Rise and Fall of Cybergold. COM

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The Rise and Fall of CyberGold.com John E. Peltier Georgia State University, USA Michael J. Gallivan Georgia State University, USA

EXECUTIVE SUMMARY This case study describes the lifecycle of CyberGold, a start-up “Dot Com” firm that rose to prominence in the world of online currency and micro-payments. The case describes the inception of the firm, the talent base of its senior executives, and its innovative and patented business model, known as “Attention Brokerage.” The case focuses on a specific decision problem faced by CyberGold’s team of senior managers early in its lifecycle: how to modify the company’s business model and communication with its members in order to encourage repeat visits to its site and to provide a clearer understanding of where CyberGold credits may be spent by members.

BACKGROUND 1 CyberGold, founded in 1995 (Bank, 1998), was an internet marketing firm created to harness the power of the World Wide Web to profile user demographic information and provide targeted marketing services to advertisers. CyberGold aimed to add value to the web advertisements of its clients by allowing the client to offer small cash payments for viewing their ads. Along with collecting these payments in individual members’ CyberGold accounts, the company built profiles of web surfers that it sold to its Copyright © 2004, Idea Inc.Annals Copying distributing in print Technology or electronic2004, forms without This chapter appears in Group the book, of or Cases on Information Volume 6, written edited by permission of Idea Group Inc. is prohibited. Mehdi Khosrow-Pour. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

The Rise and Fall of CyberGold.com 313

advertisers in order for the advertiser to more directly target its audience. It also enabled CyberGold to more precisely target client advertisements shown to its members. It was the fall of 1997. Nat Goldhaber stood up with a look of concern when his cofounders, Regis McKenna and Jay Chiat, presented recent news articles from the press during the morning’s board meeting about the firm’s performance. Goldhaber, as CEO and co-founder of pioneering internet marketing company, CyberGold, took a personal interest in public perception of his company at a time when perception influenced stock market valuation as much as or more than actual performance. The company had gained attention, but not all the press the company received was good. Jay read aloud from an article by Kenneth Hein (1997): “There were only two problems. The advertisers weren’t biting and consumers were unclear as to what the points could actually be used for.” Responding to the assertion about advertisers, Goldhaber observed “I want 2,000. And I want at least as many small merchants as big ones. One of the reasons I started this business was to help the little guys” (Hein, 1997). As the discussion continued, the group began to explore other ways to make the company more competitive and to increase revenue as Internet usage continued to grow exponentially. Chiat, recruited to the company primarily for his marketing expertise, suggested that because stock prices were being affected more by user count than by profit, the company should consider offering web surfers more money to view ads — by doubling or tripling the amount the client company contracted to pay per click. Since most clients agreed to pay each user for just one viewing of an advertisement, the increased expense would be directly tied to new user harvesting. Goldhaber told the group that his vision of the company involved web surfers (customers) returning to CyberGold for more frequent visits, and involved the company branching out into the electronic currency market before other players captured the market share. CyberGold’s revenues were drawn from its advertising partners only. The advertiser offered CyberGold a set amount per ad viewed (or “click through”), and CyberGold kept a portion and offered the rest as an incentive for the web surfer to view the advertisement. Surfers who registered for CyberGold accounts were able to accumulate CyberGold points and spend the value at a participating merchant or convert the points to frequent flier miles (Glasner, 2001). As consumers learned, the companies using CyberGold for advertising services were not necessarily the same as the companies accepting CyberGold as a form of payment. The value that CyberGold attempted to add to the advertiser’s business was to lower customer acquisition cost – which was especially high for start-up Internet firms (Hoffman & Novak, 2000). CyberGold proposed that it could lower any business’ cost of acquiring new customers by about 25% (Garber, 1999). The consumers themselves paid no fee to be a member of CyberGold, but were required to allow their web surfing habits to be tracked and, in some cases, they were required to complete surveys to demonstrate their attention before being paid for viewing an ad. Advertising rates peaked in the late 1990s, before the realization that it would take more than just being “first mover” to establish a successful business overtook the Internet euphoria on Wall Street. Even during this time, a strictly Internet-based business founded upon providing incentives for online advertising was not winning over the Wall Street analysts. Drew Ianni of Jupiter Communications observed “We haven’t seen any positive case studies in [providing incentives for] online viewers to look at ads” (Borland, 1998). Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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After its 1995 founding, CyberGold had a short life as a publicly traded company. Its initial public offering (IPO) was completed in September 1999 at $9 per share. The stock peaked at $24 per share in 1999, but by April 2000 the stock was trading at $5.64, and the company was acquired by MyPoints.com (Fowler, 2002). See Appendix B for a chart of CyberGold’s stock performance. Technology veteran and politician Nat Goldhaber founded CyberGold, with assistance from marketers Regis McKenna and Jay Chiat (Semilof, 1996). Goldhaber had previously served as secretary of energy for Pennsylvania in the late-1970s, and in the mid-1980s, he developed the “Transcendental Operating System” (TOS) to allow DOS and Macintosh computers to be able to transfer files easily (Garber, 1999). He also served as Vice President of Sun Microsystems after Sun purchased his TOS product, and subsequently served as CEO of Kaleida Labs, which was an IBM/Apple joint venture. After MyPoints’ purchase of CyberGold in April 2000, Goldhaber was named Vice Chair and Director of MyPoints, and ran for U.S. Vice President on the Natural Law Party ticket with Presidential candidate John Hagelin (Gunzburger, 2000). The company’s cofounders had extensive experience in start-up consulting and in advertising. Regis McKenna’s background includes his work for his own firm, The McKenna Group, specializing in strategy consulting. He consulted on several highly successful industry-defining technology startups before the Internet age, including Apple, 3Com, Lotus and Microsoft. Jay Chiat held the team’s main advertising industry experience. His firm Chiat/Day was a leading advertising agency, which had been named Agency of the Year twice in the 1980s by Advertising Age magazine, and also won that publication’s Agency of the Decade award for the 1980s (Cuneo, 2002).

