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| HOW iWon WON THE WEB |
| With a Smart Strategy, Plenty of Cash, Experience, and a BIG BIG Secret
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| By by Scott Smith and Paul Gallagher
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| October 31, 2000
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You’ve probably seen the ads: hapless Web surfers face two PCs. They’re asked to choose between a Web portal that offers them email, news, and other services, or iWon.com, the Web portal that offers them email, news, the same types of services, and a chance to bag at least $10,000 a day.
Wait, there’s more: $1 million every month.
And more: $10 million on tax day.
Hmmm … They’ll take the portal offering the CASH! MOOLA! CHIPS! To use iWon.com’s own slogan: Why wouldn’t you?
A lot of users have, since iWon.com’s founding in October 1999. As of August 2000, the Irvington, N.Y.-based company has become one of the fastest growing websites on the Net, attracting one out of every nine users at work and one out of 15 at home.
The site may snag users with the money gimmick, but it keeps them with service. The NPD Group, an independent provider of marketing information, discovered that iWon.com’s portal and search engine were ranked by 27,000 users either No. 1 or No. 2 in 20 of the 21 attributes that determine satisfaction. They beat out such well-established competition as Yahoo!, AOL, MSN, Netscape, Alta Vista, Google, and HotBot.
That’s just what iWon.com’s co-founders and co-CEOs, Bill Daugherty and Jonas Steinman, hoped for their service. In the 10 months since its debut, the site has awarded more than $27 million to users-and iWon.com has won some cash itself, with investments from such financial celebrities as Goldman Sachs, Primus Venture Partners, and Chase Capital Partners. But iWon.com is winning the Web with more than money.
Daugherty and Steinman are smart: They know the path to their success wasn’t paved with gold bullion, but with beating the competition in product knowledge, service, and killer partnerships-such as their enviable arrangement with media giant CBS, which poured about $70 million worth of promotion and advertising into the service startup (for which it got majority ownership), and a services agreement with Net heavyweight Inktomi. After a second round of funding, which garnered $100 million from private sources in February, CBS became a minority owner of the company.
But while the Harvard Business School graduates-who became friends as classmates-say they were grounded in good business sense, it is the lessons they learned outside that carry equal importance. Before they joined forces to create their Web portal, Daugherty was a senior vice president of business development for the NBA. Steinman was a general partner of the private equity fund Chase Capital Partners.
“On the job, you learn how to make quick decisions on minimal information,” says Steinman. “You find out about the importance of establishing goals and a timeline, and of holding people accountable.”
Reality Check
Daugherty says only the real world could prepare them for the subtleties of managing iWon.com’s 220-strong staff. “I have a much greater appreciation for the task of getting all of us headed in the same direction with the same attitude,” he says. “You can’t learn that in school.”
Unlike many dot-com wannabes, Daugherty and Steinman didn’t want to create a cool site; they wanted it to be usable.
“We didn’t want to make it too techie,” says Steinman. “We’ve partnered with the search technologies that are No. 1 in their respective areas, like Inktomi, RealNames, Direct Hit, Fact City, Looksmart, and Moreover.” These services were woven into iWon.com’s offering to provide power and ease of use in both searches and other services, such as personalized content.
“Bill and I can’t program our VCRs, so we wanted to be sure our viewers didn’t have to try to figure out how to personalize things,” says Steinman. “It’s hard enough to get people to get online, let alone present them with other obstacles to using the site, so we have automatic personalization at the time of registration to get local weather, sports scores, movie and TV listings, lottery, horoscope, and so forth.”
Despite their friendship at school, Daugherty and Steinman hadn’t worked with each other until after graduation. Then, they came up with the idea for a Web portal over lunch one day. The problem was that Web portals were all offering essentially the same flavor of services: search, email, news, and other features.
In an interview shortly after iWon.com’s debut, Steinman told a reporter that the marketing campaign he most admired was McDonald’s Monopoly, in which the odds of winning increased with each return trip from a customer.
Sticky Digits
So the cash giveaway idea was born. “We’re one of the stickiest sites on the Internet,” says Steinman. On the Web, being “sticky” is worthy of pride: It refers to the number of times consumers return to a site and the length of each visit.
Beyond the heavy lifting from partnerships with media and Web technologies, Daugherty credits much of iWon.com’s power to its employees.
“We looked for people who had a lot of enthusiasm for iWon,” says Daugherty. “You can tell if they will care about the company, the culture, the product, and the customers, and those kinds of employees are what distinguishes good from great companies.”
They are also careful about the type of employee they hire. They want to preserve the culture of excitement that has identified iWon.com from the start. “Our employees are so passionate about what they’re doing that when you walk into our offices, there’s an audible hum of excitement,” he says.
Part of that excitement, says Steinman, is due to a results-oriented approach that emphasizes creating products and content, rather than roadblocks. Steinman honed his vision for results during his tenure with Chase, when he monitored leveraged-buyout investments. Daugherty scored results during his days with the NBA by creating new income potential from the NBA Store, in New York City, and through such ad campaigns as the “NBA at 50” and “I Love This Stuff.” The latter became a successful brand for the NBA.
“I ran into one of our managers the other day,” says Steinman. “He had joined us from a big firm three weeks before. I asked him what he was working on, and he named a couple of projects he had already launched on our site. He told me that at his old employer it would have taken nine months to get anything approved.”
It’s that sort of appreciation from employees-those who have been around the block and know the difference between work and make-work, the green light and red tape-that Steinman likes to hear. From the beginning, he says, “we only hired people with a proven track record in getting things done with others.”
