Prize Inflation Infiltrates the Web

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GroupLotto.com today announced that its Web site will begin offering a chance to win $10 million daily.


While sweepstakes are nothing new to the Internet, the extraordinary prize amounts made available through sites large and small has become somewhat of a phenomenon.


GroupLotto, which launched in November, is a good example of this. Prior to raising its booty to $10 million, the previous highest amount a user could win was $2 million.


Prize inflation is a direct result of the difficulty sites and their advertisers are having attracting and retaining consumers, said H. Peet Rapp, senior research analyst ActivMedia Research, Peterborough, NH. "What everyone is trying to do is try every method conceivable to grab eyeballs," he said. "Throughout the coming year, you'll see all kinds of manners to get people onto sites because the normal promotions are seeing their [participants dropping] off."


While $10 million may seem like a lot, the size of the prize is actually unremarkable, said Bill Daugherty, co-CEO, iWon.com, Irvington, NY. "Coca-Cola, American Express, Visa, MasterCard -- you name it -- McDonald's have done bigger sweepstakes than that. Sweepstakes have been around a lot longer than the Internet."


Earlier this month, iWon.com gave away its $10 million annual prize.


In the near future, the online prize totals are likely to grow even higher, said Eric Aroesty, CEO of GroupLotto, Pearl River, NY. Under GroupLotto's model, the more people that play, the more advertising that comes in so the jackpot can rise. "The strong demand for customers' attention allows the revenue model to be high enough to support a higher prize which supports the attention of the customers," said Aroesty. "The prizes are going to get bigger."


Another reason online prize offerings have been so high is the fact that the Internet allows companies to offer sweepstakes without direct mail costs and other expenses. "More money can go directly to the prizes," said Aroesty. "The reason we're able to give larger prizes is the fact that the cost of distribution to customer is so low. In olden days, you did a sweepstakes and contest, and you had to do a mail piece, which was an expense. And then telephone calls, that's another expense. My incremental costs are very, very low."


Other Web companies are keeping an eye on these growing prize offers and, if these sites are successful, will likely follow suit, said Rapp. "There's a lot of quick copying. Once one site comes up with an item, it will be copied immediately by everyone else."


At GroupLotto, if there are one to 10,000 entries, the jackpot is $1 million. The prize base increases in increments up to 350,000 entries at which the $10 million prize becomes available. To win, users must choose six numbers from 75 numbers, similar to most state lotteries.


Realistically, GroupLotto's prizes will only go as high as their prize insurance allows them. "How much money you have to invest in Lloyd's of London in insurance for people winning is what you really have to look at," said Rapp.


Users can enter up to three times a day by visiting the site and an additional four times a day if they refer four friends to the site. Today, the site also plans to announce that users will be able to enter the sweepstakes using their wireless devices.


To date, no one has hit any of the GroupLotto jackpots.
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