DoughNet hooks up teenagers and online merchants
By Georgie Raik-Allen
Redherring.com
June 29, 1999
Consumers have been flocking to the Internet ever since last holiday season's e-commerce boom, but one group of shoppers has been left in the country's brick-and-mortar malls.
While teenagers love to email and chat as much as they like to talk on the telephone, go online for much of their school research, and are among the biggest Internet gamers, they represent a tiny proportion of dollars spent in virtual stores.
Analysts say that teenagers research purchases such as the latest CD, book, or movie, then go to the mall to buy it with cash. According to Teen Research Unlimited, U.S. teenagers spent $141 billion last year, with less than one percent of those dollars spent online.
The reason is obvious: the major form of payment in virtual stores is a credit card, something less than 10 percent of U.S. teenagers have access to. Teens have also represented a small market segment, and parents have been leery about privacy and targeted advertising on e-commerce sites.
DoughNet is one of a number of alternative payment startups that have recently emerged to offer teenagers a way to spend money online. RocketCash and ICanBuy have also launched this year with similar electronic payment services.
GIVE KIDS CREDIT
DoughNet has created an alternative payments scheme for teenagers. Parents establish online banking accounts with their own credit cards, which their children can draw from when making a purchase from selected e-commerce sites.
The San Francisco-based company has raised a $7.3 million third round of funding, led by the Mayfield Fund and including Maveron, as well as angel investors who had participated in previous rounds.
Jupiter Communications analyst Anya Sacharow attributes the growing interest in the youth market partly to the recent initial public offerings of teenage Internet companies Delia's (Nasdaq: DLIA) [i.e., TURF] and Alloy Online (Nasdaq: ALOY). "Interest in various market segments tends to spike around the stocks," she says.
The analyst also believes that while general commerce boomed on the Internet last year, retailers are just now starting to narrow their focus to particular demographic consumer groups like children, seniors, and teenagers.
Similar to the offline market, kids and teens have a profound impact on online purchasing decisions, Ms. Sacharow says. "They are sophisticated and see the Internet as a preferred tool for information gathering; commerce is a natural progression."
Today's youth market is also considered valuable because teenagers represent a lifetime of spending habits. It is the most affluent teenage generation ever -- DoughNet chairman Jon Hamren says the average U.S. teenager has $4,500 in discretionary income a year -- and are considerably more Internet-savvy than their parents or most of their teachers.
Jupiter predicts that 16.6 million teenagers will be on the Internet spending $1.2 billion by the year 2002.
One of the difficulties in targeting this market has been parental concerns about privacy, targeted advertising, and access to less wholesome Internet sites.
"Online players that are looking to target these younger consumers risk alienating parents, creating a negative brand image, and fostering greedy customers," Ms. Sacharow says.
GOOD FOR YOU
Companies like DoughNet, ICanBuy, and RocketCash try to allay those concerns by emphasizing the educational benefits of their service.
"We are more like a budgetary tool. We let teenagers hook up with an online bank, monitor their savings, and make charitable donations," says DoughNet's Mr. Hamren.
These startups also give parents a lot of control over how teenagers use the service. Parents set up the initial accounts, determine what times children are allowed to use the accounts, and monitor spending activity.
Mr. Hamren says ICanBuy, which targets children as well as teenagers, has a younger focus than DoughNet, which competes with RocketCash "in the 15- to 19-year-old market."
Analysts say a key to the success of these e-commerce companies will be locking up the latest hip and cool brands on the Internet. DoughNet has signed up 23 retail partners, including Barnesandnoble.com (Nasdaq: BNBN), Reel.com, Urban Decay, and Egghead.com (Nasdaq: EGGS), while RocketCash has inked deals with MXG Online, J. Crew, eToys (Nasdaq: ETYS), and Beyond.com (Nasdaq: BYND).
It's a sweet deal for all parties: online retailers get access to the valuable teenage market, and alternative payment companies take a percentage of all sales.
|