And if you’re an Internet-based business, innovation and execution are a financial imperative. But maintaining a competitive edge is a perpetual stroll on a tightrope, thanks to the breakneck speed of change on the Net. From the start, say Steinman and Daugherty, they sought to create an “open” atmosphere.
“You have to be very flexible to succeed in the Internet world, and we’ve structured the organization to be very open and adaptable, constantly reinventing its processes to keep ahead,” says Steinman. “We’ve also been good at fostering creativity and innovation so we have something that is ahead of the market. Some people probably think we’re impatient to the point of being crazy.”
We’ve Got A (Huge) Secret
CBS certainly didn’t think so. Even before their debut, the media behemoth swapped $70 million in advertising and promotions for a majority share of iWon.com. Keeping that sort of cash a secret, as well as Daugherty and Steinman’s plans for iWon.com’s mega-giveaway, was like sitting on a powder keg, but the founders were successful in keeping the lid on.
“Our wives knew,” Steinman says. “CBS did a great job of keeping it on a need-to-know basis.”
Steinman says even Sapient, the Cambridge, Mass.-based website architect, didn’t know the full scope of their plans. Even when the contract with CBS was in hand, in fact, Steinman says the initial team was kept to a bare-bones minimum.
“Their area was actually walled off from the rest of the building,” says Steinman. “As we brought people in, we gave them a financial and emotional commitment to the company before revealing everything, but in many cases people just trusted that we were up to something big because of our backgrounds, the money we had raised, and the organizations associated with us.”
Even in this age of casual confidentiality agreements, the secret never got out, despite the growing number of staff who knew the truth.
“They just knew it was a portal with a difference,” says Steinman. “It was a miracle we pulled it off.”
While many startups and dot-coms in the New Economy hastily gather chums from college or high schools, Daugherty says he and Steinman held real-world experience in highest esteem when they built their management team.
“Many of these new companies are faltering because they grew too fast and didn’t have seasoned management,” says Daugherty. “A business education can give you important preparation for decisions that have to be made, but it doesn’t replace experience. We had real-world experience when we came here and recruited senior management outside the Internet industry because we weren’t impressed with the talent inside the industry.”
Daugherty admits the criteria regarding experience extends to both him and Steinman. “I don’t have a financial orientation, so Jonas’ background in investment banking is complementary. No one’s really prepared for this sort of experience, so you just have to work harder than anyone else to solve the challenges.”
Among the challenges even a casual observer might notice is the need for revenue-a difficult prospect for any website, let alone one that is showering cash on its users.
Daughtery says thanks to iWon.com’s traffic, advertising and sponsorship are working well for their site.
“Online advertising is expected to be a billion-dollar industry by 2004, and we have the eyeballs to charge good rates,” says Daughtery. “Advertisers can also be sponsors, which integrates them into the fabric of our site instead of just displaying their ad banners. We also have a shopping engine that refers visitors and earns us a transaction fee. In addition, we have a direct marketing program that is the Holy Grail of the Internet. In a few years, we’ll see a revolution in how advertising is done, whether it’s advertising on radio or in magazines or whatever.”
Thanks to emerging technologies, Daugherty says many advertisers’ dollars will be able to go further by focusing in the right markets. “There’s a tremendous amount of waste,” he says. “If you’re targeting 20- to 30-year-olds, much of your audience in any mass medium isn’t relevant. We’ll be able to offer a much more cost-effective buy because of the higher rate of return in a few years.”
By that time, who knows what iWon.com can come up with? Even a year from now, says Steinman, the service will be more mature, more evolved.
What will be their next big secret to success? They’re not telling-and they most likely don’t even know yet.
“We probably haven’t even conceived of 90 percent of what we’ll be doing,” says Steinman.
More Insights From iWon.com’s Founders
The co-founders and co-CEOs of iWon.com, Bill Daugherty and Jonas Steinman, are well matched in their friendship and their styles of management-both of which stem from their days at Harvard.
SUCCESS: You both graduated from Harvard Business School. What did you learn there that was most valuable, and what didn’t you get until you were in the workplace?
Steinman: You learn how to do case studies, dissect a business situation from all angles. After school, we got some real-world business experience before we launched iWon.com, which made up some of the gaps. On the job, you learn how to make quick decisions on minimal information. Second, you find out about the importance of establishing goals and a timeline and holding people accountable. Third, scaling and organization. We’re the fifth-most-trafficked site on the Internet and the stickiest site on the Web. You also can’t really learn about interpersonal relationships and leadership in school.
SUCCESS: Explain how you manage to both share the CEO title. Doesn’t one person have to make the final decisions?
Daugherty: Jonas and I met at Harvard, so we’ve been friends a long time. Even though we hadn’t worked together, we had a real good knowledge of each other’s strengths and weaknesses. We shared the same values about what type of organization we wanted to create and focus on getting things done. This is a very open environment and decisions are made continuously during the day, 24 hours, and we’ve had very few issues where we’ve had differences. Where we did, the one who’s been most passionate about his position has carried the day. You talk things through just like any good relationship.
SUCCESS: You’ve been well-funded from the beginning. How can less financially well-off companies recruit good talent?
Daugherty: Building a terrific product is the best way to attract top people.
SUCCESS: With the collapse of the stock prices of so many dot-coms, what are the new rules for getting the attention of venture capitalists?
Steinman: I’m not so sure the rules are changing, but the standards are being raised. Some corners seem to have been cut during the frenzy of recent years; too many marginal plans were funded where something was the seventh discount mortgage website. A differentiated model, a major market opportunity, good margins, strong management, and an exit for investors are still the foundation. Now there is also an expectation of earlier profitability.
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