SETTING THE STAGE Along with providing marketing data to advertisers, CyberGold was positioning itself to be a force in two related industries: online currency and micro-payments. Online currency systems are envisioned as an alternative to credit cards, the established leader in online electronic purchase payments, which would allow individuals to make purchases with an electronic form of payment not associated with a credit card account. Consumers have long expressed concern with providing personal information — especially financial — over the seemingly wild cyber frontier. The Economist (2000) lists five reasons that electronic forms of payment could play a part in the growth of electronic commerce: (1) Consumer anonymity. A credit card identifies a consumer, while an online payment form may not be as easily traced to an individual. (2) Lack of credit cards, especially outside the United States. In many countries such as China, credit cards are not as commonly used as in the United States (Farhoomand, Ng & Lovelock, 2000; Martinsons, 2002), which presents a challenge to firms attempting to engage those potential consumers in electronic commerce transactions. (3) Users too young to obtain credit cards: Younger Internet surfers may not have a credit card, but could potentially hold a CyberGold account or some other form of online payment. (4) The need for a system to enable payments between individuals for auctiontype commerce. This need has already subsequently been identified and filled by firms such as PayPal and BillPoint.

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The Rise and Fall of CyberGold.com 315

The fifth reason cited by The Economist concerns micro-payments. Micropayments are payments of very small amounts — ranging from 1/10 of a cent to $10 — that are envisioned as the way to charge users for delivery of small-scale product, such as listening to a single song (Economist, 2000). Credit cards, which generate fees primarily by a direct 2-4% fee charged against the transaction amount, price themselves out of the micro-payments market by also charging transaction and verification fees on a per transaction basis — in some cases, these could be greater than the cost of the purchase transaction (Guglielmo, 1999). CyberGold’s primary business was actually executing the micro-payment principle in reverse by handling micro-payments to the consumer from the advertiser. One firm that has achieved success in the micro-payment arena focusing on consumer-to-consumer transactions is PayPal, which established itself as the handler of transactions on the immensely popular eBay, and was subsequently acquired by eBay (Glasner, 2002).

