Can I Won Keep Winning?
Life changed for Jonas Steinman in more ways than one on Mar. 3, 1999. First, his second daughter was born nine days early. Then, after a quick change into his lucky suit and silver tie at the hospital, he headed over to CBS headquarters in New York to pitch an Internet business. With little more than a couple of laminated paperboard mockups of the proposed Web site and a 30-second rough-cut commercial, it took him and partner Bill Daugherty just 45 minutes to talk CBS chief Mel Karmazin into staking their startup with a $30 million loan--and a promise of $70 million in advertising over four years.
Seven months later their Net portal, iWon Inc., was born. In some ways it's not much different from bigger rivals such as Yahoo! Inc. Except, that is, in one rather costly, possibly very clever, way: iWon offers millions of dollars in sweepstakes to visitors who rack up chances to win cash prizes every time they use the site to surf the Web, check the local weather, read the news, or just log on. Steinman and Daugherty were the first to propose simply giving away money on an Internet portal, and that was all CBS had to hear. "Americans like to play lotteries," says then CBS Chief Financial Officer Frederic G. Reynolds, who admits to purchasing the occasional Power Ball ticket.
PRESSURE. But a lot has changed since March, 1999, when Internet fever was nearing its peak. Back then, Karmazin and Reynolds spent half their time searching for new Web investments. The desire to get in on the action was so great that Steinman and Daugherty, worried that competitors would get wind of their sweepstakes idea before the launch, were able to hire top staff without even telling them what the site was really all about. Then came the dot-com meltdown in spring, which left Steinman and Daugherty trying to build a business in an industry that's under increasing scrutiny from investors, with a revenue base--Web advertising--that is anything but certain.
That has put the partners under plenty of pressure. iWon's backers were counting on the company going public. But in this market, that's no sure thing. Even more established portals, such as Alta Vista, have had to postpone their initial public offering plans. "iWon is something of a Hail Mary play," says Mark Mooradian, senior analyst at Jupiter Research. The founders say annualized revenues are more than enough to cover the yearly giveaways. And Steinman says he "feels pretty good" about the company's ability to turn a profit within two years. Right now, though, only two public portals are making money--Yahoo! and Lycos Inc.
iWon has lot more to do with marketing than with technology. It relies on the same licensed search mechanism that some of its more established competitors have been using for years. What sets it apart are the prizes. iWon visitors must register in order to have a shot at winning. Advertisers use that information to bombard them with ads customized by gender, residence, and online habits. Certainly iWon's prizes can be compelling. For example, Lee Huu Truong, a student from San Jose, Calif., won a sweepstakes of $10 million in a special tax-day drawing last April. So far, iWon has given away some $26 million to more than 1,000 people.
What the founders lack in technology knowhow they make up for with a talent for promotion. Some might call it gimmickry. They persuaded ABC's Nightline to include the site's October, 1999, launch in a half-hour prime-time special about the Internet--even though iWon's connection with rival CBS was clear. CBS itself produced a show all about iWon's Apr. 15 giveaway. And John Wiley & Sons Inc. plans to publish a book on the founders next spring. "It isn't that they have the new, new thing in technology," says Jeff Brown, Wiley's vice-president for business publishing. "It is more of a marketing idea."
Gimmick or not, the prizes have brought folks in. The average number of daily visitors to iWon has climbed 94% since January, to 2.9 million, according to Media Metrix Inc, earning the site a seventh-place ranking among portals. Steinman and Daugherty won't say how much advertising they're actually selling. But they have brought in a few lucrative marketing deals, including an agreement with Capital One Financial that gives iWon visitors sweepstakes points for dollars charged on a Capital One credit card, and a partnership with Sprint in which the telecom matches any winnings for customers who sign up through iWon. And Steinman and Daugherty do have a little breathing room. In February, they raised nearly $100 million more from investors, including George Soros.
Many entrepreneurs dream from the word go of running their own companies. Not so Steinman and Daugherty, who met at Harvard Business School, class of 1991. Instead, they thought up iWon over burgers in midtown Manhattan in January, 1999, at a time when both were comfortably ensconced in their careers. Steinman, now 35, was a partner at venture capital firm Chase Capital Partners and had a reputation for sharp financial analysis. Daugherty, 37, was in charge of business development for the National Basketball Assn., a dream job for a sports nut.
There was nothing in either partner's background to suggest a career on the Internet. Neither of them was a regular Web surfer. Former colleagues at Chase remember Steinman as a Net skeptic who rarely used e-mail, never mind a portal. By 1999, though, his doubts were giving way to the stock envy sweeping Corporate America. "People in the business community were awestruck by the amount of money that Internet executives were making, at least on paper," says Steinman.
During that January lunch, Steinman asked Daugherty to name the most effective promotion tool he knew of. "I expected Bill to say something about the NBA, because he was always talking about the NBA," Steinman says with a chuckle. Instead, Daugherty named McDonald's Corp.'s annual Monopoly promotion--in which a lucky customer who collects a full set of paper Monopoly game pieces wins $1 million. Enough said. A portal that offered sweepstakes wasn't the first business idea they had dreamed up over lunch, but it was the first one they were still thinking about by dinner.
For both, giving up their jobs wasn't easy. But having more enthusiasm than Net experience helped. "I'm not sure I would have had the guts to jump if I knew half of what I needed to know," Daugherty says. Steinman describes leaving Chase--and the $1 million-plus a year partners are said to make--as "jumping into the void." His wife Natasha, a dermatologist, had concerns too. "Jonas is a sore loser, a perfectionist, and this is a path where everything is not in his hands," she says.
Meanwhile, iWon continues to expand: In September, it opened four more regional sales offices, with 50 new representatives to sell advertising and pitch marketing deals. In all, the staff has grown from 5 to 230 in a year. And with cash on hand, it's in good shape for a dot-com. But with the days of quick IPO jackpots long gone, Steinman might want to keep his lucky suit handy. He may need it when it's time to go back to investors.