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Enterprise -- Companies: ENTREPRENEURS
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.Return to top