CASE DESCRIPTION CyberGold’s business model, in the framework of atomic business models presented by Weill & Vitale (2001), is primarily that of an Intermediary (See Appendix C for a schematic diagram of CyberGold’s business model). CyberGold reverses the role of the intermediary as described by Weill & Vitale by paying the customer and retrieving information, whereas in the Weill & Vitale model the intermediary receives money and provides information. CyberGold primarily offers aggregated consumer information to its paying customers, the advertisers. This type of information product is not directly offered to consumers, but is directly offered to the businesses that choose CyberGold as their advertising partner. However, CyberGold only adds value for that partner when it creates a meeting between an advertiser and an interested consumer, and in this function CyberGold is acting as an intermediary. Soon after it was founded, CyberGold conducted a test hosted by an established portal which was designed to spotlight the rationale behind its innovative business model. CyberGold was based on the premise that an advertisement that offered the viewer a reward (money) to click on it would be viewed more times than an advertisement which did not offer a reward. The company ran a test of banner ads on the PathFinder portal that demonstrated a banner ad was clicked 13 times more often when $5 was offered than when no money was offered, and 4 times more often when $1 was offered (Hein, 1997). This appeared to support the company’s hypothesis. CyberGold provided its members a categorized listing of partners that offered CyberGold for various promotions (see Appendix A). Outside of banner ads on other sites that offered CyberGold, the member was encouraged to return to the site regularly to take advantage of offers as soon as they were added. Each advertisement by a particular vendor could be “redeemed” for CyberGold one time (Metcalfe, 1997); after that initial connection between the consumer and the advertiser, CyberGold was no longer part of that relationship. This meant that the consumer could return to the merchant’s site many times in the future, but CyberGold would neither record nor profit from such follow-up visits. In order to verify that value was being provided to the advertiser, the viewer was often required to complete a short questionnaire that verified his comprehension of the advertising being presented in order to earn CyberGold (Metcalfe, 1997). This was to Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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prevent consumers from simply clicking on the merchant’s banner ad to collect the reward, but not paying attention to the message.

Growth As the Internet grew in quantity of users and prominence, CyberGold’s membership numbers grew but the company was plagued by the perception that its message was unclear. This perception led the company to establish two major strategic alliances in order to better its market position. First, CyberGold paired with CyberCash Inc. in a scheme to award CyberCoins. CyberCash had already gained attention as a possible “future currency of the Internet” with its virtual wallet technology, and had already established marketing relationships by which its CyberCoins could be redeemed at more than 50 websites (Hein, 1997). This partnership was designed both to move CyberGold into the business of online currency and to clarify for consumers the confusion over where the CyberGold they earned could actually be used. The intent was to provide customers with more options for spending CyberGold credits. However, whether adding yet another level of abstraction (in the form of an additional cyber partner) truly minimized customer confusion is open to question. CyberGold formed a second alliance with Inference, called Cash2Register, which paid customers small amounts of CyberGold to complete product registration forms online instead of by mailing them in (Lucas, 1999). CyberGold’s primary business model was an online advertising medium that aimed to persuade Internet users to be more receptive to advertisements in order to assist in profiling existing users. This partnership with Inference had the potential to bring CyberGold to a different market: people who may not already be active online, but who learned about CyberGold based on the offers printed on the conventional physical product registration forms, and who might be somewhat more motivated to complete such registration forms than they would be ordinarily, by the opportunity to receive a cash reward for doing so. The degree to which people not actively online were brought to CyberGold by printed product registration forms is the degree to which this partnership created new customers, but this was not directly discernable from any reports publicly released by the firm. As the company grew its user base and initiated alliances, it also grew its staff. In its early growth period in mid-1997, the staff of CyberGold numbered 24 (Poole, 1997). During its prime time period of late-1999, the company reached a staffing level of 124 individuals, 77 of whom were in sales (CyberGold, 2000). By the summer of 2001, after the merger with MyPoints, the company was said to be negotiating to keep some of its 10 employees (East Bay Business Times, 2001).

