Netcentives Inc

views updated

NETCENTIVES INC.

Netcentives Inc. was founded in 1996 by MBA students Eric Tilenius and Elliot Ng. Two years later, the pair launched their ClickRewards program, which allowed members to earn ClickMiles for purchases made on participating merchant Web sites. In just a few short years, ClickRewards had grown to include more than 4 million members and was the only loyalty network that had exclusive contracts with 10 major airlines to provide frequent flyer miles in exchange for ClickMiles. More than 240 companies including American Express Co., Eddie Bauer Inc., Gap.com, IBM Corp., Hewlett-Packard Co., Nortel Networks, OfficeMax.com, and Victoria's Secret used Netcentives' loyalty marketing programs, e-mail marketing services, and professional services including consulting and marketing plan development.

EARLY HISTORY

Netcentives Inc. was the brainchild of Ng, a former Microsoft Corp. employee and Harvard Business School student, and Tilenius, who attended Stanford Business School and had worked for both Oracle Corp. and Intuit Inc. In 1995, Tilenius and Ng began developing ideas for an Internet start-up company and zeroed in on the idea of creating an Internet rewards program similar to the rewards programs used by major airlines. In April of that year, the partners read an article in The Wall Street Journal that claimed frequent flyer miles were becoming the "second national currency." In an October 1998 Business 2.0 article, Tilenius stated: "seeing that article set off a roller coaster of emotions. We were scared to death that someone else would beat us to it."

In June of 1996, Netcentives was incorporated and the duo immediately began promoting their idea to venture capitalists. By November, Information Technology Ventures had invested in the firm; a second round of financing followed in September of the next year. Tilenius and Ng then chose West Shell III, a seasoned marketing executive, to head up the new company. Testing of the rewards program, called Click Rewards, began in December 1997 and the site was officially launched in March of 1998.

The Click Rewards program was set up to reward online shoppers and to foster brand loyalty. As part of the program, Netcentives purchased frequent flyer miles from airline companies and then sold the miles to e-merchants such as 1-800-Flowers and Barnesand-Noble.com. Those merchants then used the miles to entice online shoppers. The shoppers earned Click-Miles for making online purchases and used the ClickRewards Web site to redeem the ClickMiles for airline tickets, as well as other merchandise. By the time the program was launched, Netcentives had secured exclusive supplier agreements with American Airlines, British Airways, Continental Airlines, Delta Air Lines, Marriott Hotels and Resorts, Northwest Airlines, US Airways, and Westin Hotels & Resorts. Its merchant network included Broderbund Software, Burke Marketing Research, CNET Direct's BUYDIRECT, Golfweb, Macy's, Wells Fargo, and Yahoo!.

During December of 1998, merchants in the Click Rewards network secured more than $50 million in sales. By early 1999, nearly 655,000 consumers had become ClickRewards members. At that time, the network's merchant base had grown to 50 companies and Netcentives had awarded close to 1 million frequent flyer miles. The success of the start-up was due in part to the innovative management style of Tilenius and Ng. Wanting their executive staff to have the best possible management advice, the pair gave out extra shares of Netcentives to the staff. The executives could then give the shares to the mentor of their choice, in exchange for five hours per month of confidential business advice. The six-month program proved to be successful for both the executives and the company. Mentors from Visa, Intuit, and Wells Fargo were so impressed with the program that they signed up for Netcentives' services.

EXPANSION

While Click Rewards became increasingly popular, CEO Shell focused on expanding Netcentives' other offerings. In late 1998, the Panttaja Consulting Group Inc. was acquired and folded into the Netcentives Professional Services unit, which offered consulting services to e-commerce merchants. In May of 1999, the company also introduced its Enterprise Incentive Solutions program entitled ClickRewards@ Work. By using Netcentives' technology, enterprises were able to set up Web-enabled employee reward programs. Companies including Microsoft, Cisco Systems, and EventSource.com used the program to reward and motivate employees. In July, Netcentives also introduced its Custom Loyalty network through which businesses were able to set up customized incentive programs.

In October of 1999, Netcentives went public, offering 6 million shares and raising $72 million. By the end of the year, the Click Rewards program had nearly 2.5 million consumer members and 85 merchant members. The company also had secured a leading position among those in the promotional industry.

Netcentives entered the new millennium intent on continuing its growth. The firm made three key acquisitions during the year that were designed to bolster its product offerings. MaxMiles Inc., a producer of technology that enabled customers to view their reward and frequent flyer information online, was purchased in January 2000 in order to beef up Netcentives' technology platform. That purchase was followed by the March acquisition of UVN Holdings Inc., a leading collector of consumer shopping trend analysis. The deal also included an equity stake in Golden Retriever Systems, which provided information on 90 percent of U.S.-based payment card transactions. In April, Netcentives purchased Post Communications as part of its plans to combine its incentive programs with direct e-mail marketing.

The firm expanded through strategic alliances as well. In January of 2000, it teamed up with American Express to launch BlueLoot, an incentive program designed to reward American Express Blue credit card holders. That month, America Online (AOL) bought a stake in Netcentives. As part of the deal, Netcentives provided the infrastructure necessary to operate AOL AAdvantage, a frequent flyer program owned by AOL and American Airlines, and also created a rewards program for ICQ, AOL's Web-based chat community.

Netcentives also secured several lucrative contracts in 2000. E-marketing firm Coolsavings.com Inc. hired the firm to develop and operate a rewards program. In December, 3Com Corp. contracted the company to develop a customized incentive program to reward its business partners. Novell Inc. and CNN also chose Netcentives to operate their incentive programs. Revenue rose to $43 million, an increase of 447 percent over the previous year. However, despite its impressive revenue figures and powerful client list, Netcentives' stock price faltered. Shares trading at $80 at the end of 1999 fell to just $9 in April of 2000, and down to 69 cents in June 2001. Like many firms in the dot-com industry, Netcentives was hit hard by the slowing U.S. economy and a lack of investor confidence. At the same time, two key management figures left the firm unexpectedly. In May of 2001, Shell stepped down as chairman, and the firm's chief financial officer, Jack Longinotti, left to pursue other opportunities.

Nevertheless, Netcentives continued to provide products and services designed to optimize customer, partner, and employee relationships. With more than 4 million Click Rewards members and business relationships with more than 240 companies, Netcentives' management remained focused on future growth.