*Consolidation Commences in the Online Loyalty Points Arena

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In what is likely only the beginning of a large-scale consolidation of online points providers, MyPoints.com yesterday acquired one its archrivals, Cybergold.

The deal, in which Cybergold received about $157 million in equity, closes in the third quarter. However, by then the marketplace may have changed even further.

"The online points promotion business is ripe for consolidation as it relies on delivering the largest possible audience of potential new customers to advertisers," said Charlene Li, senior analyst for Forrester Research, Cambridge, MA.

The two organizations combined will have 15.4 million members putting MyPoints well in the lead of other players such as Netcentives and Beenz. "The big question is how much user base overlaps. If there is minimal overlap, that brings consumers already interested in receiving rewards and will accelerate their membership base," said Michele Slack, senior analyst for Jupiter Communications, New York.

This is the key to the points business. "The size of the opt-in database is the gold standard because they can do further segmenting and larger mailings to their audience," said Slack.

One of the biggest coups of the deal, according to Markowitz is the fact that there was very little overlap in the way of clients. Of each of the company's top 25 clients, there were only five that were the same.

MyPoints has not ruled out further moves to strengthen its position as market leader. "We believe we're in a very, very strong position. We have far more than enough cash needed to take us into profitability [approximately $157 million in the bank]," said Steve Markowitz, CEO of MyPoints.com, San Francisco. "Many of our competitors are running low on capital and given the rockiness of the marketplace their opportunity to get more capital is only growing smaller."

"This is truly an opportunity for the 800-pound gorilla to get larger," he said. "We may acquire other companies if the opportunity makes sense."

Cybergold, which is the granddaddy of online loyalty having formed in 1995, will retain its name. "There's brand equity there. We don't want to undermine it," said Markowitz.

Cybergold's claim to fame is the fact that it offers users cash back for making purchases, as well as prepaid phone minutes. MyPoints offers points and airline miles. Together they have the complete package, according to Nat Goldhaber, CEO of Cybergold, Inc., Oakland, CA. "We can appeal to enormous section of the Internet community. We can now construct campaigns that really reach people the way they want to be reached with an award they find valuable. Our sales force now has tons of ammo to go out and build highly customized and effective marketing program for advertisers."
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