Financial Results In the years 1997 through 1999, CyberGold saw its revenues rise, but also saw its net loss grow faster. Appendix D provides selected financial figures for the years ending in December 31 of 1997, 1998 and 1999 from the company’s 10-K filing. Notable among these figures is the growth of the business in the year 1999, which was the year the company went public. In 1999, total revenues increased from the $1.0 million realized in 1998 to $3.3 million. Unfortunately, at the same time sales and marketing expenses rose from $2.7 million to $8.3 million – more than a tripling of advertising expenditures. Sales and marketing was the largest component in the company’s overall financial statement, Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

The Rise and Fall of CyberGold.com 317

which saw the company lose more money each year. In 1997, the net loss attributable to common stockholders was $3.8 million; in 1998, the loss grew to $5.4 million, and in 1999 the loss more than doubled to $11.6 million. Due to these excessive advertising outlays, CyberGold lost increasingly more money each year, with net losses growing from $3.8 M to $5.4 M to $11.6 M between 1997 and 1999. Appendix E provides an additional view of the company’s performance, focusing on the first quarter of 1999 and the first quarter of 2000, from the subsequent 10-Q filing.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION The Competition CyberGold was one of three major firms providing this type of marketing research and web surfer reward programs. NetCentives, one of the well-known players in the market, teamed up with AOL in January of 2000, in a partnership utilizing NetCentives as the reward provider for AOL AAdvantage, an AOL/American Airlines partnership, as well as for ICQ (Hu, 2000). The market penetration and strategic advantage this provided NetCentives may have been responsible for a drop in the market value of CyberGold in the spring of 2000. MyPoints.com was another leading reward marketing company which had similar membership numbers and a similar business model, but which was reporting higher revenue numbers. According to figures published in Direct magazine in early 2000, MyPoints reported 8 million members and 1999 revenues of $24.1 million. In contrast, CyberGold claimed 7 million members and reported 1999 revenues of $5.3 million. . CyberGold had demonstrated membership growth through its short history, growing sharply from the 30,000 registered members the company claimed in September 1997 (Hein, 1997). Subsequently the company had reported reaching 1.5 million in March 1999 (Guglielmo, 1999), and then reached 3 million members in October 1999 (Lucas, 1999). In addition to CyberGold, NetCentives, and MyPoints, there were a few smaller competitors. One of these, Webstakes, a third competitor, is a company that performs similar marketing functions by arranging sweepstakes for web surfers to enter, and, by focusing on a slightly different market niche with a different value proposition to the consumer, it has maintained its activity to this day.

