Online Loyalty Programs Take a Beating

New York-based loyalty firm FreeRide is shutting down — at least temporarily — while it revamps its business model to survive in the current market conditions.

According to a notice posted on the company’s site, FreeRide “doesn’t have deep enough pockets to play this game indefinitely. Therefore, on April 30, we took a giant step backward by taking the FreeRide site down. … We hope to be back later this year.”

Spokespeople from FreeRide did not return repeated requests for comment.

The announcement follows at least two rounds of layoffs at the Alley-based company, which in December spun out a separate loyalty marketing company, Liquid Loyalty, allowing FreeRide to concentrate on aggregating offers on its site.

However, that strategy failed to pay off for the firm. Like many players in the online marketing space, FreeRide was hurt by the fallout of dot-com advertisers, and the overall spending slowdown in the industry.

“You redeem your points far faster than our sponsors pay us for them,” said a notice on the site. “In fact, the majority of our sponsors – including some of the biggest names on or off the Web – are taking 4 or more months to pay, if they pay at all. (Some just go out of business.)”

The site said that gift certificates ordered before the end of April should be delivered this month; all other orders that weren’t redeemed by the site’s closing will have to wait until FreeRide again goes “live.” And according to the site, the company isn’t sure when that will be, if ever.

The news bodes ill for the online loyalty space — according to Media Metrix figures, FreeRide.com was one of the market leaders, with one of the two most “sticky” sites in 1999 and 2000. In December 2000, the research firm reported that the company had about 320,000 unique visitors monthly — a small figure, but one that executives routinely said represented an extremely loyal user base.

FreeRide.com isn’t alone in its efforts to figure out how to tackle the troubled online loyalty sector. One dabbler in the arena, ad network 24/7 Media, gave up entirely on Monday by selling its AwardTrack loyalty program ASP to a former distributor.

24/7 Media had originally spent about $70 million in stock for AwardTrack. Terms of Monday’s sale weren’t disclosed, but the Alley-based ad network recently disclosed in SEC filings that it wrote off $60.8 million as goodwill from the original acquisition — suggesting that the realizable value of the unit was less than $10 million.

Sources close to 24/7 Media indicated that company executives considered running AwardTrack a liability, and more palatable than selling it off for a fraction of the unit’s original sale price.

Other players like MyPoints.com are feeling the pinch as well. The San Francisco-based firm on Monday reported slipping revenues during first quarter — down $4.5 million from fourth quarter’s $14.5 million.

MyPoints.com has seen marginal successes in stemming its cash losses. Excluding charges, the company reported a pro forma loss of $11.9 million, or $0.29 per share. That’s better than the $16.3 million, or $0.40 per share, it lost during fourth quarter.

But the company also posted an approximately $4 million greater operating and pro forma net loss during first quarter 2001 than it did in the year-ago period.

MyPoints.com’s efforts to stay afloat have entailed sizable staff reductions and management shakeups. In November, founder Steve Markowitz retired abruptly from the posts of chairman and chief executive, following the company’s third quarter, in which it had lowered earnings guidance and reported persistent problems with the integration of an acquired company.

In October, the company cut about 29 percent of its workforce, or 120 positions.

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