Pay-To-Surf Pyramid Schemes Abound - And Work, For Some

In April, Ron Streeter discovered a company that would pay him just for surfing around and looking at ads on the World Wide Web. It was a pittance - 50 cents an hour - but if he signed up his brother Tom, or anyone else, the company would pay a 10-cent commission to Streeter for each hour those "referrals" spent online.

And for all the people his brother referred - and for their friends, and even the friends' friends - Streeter would collect an extra nickel per hour each.

The group Streeter initiated into AllAdvantage.com now numbers more than 10,000 people. And the other day he got a monthly commission check for $2,044.43.

Streeter and millions of others are cashing in on the latest Internet marketing craze: AllAdvantage and dozens of other companies are rushing to build big audiences by handing out cash to people willing to let advertisers track their Web surfing and send them tailored ads.

"It takes no investment except one's own time, and you make money even if you don't work at it," said Streeter, 44, a Syracuse, N.Y., graphic artist. "It's really the gold rush of the '90s for the average person, if you know what you're doing."

Pay-to-surf companies essentially pass on to users a portion of their revenue from selling ads. The theory is that cash payments will not only attract more "eyeballs" but also let the companies raise ad rates because surfers will respond more frequently to ads that interest them.

Supporters say it promises to transform online marketing by making it more efficient and personal. Rich LeFurgy, chairman of the Internet Advertising Bureau and a partner in the venture-capital firm backing AllAdvantage, said the television industry would gladly pay audiences to watch commercials if it could monitor consumer reaction. But until the Internet, there was no mechanism for direct dialogue between advertisers and viewers, he said.

"AllAdvantage turns the traditional media-and-audience model on its head," LeFurgy said.

Skeptics counter that the pay-to-surf business resembles off-line pyramid marketing. And they wonder how successful it will be for advertisers, since it's inherently difficult to make sure people really pay attention to the ads, which flow into a window the users must keep open on their computer screens.

Some members, for example, simply block out the ad window with masking tape. Others cheat, using software programs that simulate Internet surfing by automating mouse movements while they're away from their computers. Several versions of a program called "FakeSurf" are available for free download off the Internet. College dormitories are full of monitors lighted up with fake surfing programs, allowing students to literally make money in their sleep.

Officials at pay-to-surf companies brushed aside those concerns, insisting they can detect fake surfing.

If success is measured by audience size, the companies are wildly popular. More than 3 million people have signed up for AllAdvantage.com since it was launched April 1. About 2.5 million have flocked to GoToWorld.com, which pays members to surf and chat. Two dozen copycats with names such as DesktopDollars.com and ePipo.com are recruiting hundreds of thousands of members. Moonlighting programmers working out of their basements have launched several companies.

To join AllAdvantage, a user downloads a free software program that opens a one-inch-high horizonal window across the bottom of their screens. The company can then record where the member goes on the Web and send a constantly changing array of ads matching the member's interests.

Privacy advocates worry about how pay-to-surf companies might use this data. But AllAdvantage Chief Executive Jim Jorgensen said his company won't sell personally identifiable information to other firms. He said he's also hired a "chief privacy officer.

Everyone who signs up for AllAdvantage.com is paid for a maximum of 25 hours of surfing time a month, so the real earning possibility lies in referrals. While the average check last month was for $30, AllAdvantage said its top member drew more than $4,000. Streeter ranked fifth.

AllAdvantage, based in Hayward, Calif., has raised $33 million from investors and now has 250 employees. Its sales force of three dozen people has sold the ad service to hundreds of companies and Web sites, including Microsoft, DVD Express, GolfWarehouse.com and Omaha Steaks.

CEO Jorgensen, also co-founder of the Discovery Zone play centers, said his business has the potential to generate hefty profits because it pays members far less than it rakes in from advertising. Each member costs AllAdvantage a maximum of 80 cents an hour in commissions - the 50 cents it gives the member, plus up to 30 cents paid in commissions to the people who referred the member. During that same hour, AllAdvantage shows the member about 200 banner ads, which it sells for $4 to $12.

AllAdvantage hopes to build on its audience by transforming itself into a multi-feature Internet portal site, like Yahoo. It will add a search engine to its ad window in January and plans to become a sort of a buyers' club, negotiating with retailers for volume discounts.

Some competitors are upping the ante, offering their members significantly more cash. GoToWorld pays up to $3 an hour, plus money for referrals. ValuePay.com in Winter Park, Fla., says it splits ad revenue 50-50.

Some industry analysts say the new Internet advertising middlemen lack staying power because their business plans are shaky. Critics say their pyramid-like pay structure encourages people who aren't interested in the ads to sign up, defeating the purpose of the service.

Omaha Steaks spokeswoman Sharon Bargus said the company is "just thrilled" with the response to their banners on AllAdvantage: 59 new customers since September. A more skeptical Susan Daniher, vice president of marketing at DVD Express, paid only on a "bounty" basis, based on a percentage of actual sales: "That way we don't have to worry about the details, and it can save us a lot of money if the ads aren't successful."