Intellectual Property Goldhaber observed that the technology and business model his company was based on were not only imitable, but already being imitated, by its competitors. The company’s leaders reasoned that by obtaining legal protection for their method of doing business, they would be able to charge royalties from other companies wishing to implement a similar process. As the board meeting began in the fall of 1997, CyberGold’s board members discussed the challenges faced by the firm. One suggestion they raised was the possibility of seeking a patent for CyberGold’s business model. The board eventually concluded that patent protection would be a good idea to pursue. Goldhaber was uneasy with this plan, since he knew that because patents were not regularly awarded for Internet Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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business models, the odds were not in the company’s favor. However, word was out that other “Dot Com” firms were applying for similar patents on their business models, and Goldhaber thought it was worth the effort to try for a “business method” patent, as well. He next suggested that the company ought to have a strategy for what course of action to take if the patent were to be granted. Prior to the late 1990s, patents were generally granted for designs for physical devices. A decision in 1998 in the widely publicized case of State Street Bank and Trust Co. vs. Signature Financial Group served to widen the scope of the Patent and Trademark Office to include methods of doing business and abstractions such as computer software. Only 170 applications were filed for this type of patent in 1995, but by 1999 the number had increased to 2,700 — and 583 of those patent applications had been granted (Allison & Tiller, 2002). CyberGold applied for such a patent and, in 1998, it obtained a patent on its business model of providing incentives to customers for viewing ads and completing surveys – which it termed “attention brokerage” (Bank, 1998). Essentially the firm was pursuing a type of “blocking strategy” (Afuah & Tucci, 2002) by preventing other start-up firms from emulating its business model. Goldhaber stated that CyberGold “made the patent application as broad as we possibly could,” (Bank, 1998) presumably in order to position the company to exact royalties from companies performing similar marketing functions. In effect, CyberGold was seeking the exclusive right to award web surfers any form of incentives — whether cash, points, frequent flyer miles, or any other form of compensation — in exchange for viewing online advertising. NetCentives, one of CyberGold’s competitors, received a similar patent on a closely related model of rewards based mainly upon online purchases. Goldhaber commented that, “our objective in obtaining this patent was not to stifle the market. We want to foster the practice of providing incentives online. Within limits, we are willing to license it out” (Borland, 1998). CyberGold adopted a passive strategy for enforcing its business method patent at first, in order to maintain growth of the market and presumably to project a positive public relations image. Goldhaber explained, “We are interested in licensing CyberGold technology to any company offering rewards or incentives for consumer actions on the Web. Right now we are studying the infringement issues, but our attitude is ‘Come on in.’ We want to encourage the continued growth of the incentives market by making attention brokerage affordable for companies currently offering online rewards that may be infringing on our patent” (InternetNews.com, 1998). The company pursued licensing deals based on its patented business method but did not become involved in any lawsuits regarding the technology. No significant stream of revenue appears to have been derived from the patent, and it does not appear to have been either beneficial or detrimental to the company’s performance. Meanwhile, additional investment capital was acquired in 1998 (Gimein, 1998) from two companies whose primary interest lay in CyberGold’s ability to enter the micropayment market. The investors indicated that they were not investing in the “old” business model of incentives for web browsing, but rather in the alternative model of micro-payments. As Goldhaber, Chiat and McKenna met in the board room, they contemplated the steps they should take to ensure that consumers and advertisers alike understood the value of the services CyberGold offered to them. They further discussed modifying their

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The Rise and Fall of CyberGold.com 319

business model to build ongoing revenue from the customer relationships they helped initiate.

