[March 13, 2006]

There's no such thing as a free iPod

(Gazette, The (Colorado Springs, CO) (KRT) Via Thomson Dialog NewsEdge) Mar. 12--You've seen the ads flashing on the Internet or popping up in your e-mail telling you a free gift card, laptop, iPod or even the scarce Xbox 360 is yours for the asking.

Naturally, under the adage that nothing in life is free, you draw the conclusion that it's a scam.

That may be a bit hasty. Although there are scams out there, it is possible to get something for free -- but it's not easy.

The companies involved in these programs want something in return: your e-mail address and your money. You need to sign up with advertisers' offers, such as a movie-rental plan or credit card, and then get a half-dozen or more other people to sign up. It's a new type of marketing strategy on the Internet called "lead-generation," where companies give you something for free if you and your friends buy a product or service. Call it the new generation of network marketing.

Does it work?

Yes, if you don't mind reading a lot of ads, responding to a handful and persuading your friends to sign up.

Just ask Jacob Stuart, a 31-year-old Web developer in Colorado Springs. Stuart started gathering his free loot in July 2004. During the next year he received a Dell PC, an Xbox, a flat-panel TV, a Mac Mini and an iPod Photo, all free for signing up for offers and getting others to sign up.

But Stuart didn't just reply to a pop-up ad or e-mail. He made a game plan.

First, he lined up other people who would agree to sign up with him. Through a growing number of forums and Web sites such as www.freeipodguide.com, he found people to exchange referrals with him.

"I'd find a community where folks help each other," he said. A virtual "you scratch my back and I'll scratch yours."

Since he spends most of his time working on the Web, he was able to track his progress and push along his referrals.

Once his referrals were in place, it was time for everyone to purchase an offer. Even though Stuart signed up and tried about a dozen offers, he ended up canceling them all, which many people do.

He advises others to also first make a game plan.

"Never just sign up for an offer on your own," he said. "Find somebody who can give that referral."

This type of online marketing has taken off during the past year. One marketer, Gratis Internet, has been making so much money at it that it is No. 18 on Inc. magazine's list of fastest-growing private companies. It reported sales growth of 2,350 percent in three years.

Gratis started in 2000 with one Web site and now owns a dozen of the freebie sites giving away a variety of merchandise, including designer handbags and iPods.

The company is paid by advertisers each time someone signs up for that advertiser's product or service, such as Blockbuster rentals or Citibank credit cards.

Gratis co-founder Peter Martin, 29, said the average advertiser pays his company $60 for each customer who signs up. With six sign-ups required for a free iPod, for example, that's $360 on average. Gratis spends part of that money to buy the iPod and pockets the rest.

"We make our money from the completion of those online ads," Martin said. "We get paid referral fees that we use to pay for the iPods and keep the profit in between."

Those fees added up to $20.5 million for Gratis in 2004, and it expects to top that for 2005. But the company wouldn't disclose how much of that was profit.

Martin said his company has shipped $14 million worth of free products in its six years, including 25,000 iPods during the past two years.

Martin thinks this referral marketing will become more popular as online advertising grows.

"More and more companies are starting to explore online marketing," he said. "It's where the future is going. Advertisers are looking for a large volume of new customers. We can generate a lot of traffic for them."

Martin said companies like his can provide a stream of new customers to advertisers, giving them the most for their money.

"For advertisers, the Gratis model represents a contrast to traditional marketing methods, such as print, broadcast and billboard ads," he said. "In the past, advertisers had to spend large sums of money up front and hope it produced results. With Gratis, advertisers only pay for new customers delivered."

Despite their success, online marketers struggle to overcome wary consumers.

"Users have become more skeptical of giveaways online," Martin said.

That's illustrated by Brad Rice, a student at the University of Denver, who said about half the people he talked to about being his referral weren't interested.

Indeed, people have reason to shy away from the process. Gratis, along with othersimilar marketers, has an unsatisfactory rating with the Better Business Bureau because of the high number of complaints filed. The company responds by saying consumers did not abide by the terms and conditions.

Martin acknowledged that frivolous competitors breed skepticism, such as companies that will sell your e-mail address to other marketers or make the process never-ending. Gratis says it doesn't operate that way.

"We don't hide our steps," Martin said. "We're working with the BBB to make sure every single issue gets resolved. The majority of the ones we tackle are clear someone is trying to break the rules."

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