*Netcentives Acquisition Signals Push Into Custom Loyalty Programs

Online affinity marketer Netcentives Inc., announced that it has acquired a little-known San Francisco-based Internet consulting firm, Panttaja Consulting Group Inc., in an effort to get the firepower it needs to begin selling private label loyalty programs to big-name Internet companies.

The move coincides with predictions by Internet experts that demand for private label loyalty programs is about to take off.

Netcentives is the creator of ClickRewards, a loyalty program launched in October 1997 that offers members points redeemable for frequent flier miles, car and room rentals and merchandise when they make purchases, participate in market research, register software and perform various other actions at member Web sites.

Netcentives claims that since the holiday shopping season began, ClickRewards has averaged more than 10,000 transactions and 1 million miles per day at member sites which include bookseller Barnesandnoble.com, in-flight cataloger Skymall, and 1-800-Flowers. Netcentives also claims that ClickRewards has more than 600,000 members .

The firm's acquisition of PCG — essentially, the addition of 32 engineers — comes on the heels of competitor Intellipost Inc.'s announcement last month that it acquired Orange, CA-based worldwide data provider Experian Inc.'s Internet assets and that it, too, would begin selling private label loyalty programs. In that deal, Experian took a 19.9 percent stake in Intellipost. San Francisco-based Intellipost is the creator of e-mail direct marketing program BonusMail, a membership service that rewards consumers for reading and responding to e-mail ads.

Intellipost claims it has 500,000 members in private label retention programs the firm runs on behalf of partners, one of which is Internet service provider Prodigy.

While Netcentives' announcement looks like a shot across the bow of Intellipost, Netcentives CEO West Shell said the timing is coincidental. “We've been negotiating to buy Panttaja for four months,” he said. “[Although] the timing was curious,” he conceded.

In any case, there will apparently be more than enough room in the marketplace for multiple private label loyalty program administrators.

Like personalized stock portfolios, news headlines and product recommendations before them, loyalty programs are seen as a way for Web sites to make it difficult for consumers to click over to the competition once they take the time to register their information at a site. Many industry experts believe that Internet marketers' appetite for loyalty programs will go up astronomically as they begin to shift focus from customer acquisition to retention.

“1999 will be the year of loyalty on the Internet,” said Steve Markowitz, president and CEO of Intellipost.

Quite possibly. While two thirds of top e-commerce sites have yet to implement loyalty programs, 56 percent of online consumers surveyed report that they would be likely to transact online more often with a commerce site if it offered loyalty points, according to New York research firm Jupiter Communications. Also, online consumers –especially high earners — have a greater propensity to join loyalty programs, the firm said. Sixty-six percent of online consumers earning $75,000 per year or more belong to a frequent flier program, compared to 41 percent of online consumers in general, and just 15 percent of the U.S. population overall, according to Jupiter.

“Online commerce players must implement a loyalty program of some kind in order to retain customers, whether they offer a loyalty program in their off-line operation or not,” said Fiona Swerdlow, an analyst in Jupiter's digital commerce group. The reasons, she said: “For starters, one-click competition makes it very easy for someone to get dissatisfied and move to the next guy who offers the same product or service. Also, the cost of customer acquisition is very high and you don't want to have to re-acquire the same customer over and over.”

Shell and Markowitz say their outfits are negotiating with all the top commerce sites, and that they both will announce major portal deals in January.

“We're in some bake-offs with Intellipost,” Shell said. “The same people are coming to both of us.”

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