(sa/art)"Be Free"- Directing Traffic to a Site: Affiliate Programs
Read excerpts from this article below, and keep in mind tsig.com alternative marketing strategies based on similar premises. Also note the valuation of this profiled company's stock (BFRE). I've put in bold face what are IMO particularly salient points.
ragingbull.com
Multi-channel magic
Cyberstock Investor Report 01/28/2000 5:30 PM
By Matt Ragas
"....While the Net is one huge distribution channel all by itself, the plethora of individual sites that now make up the Web have created millions of smaller underlying distribution channels, although one wouldn't know it judging from the outdated sales and marketing strategies many content providers and e-tailers are still pursuing. Most Web companies still fail to realize that they are operating in a borderless, multi-channel environment.
Breaking down the walls
Here's what I mean. Brick-and-mortar stores are constrained by physical location. A store located in New York City can't easily make a consumer living in China aware of its presence. Web sites are not hampered by any such limitation, and yet e-tailers spend vast amounts of ad dollars trying to drive consumers to one branded site, as if Web companies were shackled to that one digital location to sell their products.
Think about it for a second. The end result of this knucklehead strategy is that it restricts e-commerce immensely. Commerce is forced to flow from one central point instead of potentially hundreds of locations. Kind of defeats the whole purpose of the Web, if you ask me. Therefore, I believe the evolution of e-tailing, and driving Web traffic as a whole, will include the rapid adoption of contextual e-commerce and affiliate marketing programs. Contextual e-commerce is the ability to weave relevant targeted commerce opportunities around related content, whereas affiliate marketing allows retailers and content providers to establish numerous new distribution channels.
Distributing eyeballs
In recent months, I have spent a considerable amount of time profiling e-infrastructure companies that I believe will directly benefit from the overall growth of e-commerce..... As I take a deeper look at many of these nuts-and-bolts providers, I thought it was time to examine a company called Be Free (BFRE), the leading outsourced affiliate marketing provider.
....Be Free provides a variety of services that allow companies to create, manage, and distribute affiliate marketing programs across thousands of different sites without having to develop and manage these complicated programs internally. Not only does Be Free enable a multi-channel sales strategy, but the company's model also pulls in pay-per-performance revenue. ... I expect we will witness a huge shift in the Net advertising arena over to results-oriented advertising, direct marketing, and e-promotions spending. Be Free should directly benefit from this trend, since its customers pay affiliates and merchants only for results, such as sales or traffic generated.
Strong model and revenue mix
The company also sports a business model that appears attractive for a variety of different reasons. After spending considerably on building out its service bureau and data center infrastructure, Be Free reported an impressive gross margin of 83% in the third quarter. These lofty margins should only improve with time. In the long run, this leads me to believe that Be Free will scale into a very profitable operation. In addition, most of the company's contracts are geared so that Be Free captures a small percentage of all sales (typically 2%) that go through an affiliate's channel. The company also collects monthly or annual fees from it clients for providing these services, plus a one-time integration charge. Together, this mix of multiple revenue streams leaves Be Free with as diverse a revenue mix as any B2B infrastructure player. Finally, since Be Free's network sits in the middle between affiliates, merchants, and content providers, I believe there is significant future revenue that can be mined from anonymous user profiling products.
Be Free's strong growth in its customer base indicates that e-tailers and content providers are waking up to the benefits of affiliate marketing, and particularly to the quality and depth of Be Free's solutions. ... Be Free appears to have little competition in the outsourced affiliate marketing space. ...Although the company now boasts over 160 clients, over 2.5 million affiliates, and over 1.7 million affiliate promotion impressions generated for the fourth quarter, overall sales are still meager at this point. The company reported sales of only $1.3 million and a loss of $5.7 million for the third quarter. However, thin sales and almost $20 million in accumulated losses to date has not discouraged Wall Street from falling in love with Be Free.
Affiliate marketing for helium?
The company came public at $12 a share back in early November of 1999, and has not looked back since. Based on Friday's closing price of 100 15/16, BFRE now sports a staggering market cap of over $2.6 billion. ....Based on third quarter sales of $1.3 million, the company's annualized run rate of a little over $5 million suggests a current price/sales multiple of roughly 500! At these levels, I find Be Free to be at least two to three years ahead of the revenue realization curve. ...." |
