Gen i: Tuned in, logged on, cashed up

Summary:Meet Generation i: Aged between 13 and 29, numbering 67.7 million, and with $302.4 billion to spend. No wonder Web startups are scrambling to get acquainted.

Alex Greco, 17, is a Web kid.

The Sparta, N.J., high school junior spends at least a couple hours a day on the Internet and spends more time online during weekends. Greco mostly downloads digital music in the MP3 format and chats on America Online Inc.'s ICQ service.

"It's a big part of my life," he said. "It feels weird when it's not there."

That's sweet music to Snowball.com, Bolt.com and a host of other competitors' ears. Snowball, which is planning an initial public offering in March, is one of many sites targeting the 13- to 29-year-old crowd. According to Snowball, Generation Y plus Generation X equals Generation i. Snowball, which operates a network of sites including ClickChick.com and male entertainment site IGN, even went so far as to trademark the "Gen i" term.

The reasons to target Generation i are clear: demographics and disposable income, which is spent freely online. Generation i, the largest generation since the baby boomers, is hard to pin down, but if advertisers and e-commerce companies hook this brand-savvy bunch early, they could have a lifetime customer.

"We define Generation i as a generation that has grown up on the Internet and is Web-centric," said Mark Jung, CEO of Snowball. "I'm 38 and Web-savvy but didn't grow up with it. There's a difference." (See: Survey -- teens online.)

According to the U.S. Census Bureau, 15- to 24-year olds, a subset of Generation i, consisted of 67.7 million people in 1998 with a combined disposable income of $302.4 billion.

"This group of Internet user is more malleable and will use the Net for everything," said Brad Greenspan, chairman of eUniverse (OTC: EUNI), which operates a network of sites targeting music fans and gamers. "It's much better for advertisers to capture them now than try to convert them later."

Forrester Research analyst Ekaterina Walsh agreed. She said 16- to 22-year-olds will spend roughly $4.5 billion online in 2000. "The long-term potential for Snowball to attract advertisers looks good," Walsh said. "This audience develops brand loyalty at a very early age. By 20 it may be too late."

That fact puts Generation i Web sites in a good market. "At the end of the day, these sites are enablers," said Allen Weiner, vice president of analytical services for NetRatings.

"They put users in a position to buy."

The potential profit from the Internet generation has Wall Street interested in Snowball.

Snowball (proposed ticker: SNBL), which counts New Line Cinema's new-media unit as an investor, is planning an IPO with Goldman Sachs as the lead underwriter. On Feb. 11 Snowball said it will offer 6.25 million shares with an expected price range of $10 to $12.

Bolt.com, which focuses on 15- to 20-year-old teens, has lined up Morgan Stanley as its lead underwriter. Bolt officials wouldn't comment, citing the company's quiet period.

Weiner puts Snowball in front of the pack. "Of all the sites, Snowball does the most effective job of reaching people at various crossroads," he said. "They have done a nice job of being vertical and horizontal. If they pull it off, they can get advertisers for every community."

But revenue for both Snowball and Bolt.com remains light.

For the nine months ending Sept. 30 Snowball had sales of $3.2 million with a loss of $18.4 million. Bolt (proposed ticker: BOLT) didn't look any better in its regulatory filings. For the nine months ending Sept. 30 Bolt reported sales of $1.9 million and a net loss of $4.4 million. The company, which counts American Online Inc. (NYSE: AOL), Microsoft Corp.'s MSN Hotmail and Ford Motor Co. as partners, launched an online store but is yet to record any meaningful sales. Bolt said its revenue would derive from advertising, e-commerce and market research data on its audience.

eUniverse, which is waiting for a Nasdaq market listing, reported a December quarter pro forma loss of $2.3 million on sales of $3.1 million. In its updated regulatory filings Snowball said it had sales of $6.7 million for the year ending Dec. 31, which would indicate fourth-quarter sales of about $3.5 million. As of Dec. 31 Snowball had an accumulated deficit of about $39.8 million.

Will this work?
Despite the big backers and mouth-watering demographics, there are a few question marks about focusing on Generation i.

Forrester's Walsh noted that Generation i may not buy into the targeted content and marketing pitches.

According to Forrester's research, Generation i lists Yahoo! Inc. (Nasdaq: YHOO), Amazon.com (Nasdaq: AMZN), Intel Corp. (Nasdaq: INTC) and CDNow (Nasdaq: CDNW) among their favorite sites. Snowball and eUniverse are among the top 50 Web properties, according to Media Metrix, but teens also spread the traffic around by visiting ESPN.com, MP3.com (Nasdaq: MPPP) and even Wal-Mart.com (NYSE: WMT).

"The way to reach kids is to treat them like adults," Walsh said. "Yahoo! has never limited itself to one audience."

Analysts warn that companies can't fool Generation i. If a company's targeting is too blatant this Web-centric crowd will steer clear. Currently, Generation i also has a plethora of companies to choose among, making an industry shakeout likely down the road. Snowball, for instance, faces competition on numerous fronts, including AOL and Ugo Networks, among others.

There's also a precedent for Wall Street flops focusing on this audience. Alloy Online (Nasdaq: ALOY) went public as an e-commerce company focused on Generation Y and is currently on par with its May 1999 IPO price of 15. iTurf (Nasdaq: TURF), another generation Y e-commerce company, has fared even worse. iTurf went public at 22 in April 1999 and now trades around 12.

And then there's Greco, the Web kid from Sparta who's yet to be reeled in by Generation i sites. He said he didn't visit sites in Snowball's network or bother with eUniverse or Bolt.com. Instead, He listed his favorite sites as Yahoo!, Scour.net (an MP3 download site) and Hotmail.

"I never heard of any of them," Greco said. "I might try them out sometime though."

Topics: Start-Ups, Amazon, E-Commerce, Intel, IT Employment

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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