "link exchanges," and electronic coupons. How did the Web go from commercial-free to full-of-commercials? And what does this transition say about the Web's day-to-day evolution? Yoyodyne Inc. provides one case study. The three examples below show how the company altered its pitches in reaction to the maturing tastes of both advertisers and consumers in cyberspace.


January, 1996 In early 1996, online promotions were in their infancy. That, of course, simply reflected the general state of the Web, where users were still considered "early adopters," and where slow modem speeds and crude Web-production tools made for flat, generic-looking page design. Working within these limits, Yoyodyne based its Dilbert comic-strip promotion on E-mail, which requires little bandwidth. Competing for Dilbert-related prizes and $1,000 Dilbert shopping spree, users answered a weekly set of Dilbert questions, with correct entries placed in weekly, quarterly, and yearend prize drawings. Though the contest attracted over 200,000 participants, Yoyodyne creators don't consider this promotion a huge success. At the time, say the Yoyodyne officials, advertisers were still hungry for glitzier Web advertising, whizzy pages full of complex -- and not always functioning -- design that could prove a company's commitment to the cutting-edge. "At that stage of interactive development," says Yoyodyne Marketing Directorr Jerry Shereshewsky, "advertisers were not buying efficacy, they were buying sex-appeal."


January, 1997 By this time, the medium had begun to earn the genuine respect of advertisers, particularly from those who now offered online-only products themselves. Their online promotional campaigns also grew more advanced, targeting a specific marketing objective rather than general Web awareness. In this campaign for Ziff Davis' ZDnet, users gathered contest entries (grand prize: a $5,000 computer shopping spree) by clicking on prize icons located on various pages throughout the site. While encouraging visitors to sample the breadth of ZDNet's offerings, it also helped the company collect consumer information -- particularly E-mail addresses -- for doing customer research and direct marketing.


October, 1997 While electronic commerce has been a topic for decades, it has really begun to take off only in the past year. Seizing on consumers' new-found comfort in making purchases online -- as well as retailers' strong efforts to sell to them, Yoyodyne helped American Express create EZSpree, which awards visitors sweepstakes entries (top prize: $100,000) for making purchases at specially designated cyber-retailers. Here, at last, is the final goal of all marketers: Consumers spending money. Yoyodyne won't say how many sales EZSpree has generated, and it's unlikely any retailers are socking away huge returns just yet. The site itself, however, represents an incredible progression: Less than two years ago, online marketers were happy if consumers simply knew they existed. Now they're banking on sites to generate fresh profit growth.

By Dennis Berman in New York

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