Are 'Gen-Y' sites doomed to fail?

Meet Jacquline, A 17-year-old from Tacoma, Wash. Jackie sounds like any other teen from around the country when she describes on her Web page what she likes to do: "sleep, watch t.v., write, read, hang with friends, shop, talk on the phone, surf the web."

"I spend all day on the internet, on and off," Jackie writes in an e-mail to MSNBC. "Except for on the weekends, when it's only about an hour." Her favorite sites are the teen community site Bolt.com, the gaming site Uproar.com and the Web page of a local Seattle radio station.

Then there's 13-year-old Reann Ford from Iowa who spends "an hour to two hours" online a day. "Most of the time online I talk to my boyfriend who lives across the state," she says via e-mail. She also uses the Web to look up her favorite bands to see if they're performing anywhere near her hometown.

Jackie and Reann are part of a cultural youthquake called Generation Y, the approximately 70 million young people in the United States ranging from 5 to 22 years old who have turned pop stars such as Britney Spears and 'N Sync and clothing company Tommy Hilfiger into money-making cultural powerhouses. In particular, Gen Y's 16- to 22-year-olds are getting more attention from Wall Street, Internet media and even interactive television companies these days.

It's easy to see why. By the end of the year, 15 million 16- to 22-year-olds should be online, spending some $4.2 billion on music, books, clothes, tickets and other items, based on Forrester Research estimates. By 2004, Forrester projects nearly 70 percent of a total of 28.5 million 16- to 22-year-olds will be sending e-mail, instant messaging each other, playing games and just hanging out on the Web.

Despite the impressive stats, two Web sites devoted to Generation Y, Snowball.com and Bolt.com, which are scheduled to go public soon, could have a tough time convincing investors that there's big money to be made from chatty, game-playing teens.

"How do you monetize the traffic?" asks Carolyn Trabuco, an analyst with First Union Securities who follows the teen market online and covers the youth-focused e-commerce site Alloy.com. Many of the teen sites rely on chat to bring in their audience, Trabuco says, and "chat is a low-yielding revenue opportunity." Chatting teens aren't as likely to click on a banner or be in a buying mood.

"We're still early in the growth ramp of the sector ... but there will be a shakeout," predicts Jeff Klinefelter, an analyst with U.S. Bancorp Piper Jaffray who follows Alloy.com and iTurf.com, two publicly traded teen commerce sites.

Next week Snowball.com, a network of 130 Web sites and 80 partner college destinations, hopes to raise $62 million selling 6.25 million shares at an estimated $10 to $12 each. Soon after (its public offering date has yet to be announced), Bolt.com, a single brand that combines editorial on pop movies, music and sports with user-generated features like the "Member of the Day," is looking to raise $40 million selling 3.7 million shares at $10 to $12 each.

Both sites are generating a notable amount of traffic, but neither one has significant revenues. "There's not a clear business, other than a lot of traffic on their sites," says IPO watcher Francis Gaskins, editor of Gaskins IPO Desktop, of the upcoming offers from Snowball.com and Bolt.com. "I see a lot of traffic, but I don't see a lot of financials yet."

Snowball -- best known for games site IGN.com and ChickClick, a garrulous, hip site for young women -- attracted an investment from New Line Cinema in November as part of a multi-year marketing partnership.

Snowball, which sees an audience that ranges from 12- to 29-years-old, had 5.9 million unique visitors in January and was No. 29 in Media Metrix rankings. But for all those young people, Snowball's total revenues for 1999 were only $6 million, up from $3.2 million in 1998. Even worse, losses were $34 million.

Compare Snowball's revenues to those of iVillage, No. 28 in the Media Metrix rankings with 5.9 million unique visitors in January. iVillage, which targets women 25-49, had net revenues of $19.3 million in the fourth quarter, on total revenue of $44.6 million for 1999.

Snowball Vice President Teresa Crummett counters that "we're not just about advertising, we're going to start a market research unit as another revenue stream."

The numbers aren't much better at Bolt.com, which has distribution partnerships with America Online and AT&T Wireless. Bolt, founded and spun off by Concrete Media, did $4.4 million in sales, but losses were $11.5 million. Bolt may have detailed information about its 2 million registered members to pitch to advertisers, but because much of its content is user-generated, it could have a hard time getting significant commitments from mainstream online marketers. Bolt CEO Dan Pelson maintains that the community site has "extraordinarily low customer acquisition costs."

"We're following more of a Yahoo! model, and we're viral in growing user acquisitions," says Pelson.

Part of the problem from Wall Street's point of view is the lackluster performances of Alloy.com and iTurf.com. Alloy.com, the online companion to a clothing catalog company, opened in May at $23 and has languished in the mid-teens. iTurf.com, which is 60 percent owned by catalog company Delia's, opened at $22 last spring, zoomed to a high of $66 and has since plummeted to its current price of $11.25 a share.

iTurf did $25 million in sales last year, with $14 million in sales for the fourth quarter. "I don't think investors are interested in community or commerce stocks, no matter how we play with unbelievable growth," says iTurf's CEO Stephen Kahn.

In an effort to expand its 13-24-year-old audience base, iTurf acquired TheSpark.com, a popular humor site created by a group of Harvard graduates, in February. Kahn is also relaunching iTurf.com as a portal brand for its network of sites including Gurl.com and OnTap.com.

On Monday, Alloy.com scored a $55 million investment from cable magnate John Malone's Liberty Digital for its interactive TV-based commerce initiative. Through the stock and cash deal, Liberty will own 16 percent of Alloy.com, an alliance that could open doors for a partnership between Alloy and MTVI Group, which is connected to Liberty Digital. "The teen market will be an important part of interactive TV," says Alloy.com CEO Matt Diamond.

But the teen scene is only going to get rougher online. In February MTVI Group, the online unit of MTV Networks, filed for an IPO. MTVI may be bleeding money, an estimated loss of $72 million on $12 million revenues in 1999, but it also carries the promise of more than $100 million in TV promotion from the MTV and VH-1 cable channels.

And in May, Kibu, a teen girl site backed by Excite@Home and $22 million in venture funding, is expected to launch and could steal even more of the current players' audience.

Yet while the busy teen market is showing some growing pains and consolidation is expected, few question that it's ultimately a viable, compelling market.

"It's a sought-after demographic for marketers," says analyst Klinefelter.

"This will be the first generation to grow up online, the same way that previous generations have grown up with TV, radio or the automobile," says Ekaterina Walsh, analyst with Forrester Research. "They are showing what the Main Street market will be in 10 years."