REFERENCES Afuah, A., & Tucci, C. (2002). Internet business models and strategies: Text and cases (2nd ed.). New York: McGraw-Hill. Allison, J., & Tiller, E. (2002). Internet business method patents. Texas Business Review. Retrieved January 11, 2003 from the World Wide Web: http://www.utexas.edu/ depts/bbr/tbr/Oct_02.pdf. Bank, D. (1998). CyberGold claims the patent rights to surveys on web-users attention. The Wall Street Journal, 232, B6. Barr, S. (2000). Waiting for the dough. CFO Magazine, 16, 62-8. Borland, J. (1998). Web company patents online ads with payoff. TechWeb News. Retrieved January 11, 2003 from the World Wide Web: http://www.techweb.com/ wire/story/TWB19980824S0009. Cuneo, A. (2002). Jay Chiat Dies: Legendary Adman Helped Revolutionize Business. AdAge.com, retrieved from the World Wide Web: http://www.adage.com/ news.cms?newsId=34540. CyberGold Corp. (2000, May 15). Form 10-Q. Securities and Exchange Commission. Retrieved April 06, 2003 from the World Wide Web: http://www.sec.gov/Archives/ edgar/data/1086937/0000950149-00- 001174-index.html. CyberGold Corp. (2000, March 30). Form 10-K. Securities and Exchange Commission. Retrieved April 06, 2003 from the World Wide Web: http://www.sec.gov/Archives/ edgar/data/1086937/0000950149-00-000693-index.html. CyberGold awarded patent for “attention brokerage.” (1998, August 25). InternetNews.com. Retrieved January 11, 2003 from the World Wide Web: http:/ /www.internetnews.com/IAR/article.php/10131. CyberGold Site to close this month. (2001, August 8). East Bay Business Times, retrieved April 7, 2003 from the World Wide Web: http://eastbay.bizjournals.com/eastbay/ stories/2001/08/06/daily33.html. E-Cash 2.0. (2000, February 18) The Economist, 354, 67-9. Farhoomand, A. F., Ng, P., & Lovelock, P. (2000, January). Dell: Selling directly, globally. University of Hong Kong, Center for Asian Business Cases, Case HKU 069. Fowler, G. (2002). Internet IPO darlings: Where are they now? Startup Journal. Retrieved January 11, 2003 from the World Wide Web: http:// www.startupjournal.com/financing/public/20020611-fowler.html. Garber, J. R. (1999). Show me the money. Forbes, 163, 142. Gimein, M. (1998). CyberGold finds attention doesn’t pay. Industry Standard. Retrieved January 11, 2003 from the World Wide Web: http://www.thestandard.com/article/ 0,1902,1790,00.html. Glasner, J. (2001). Online cash ain’t worth squat. Wired News. Retrieved January 11, 2003 from the World Wide Web: http://www.wired.com/news/business/0,1367, 46180,00.html. Guglielmo, C. (1999). Cybergold: Big market for small-ticket sales. Inter@ctive Week. Gunzburger, J. (2000). Presidency 2000. Politics1.com. Retrieved May 10, 2003 from the Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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World Wide Web: http://www.politics1.com/nlp2k.htm. Hein, K. (1997). CyberGold’s back from the dead. Incentive, 171, 28-29. Hoffman, D. L., & Novak, T. P. (n.d.). How to acquire customers on the web. Harvard Business Review, May-June, p. 3-8. Hu, J. (1999). Are ‘registered user’ figures worth anything? CNET News. Retrieved January 11, 2003 from the World Wide Web: http://news.com.com/2100-1023229863.html?tag=rn. Hu, J. (2000). AOL inks deals with Netcentives, American Airlines. CNET News. Retrieved January 11, 2003 from the World Wide Web: http://news.com.com/21001023-236272.html?legacy=cnet. Hu, J. (2002). Yahoo tacks fees onto e-mail, storage. CNET News. Retrieved January 11, 2003 from the World Wide Web: http://news.com.com/2100-1023-865570.html. Lucas, S. (1999). CyberGold and Inference Launch Cash2Register. Adweek Eastern Edition, 40, 124. Martinsons, M. (2002, August). E-Commerce in China: Theory and cases. Presentation to the Academy of Management Organizational Communication and Information Systems (OCIS) Division. Metcalfe, B. (1997, October 13). CyberGold Spurns Spam by Paying People to Read Ads on the Internet. Infoworld, 19, 41. MyPoints buys rival for $142 million. (2000, May 31). Direct. Retrieved January 15, 2003 from the World Wide Web: http://www.directmag.com/ar/ marketing_mypoints_buys_rival/. Parker, E. (2001). Websites/CyberGold. Elisabeth Parker, 2001. Retrieved October 29, 2002 from the World Wide Web: http://www.elisabethparker.com/web_sites/ cybergold.htm. Parker, P. (2000). MyPoints.com acquires CyberGold for $157 Million. InternetNews.com. Retrieved January 11, 2003 from the World Wide Web: http:// www.internetnews.com/bus-news/article.php/3_342041. Poole, G. A. (1997). Panning for Web Gold. Wired.com. Retrieved April 7, 2003 from the World Wide Web: http://www.wired.com/wired/archive/5.05/rebels.html?pg=6 &topic= Richtmeyer, R. (2002). Opinions split on Yahoo! Turnaround. CNN/Money. Retrieved January 11, 2003 from the World Wide Web: http://money.cnn.com/2002/10/08/ technology/yahoo/index.htm. Semilof, M. (1996). A new way of mining for customers. Communications Week, 617, 23. United States Internet Council and International Technology & Trade Associates, Inc. (2000). State of the Internet 2000 (Section 1). Retrieved October 29, 2002 from the World Wide Web: http://usic.wslogic.com/section1.pdf. Weill, P., & Vitale, M. (2001). Place to space: Migrating to e-business models. Boston, Massachusetts: Harvard Business School Press.

