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| The Internet portal sweepstakes - How iWon won |
| How iWon won
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| By John F. Ince
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| August 27, 2001
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On their first day on the campus of Harvard Business School, Jonas Steinman and Bill Daugherty hit it off on the volleyball court. Today, they are still hitting it off while running one of the Web's hottest portals in the increasingly competitive game to capture the eyeballs of the Internet audience.
Their company is IWon, an Internet portal they founded with one very simple concept: a sweepstakes. Every weekday, iWon gives away $10,000. Every month, it gives away $100,000. For the past two years, on tax day, it surprised one lucky Web surfer with a $10 million prize, and, next year, that prize will be $25 million.
Perhaps it's a gimmick, but it's also an Internet version of a time-tested marketing technique that has been successfully employed in other mediums. And -- oh, yes -- its service is no slouch, either. It offers e-mail, news, and a host of services provided by other portals. As a result, iWon ranked number one in terms of user satisfaction among all portals -- beating out Yahoo (YHOO) -- according to an independent study conducted by NPD Group, a Jupiter Media Metrix affiliate.
All of this has happened in a little over three short years. After Harvard, both Steinman and Daugherty headed to New York City. Daugherty joined the National Basketball Association in a marketing capacity, and Steinman moved first into investment banking and then into venture capital at Chemical Venture Partners, which later became Chase Capital Partners.
They stayed in touch and met regularly for cheeseburgers and fries at Burger Heaven on 49th Street in Manhattan. One day, in January 1999, they were talking about portals. Steinman recalls, "Neither of us had any technical expertise, and both of us were happy with our jobs, but we were fascinated by this new medium. We began to scratch notes on the proverbial napkin. We agreed that all the existing portals had more or less identical functionality. We wondered why someone wasn't using a more traditional rewards and marketing program to create a level of product differentiation."
So the concept for a portal with the Internet's biggest guaranteed cash giveaway was born. Through Neil Austrian, who was the company's first investor and chairman, Steinman and Daugherty secured a meeting with Mel Karmazin and Fred Reynolds of what was then CBS (now Viacom (VIA)). CBS immediately grasped the intuitive appeal of the concept and got behind it.
To make a long story short, Steinman and Daugherty raised $100 million in committed financing to get the venture off the ground -- the majority of which was in media -- which CBS exchanged for partial ownership of iWon. While in the process of transitioning out of venture capital, Steinman convinced Chase Capital Partners to become a seed investor in iWon.
That summer, they built the site in full secrecy, with the assistance of Sapient (SAPE) and a core team of five people, because, in Steinman's words, "Bill and I were completely paranoid. All we had that was 'proprietary' was the concept, and what if someone were to get wind of it and beat us to market?"
They launched in October 1999, and, while still primitive, the site was good enough to attract a loyal following. They advertised heavily on CBS and its affiliated properties, and, by January 2000, iWon was among the top 10 most trafficked sites, based on page views, across the Internet. In February 2000, they raised an additional $100 million through a consortium of private-equity investors and continued to build out the site as well as the company's technical and human infrastructure.
Today, iWon is still on an impressive growth trajectory. It is a top 10 site based on average daily reach across the Internet and a top 5 site based on page views. It is number one in terms of repeat visitors and number two in terms of time spent per visitor per month. IWon has five offices around the country, four of which are sales offices in New York, Los Angeles, San Francisco, and Chicago. Its headquarters is near the Hudson River in Irvington, N.Y.
While Yahoo and other portals have suffered the effects of declining Internet advertising, iWon has been busily developing innovative, rich-media advertising products. Steinman says, "Bill and I firmly believe that online advertising has a very real place in the media business. But it's only in the early stage of its evolution into a form that will be a lot more compelling. As such, we're very focused on innovating."
IWon has had a lot of traditional advertisers, including Toyota Motor (TM) and Lexus, Anheuser-Busch (BUD), Campbell Soup (CPB), US Airways (U), Nabisco (now Kraft Foods (KFT)), and Alamo Rent A Car, and it is also distinguished from other portals in that it is registration-based. This is key, because it enables iWon to develop a relationship with its users. As such, the company has the capability to target advertising and develop direct-marketing campaigns. Steinman says, "When you look at our revenue streams, we think we've built a better mousetrap than other Web publishers who don't really have a relationship with their users. They're going to find it more challenging to monetize their user base."
While iWon's giveaways may seem extravagant to some, in a broader budgetary scheme, the annual cost of giveaways -- somewhere north of $25 million -- can be seen as a bargain, especially considering all the ancillary publicity it attracts. Its partnership with CBS gave it legitimacy, and, now that it has reached scale, iWon is cutting back on media advertising and is leveraging word-of-mouth programs through viral marketing.
So Steinman and Daugherty successfully bucked the odds by going up against the industry giants in a head-to-head fashion when others said that the portal space was already too crowded. In so doing, they simply affirmed some of the deepest emerging truths about the Internet media game: the importance of traditional media partners and the importance of establishing a brand through television and radio.
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