Yoyodyne Deal Signals Next Stage of Marketing
By LISA NAPOLI
Seth Godin has been building online sweepstakes games longer than there has been
a World Wide Web, and this week, he hit the jackpot himself, selling his company
to Yahoo for stock valued at $29.6 million.
The deal culminates a more than decade-long gamble for Godin, who, while
building the Irvington, N.Y.-based business he calls Yoyodyne, continued his
previous career as a book packager.
In that role, Godin co-published the best-selling "Beardstown Ladies Common
Sense Investment Guide." But with this deal, even seasoned investors may be
wondering about Yahoo's motivation for the acquisition.
Of the more than 400 partnerships the search engine-turned-portal has announced
since it went public nearly three years ago, Yoyodyne is just its fifth
acquisition. (Yahoo, which now claims more than 25 million members, also made
two minority investments in January, in Broadcast.com, a portal site for audio
and video, and GeoCities, a Web-based community network.)
Yahoo's chief operating officer, Jeff Mallett, explained that after spending the
past several years "turning visitors into members, what we're trying to do is to
find as many intelligent ways for our clients to reach and touch and talk to our
user base."
Godin prides himself on doing that in a way that he says does not violate
standards of Netiquette -- meaning, no unsolicited e-mail, or spam. He calls it
"permission marketing,"in that online consumers give a company permission to
send them e-mail messages in return for the chance to win prizes.
A buyout is a sign that advertising on the Internet has matured to a more
sophisticated industry.
For example, as part of the H&R Block "we'll pay your taxes" sweepstakes,
contestants received 3 e-mail messages a week for 10 weeks, containing facts and
sending users to the tax preparation firm's Web site in order to answer trivia
questions. H&R Block got its name in front of 50,000 people, and one lucky
winner got a tax windfall.
Godin said that the buyout of his company is a sign that advertising on the
Internet has matured from the early days of banner ads to a more sophisticated
industry that includes highly targeted direct marketing opportunities.
"Advertisers are asking people like us and Yahoo for more measurable return on
investment," said Godin, adding that advertisers aren't the only ones who
benefit from the relationship. "The more a user signs up, the more benefits they
get," he said.
Industry insiders applauded the deal as another indication that the Web is being
taken seriously as a sales platform. Bob Wientzen, chief executive of the Direct
Marketing Association, said that direct marketing is growing at twice the rate
of retail, in no small part because of the industry's infatuation with the
Internet. (In an unrelated move, also on Monday, the DMA acquired the
Association of Interactive Media.) According to Wientzen, direct marketing is a
$1.4 trillion dollar industry -- about the size of the supermaket business.
None of this enthusiasm about the virtues of direct marketing is a surprise to
Don Peppers, co-author of the book "Enterprise One-to-One." Aggregating users on
the Web was just the first step, he said, and now, portal sites like Yahoo need
to provide more than just high-volume traffic. They need to establish
relationships, Peppers said, and prove that users actually return to their
sites -- something that a company like Yoyodyne can help Yahoo accomplish.
(Peppers wrote the forward to Godin's upcoming book on the subject of permission
marketing.)
Even Yoyodyne's competitors reacted positively to the news, perhaps hopeful that
as with other moves made by Yahoo, competitors will follow suit. (When the
company purchased the Four11 directory service, for instance, a spate of
copy-cat purchases by other portals followed.) Steve Krein, president of
Webstakes, a sweepstakes company based in New York, said the deal "validates"
what he and others have been doing for years.
Godin must certainly feel the same. He built Yoyodyne by creating games featured
on the pre-Web proprietary online services, like Prodigy and Genie, which were
subsumed by another early Yoyodyne customer once considered the service least
likely to succeed, America Online. Now, Godin's company is being purchased by a
company that is building its business to compete with AOL.
"The big idea, the rainbow we're chasing is, we're kind of believers that
there's going to be three, four, global comprehensive branded Web networks that
are going to fall out by December 2000," said Mallett, of Yahoo. Acquisitions
like Yoyodyne are one way of ensuring Yahoo is in a lead position, he said. |