ENDNOTE 1

The board meeting depicted in this case study is a dramatization illustrating the challenges facing the organization. The authors prepared this case based on press releases and publicly available sources of information in order to provide material

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The Rise and Fall of CyberGold.com 321

for class discussion. The authors do not intend to illustrate effective or ineffective handling of managerial situations with the case.

APPENDIX A The CyberGold Homepage

Source: http://www.elisabethparker.com/web_sites/cybergold.htm.

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322 Peltier & Gallivan

The CyberGold Shopping Page

Source: http://www.elisabethparker.com/web_sites/cybergold.htm.

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The Rise and Fall of CyberGold.com 323

The CyberGold Gifts and Flowers Shopping Page (drilldown)

Source: http://www.elisabethparker.com/web_sites/cybergold.htm. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

324 Peltier & Gallivan

APPENDIX B Stock Price 30 25 20 15

Stock Price

10 5 0 Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr99 99 99 99 00 00 00 00

APPENDIX C CyberGold Business Diagram

$ i Merchant #1

i

Merchant #2

Consumer

CyberGold

$

Goods/services

$

$

Goods/services

Derived from Weill & Vitale (2001).

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The Rise and Fall of CyberGold.com 325

•

•

•

In this model, the typical interaction involving consumer and merchant, orchestrated by CyberGold, is depicted in the oval. The merchant (#1) offers CyberGold a fixed amount per new paying customer introduced or per advertisement viewed. CyberGold offers a reward of a specified amount of CyberGold (roughly equivalent to cash) to the consumer for viewing the advertisement or taking action. In exchange, the consumer provides demographic information to CyberGold, which allows CyberGold to market that information to merchants in their role as advertisers. The services of the merchant are provided to the consumer directly, in exchange for any appropriate form of payment. The direct lines from merchant #1 to consumer and the reverse depict the relationship that develops after the introduction engineered by CyberGold. After the relationship is established between merchant and customer, the customer purchases additional services from the merchant directly, as no additional CyberGold is offered to the consumer once he has already earned CyberGold from the associated merchant. In the area on the right, the consumer’s redemption of accumulated CyberGold is depicted. The consumer forfeits an amount of CyberGold in exchange for products or services to a participating merchant, who may or may not be one of the merchants contracting with CyberGold for marketing information.

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APPENDIX D YEAR ENDED DECEMBER 31, ---------------------------------------1997 -----------

1998

1999

-----------

------------

REVENUES: Transaction....................................$

457,074

Custom marketing services and other..........

$

628,350

$

3,315,871

74,342

376,583

1,987,090

-----------

-----------

------------

Total revenues.........................

531,416

1,004,933

5,302,961

1,593,811

COST OF REVENUES: Transaction....................................

256,123

292,865

Custom marketing services and other............

37,048

173,253

-----------

-----------

Total cost of revenues.................

Gross margin...........................

