'Pay-for-surf' plans attract millions

You might not be terribly interested in getting paid 50 cents an hour to watch ads while surfing the Net -- hardly a living wage. But what if you were paid a nickel, or a dime, for every hour thousands of other people surfed? It adds up to hundreds or even thousands of dollars per month.

That pitch has romanced millions of Net users into signing up since April and has start-up AllAdvantage.com in the Web's top 25 list almost overnight. Over a dozen companies are rushing to follow. Can Web users really get money for nothing?

While Net users are still skeptical of proliferating offers for free PCs or free Internet access, "pay-for-surf" companies go a step further. In perhaps the logical conclusion of the Internet's gold rush to gain market share at any cost, several companies are giving money away to attract users.

A simple plan
It's simple, really -- surrender part of your computer as advertising space, and you'll be paid about 50 cents an hour for your time. It's not the first scheme to entice Net users to browse ads with some kind of compensation; Cybergold.com gives users Net coupons for looking at ads. But it is the first time consumers are being sent cold, hard cash.

Most services cap your monthly payout at about $20, enough to cover the cost of your Internet connection. But that's hardly what has generated all the excitement.

Members are flocking to the services because of additional payouts offered by an Amway-style mutlilevel marketing scheme that allows users to sign up friends and gain a chunk of their surfing earnings. And still more chunks from every hour surfed by people the friends get to sign up -- and so on. Even at a nickel an hour, with no limit on referrals, it can add up.

Dale Martin signed up for AllAdvantage.com almost immediately after the service launched March 30. Telling a couple of friends at his church and sending out a few e-mails created a snowball. He now has 29 "direct" referrals and 3,986 extended referrals. He earned $24 in July, the first month the service paid its users, $193 in August and $487 in September.

"I'm going to buy a new computer, a Pentium III, with the money. My wife can't complain about that," he said. "If I'd have known this would happen, I would have spent more time on it at the beginning."

Martin is hardly AllAdvantage's best customer. According to CEO Jim Jorgenson, the company has already sent out a dozen checks of more than $1,000, with that number expected to increase exponentially next month.

'Word-of-mouse' publicity
The near-magical mixture of "word-of-mouse" publicity with the lure of multilevel marketing riches has made "pay-for-surf" the latest Internet phenomenon. AllAdvantage says it has 2.5 million users, and the companys 5-month-old Web site cracked the top 25 on the Net in August, according to PC Data, just ahead of iVillage and CDNow. Most are users feverishly checking their account balances.

Closest competitor GotoWorld.com says it just surpassed the 1 million mark, and its site was ranked 53rd in August.

All that has attracted the attention of private investors. AllAdvantage just completed a $31 million round of funding, with cash kicked in by Times Mirror TMCT Ventures and Walden Media.

With $1,000 checks flying out the door toward millions of members, one might think that $31 million would dry up quickly. Not so, Jorgenson says. The complicated mathematics of an MLM pyramid work because AllAdvantage won't pay out more than 80 cents an hour, including 50 cents to the surfer and a maximum of 30 cents for five levels of referral surfers (10 cents for the first level, 5 cents each for four more levels). That works out to $4 for every 1,000 ads the company serves -- a maximum unlikely to be reached.

"We're very profitable at a $5 CPM rate," he said, explaining the companys business model. He wouldn't disclose the company's current rates, though he said they are slightly lower than standard Net fees, which can range anywhere from 15 to 80 CPM -- or $15 to $80 per 1,000 ads served.

But that presumes advertisers are dumping money into the system as fast as users are getting paid out of it. So far, Internet posts indicate GotoWorld users have been disappointed because that company only managed to sell ads at an average of $2 per thousand, and the first round of checks the company sent out only paid about 7 cents per hour of surfing.

Lining up advertisers fast enough so the pyramid doesn't topple is a challenge, Jorgenson admits.

"We get members at Internet speed, and we sell ads over the phone," he said. "We have 20 people selling ads right now. By January, we'll have 100."

The potential for such a topple, caused if membership far outpaces advertising revenue, becomes even more real as new players enter the space. There are now nearly 20 announced pay-for-surf programs, though only GotoWorld and AllAdvantage have thus far sent checks to users.

Strong user loyalty
Naturally, users of the services have a vested interest in their success, and have created communities on their own to promote them. Rick Patten, who signed up for AllAdvantage on the first day, maintains a Web forum with information on all the services that gets 300,000 hits a month. In September, he received a $306.53 check from AllAdvantage.

"I feel very loyal to them. They're sending me money," he said. He's trying to get the company to set up an online mall so his forum users can buy products from AllAdvantage advertisers. "If we're going to spend money anywhere on the Net we want to be sure to direct it at an AllAdvantage sponsor."

That kind of loyalty may be the envy of traditional advertising publishers, but it can't change some of the fundamental challenges of marrying multi-level marketing and the Internet. For one, hackers have already written tools to trick the service into getting credit for extra hours of surfing (companies say they terminate such accounts immediately). There have also been complaints that pay-for-surf programs slow surfing down, since they require near constant communication with an ad server.

Then there's debate over just how valuable "paid" advertising views really are.

"This goes to show people can be bribed to watch advertising," said Rob Enderle, an analyst with the Giga Information Group. "The problem with paying cash is it lowers the quality of the user to the advertiser." For starters, desirable high-income Net users are unlikely to be attracted by any money-making schemes. And mass audiences who merely tolerate ads for pay are far from the holy grail of direct marketing, he said. "Advertisers want hot leads."

There's also a lot of well-founded skepticism from consumers about any pyramid scheme. According to Claudia Bourne Farrell, a spokeswoman for the Federal Trade Commission, "pay-for-surf" programs don't appear to have the elements of a pyramid scam, since users don't have to pay any fees to join. But the programs are not completely free, either.

"What you do give up is your personal information. For some people, privacy is a more valuable commodity than others," she said.

Then there's the saturation point, which all pyramids eventually reach. While it's profitable to get in at the beginning, with hundreds of referrals trailing behind, users who sign up later will have a much harder time building broad tentacles of referrals. While that's true, says GotoWorld CEO Ian Simpson, the power of the Internet puts the saturation point far into the future.

"It's not limited to a geographic or demographic market as you are in a classic MLM," he said. None of the services yet pays surfers outside the U.S. "We're talking about no boundaries. We will not hit the saturation point for a long time because it's growing every day."