278,628 ------------

293,171

466,118

1,872,439

-----------

-----------

------------

238,245

538,815

3,430,522

-----------

-----------

------------

OPERATING EXPENSES: Product development............................1,190,047

1,700,421

2,670,737

Sales and marketing............................2,162,413

2,694,601

8,312,130

791,837

2,515,787

General and administrative..................... Amortization of deferred compensation..........

739,816 --

198,288

----------Total operating expenses...............4,092,276 ----------Loss from operations..................(3,854,031) Interest Income (Expense), net...................

------------

5,385,147

14,233,268

-----------

------------

(4,846,332)

(15,292)

(10,802,746)

78,381

-----------

739,930

-----------

Net loss..............................(3,869,323) Dividend Attributable to Preferred Stockholders.

734,614

-----------

------------

------------

(4,767,951)

(10,062,816)

(660,430)

(1,570,307)

-----------

------------

Net Loss Attributable to Common Stockholders...$(3,869,323)

$(5,428,381)

$(11,633,123)

===========

===========

============

NET LOSS PER COMMON SHARE: Basic and diluted(1)..........................$

(0.97)

===========

$

(1.35) ===========

$

(1.40) ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted(1).......................... 3,979,489 ===========

4,020,393

8,308,482

===========

============

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The Rise and Fall of CyberGold.com 327

10,000,000 5,000,000 0 -5,000,000

1997

1998

1999

-10,000,000 -15,000,000 Total Revenue Sales & Marketing Expense Net Loss Attributable to Common Stockholders

Source: CyberGold Corp. 10K, March 30, 2000

Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

328 Peltier & Gallivan

APPENDIX E THREE MONTHS ENDED MARCH 31, ------------------------1999

2000

--------

--------

Revenues: Transaction Custom marketing services & other

Total revenues

$

333

$ 2,269

170

2,021

--------

--------

503

4,290

159

1,094

Cost of revenues: Transaction Custom marketing services & other

Total cost of revenues

85

78

--------

--------

244

1,172

--------

--------

259

3,118

Product development

513

1,630

Sales and marketing

1,024

5,410

Gross margin Operating expenses:

General and administrative itarget.com acquisition costs Amortization of deferred compensation

Total operating expenses

Loss from operations Interest income, net

Net loss Other comprehensive loss

307

2,302

0

2,142

327

113

--------

--------

2,171

11,597

--------

--------

(1,912)

563

--------

--------

$(1,901) 0 --------

Comprehensive loss

(8,479)

11

$(1,901) ========

$(7,916) (117) -------$(8,033) ========

Net loss per common share, basic and diluted

$ (0.37) ========

$ (0.38) ========

Weighted average common shares, outstanding, basic and diluted

5,175

20,642

========

========

Source: CyberGold Corp. 10-Q, May 15, 2000. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

The Rise and Fall of CyberGold.com 329

BIOGRAPHICAL SKETCHES John E. Peltier recently completed the Master of Science program in Computer Information Systems at the Georgia State University Robinson College of Business in Atlanta, Georgia, U.S.A. He also earned a Bachelor of Business Administration in Management from the same university. Prior to enrolling in the M.S. program, Mr. Peltier worked in retail management with AMC Theatres. He currently works in the software development field as a Quality Assurance Analyst for PracticeWorks, Inc., a healthcare information systems provider in Atlanta, Georgia. Michael J. Gallivan is Assistant Professor in the CIS Department at Georgia State University Robinson College of Business in Atlanta, Georgia, USA. He conducts research on human resource practices for managing IT professionals, as well as strategies for managing effective IT implementation, IT outsourcing, and inter-organizational alliances. Dr. Gallivan received his Ph.D. from MIT Sloan School of Management and served on the faculty at New York University prior to his present appointment at Georgia State University. He has published in Database for Advances in IS, Information Systems Journal, Information Technology & People, Information & Management, and IEEE Transaction on Professional Communications. Before joining academia, Dr. Gallivan worked as an IT consultant for Andersen Consulting in San Francisco.

Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.