45. Jim Jorgensen – the amazing dot-com adventure of AllAdvantage

Paleo Ad Tech

Jim Jorgensen is a prolific serial entrepreneur and co-founder of a well-known dot-com advertising startup called AllAdvantage. The company paid people to surf the web as part of a multi-level marketing program. Launched in April, 1999, without a product, it ultimately raised $175 million from blue-chip VCs and was on track to go public in March 2000 – one short year after its launch – at a unicorn valuation of $1.4 billion.

Then the market crashed. Two years after its founding, the company was a chapter in ad tech history, cited by chroniclers such as Roger Lowenstein in his Origins of the Crash as an object lesson in collective confusion.

As Jorgensen reveals to Marty in this rollicking episode, AllAdvantage is more fairly seen as an experimental business model with a viral component that was more a symptom than a cause of its distorted dot-com economics.

Jorgensen himself is a tall, gregarious personality with a fund of stories and a varied career. Trained as an accountant, he’s a born entrepreneur. On a tip from a professor at Stanford, in the 1970’s, he hooked up with the tennis pro Billie Jean King and became her business manager for a couple of decades, meanwhile launching sports-related ventures such as WomenSports Magazine, Women’s Professional Softball League, and the still-thriving World Team Tennis league.

Moving to L.A., he was a Hollywood business manager for a while; clients included Sharon Stone, Lily Tomlin and the (brilliant) writer John Hughes. But by 1999, Jorgensen was back in San Francisco, teaching entrepreneurship at Stanford Business School, and living in a seven-bedroom faculty palace with a swimming pool, tennis court and hexagonal “shed” formerly inhabited by Nobel Laureate Joseph Stiglitz, who continued to drop by.

AllAdvantage happened quickly. Already in his early 50s, Jorgensen originally wanted to launch a travel website but became intrigued by an idea pitched to him by a Stanford student named Johannes Pohle for a product that would pay people in exchange for requiring them to watch ads while they surfed. Jorgensen added the component of multi-level marketing, where a customer gets paid a commission for referrals.

Two other graduating twentysomething Stanford students – Carl Anderson and Oliver Brock, a friend of Pohle’s from Germany – joined the founding quartet, and AllAdvantage was launched in April, 1999, one month after its conception. At first, it was simply a website that collected names and a promise of product launch “in six to eight months.”

By the second day, the website had collected 24,000 names, and VC’s were baited. Raising $2 million was not difficult. The next $173 million took less than a year. By March 2000, the company had over 1,000 employees, a couple dozen sales offices, and the services of notorious dot-com i-banker Frank Quattrone, at CSFB.

As launched in August, 1999, AllAdvantage hosted a one inch-high applet that sat on the top or bottom of the screen. It could be turned on or off; when on, it tracked the user’s surfing behavior and served ads. There were two ads, one in the middle and a smaller one off to the side, and they rotated every 20 seconds or so.

This is what the viewbar looked like:

And this is what the website looked like (retrieved from the Internet Archives, missing some images):

Targeted behavioral ads would seem to be a benefit, but the company itself admitted in a filing that “During 1999 and the first quarter of 2000, substantially all of the advertisements we sold were not highly-targeted.” The market demand wasn’t there yet, although DoubleClick was a major partner and reseller.

AllAdvantage’s soon-ubiquitous slogan “Get Paid to Surf the Web” was an afterthought, but it caught on. At first, users were promised 50 cents an hour for up to 40 hours a month of surfing; 10 cents per hour for their first referral; and 5 cents for up to four more referrals. Doing the math, payouts could get into the $15,000 per month range – but that was (presumably) very rare. These rates were lowered significantly within a few months, and a sweepstakes was later added, but costs always exceeded revenue.

Total membership grew from about 5 million in late 2000 to 8 million in May, when growth slowed dramatically. From a rate of almost 900,000 new members snagged in January 2001, new signups fell to 200,000 in August.

And the company never quite figured out a working business model. Revenue per active user peaked at just over $2.00 in March, 2000, when its cost per user was $10.00. That math doesn’t work.

The company’s burn rate was legendary, even for the time. In July 2000, it earned $14 million from advertisers and paid out almost $50 million. In total, the company is estimated to have lost over $100 million of the VC’s money.

It must be said that most of this debacle was not AllAdvantage’s fault. To interpret the company as some kind of pyramid scheme or “fraud” (as Lowenstein characterizes it, unfairly) is to ignore the context; had the market continued on its current trajectory, Jorgensen’s company might have found a path to profitability.

Yet there is evidence the whole “Get Paid to Surf the Web” thing lacked long-term appeal. Plenty of people tried it, but few stuck around. Only about 20% of members were “active,” on average, meaning 80% of people tried it and left. (These numbers were self-reported and published in a Stanford Business School case study.)

AllAdvantage was also particularly susceptible to fraud. Jorgensen tells Marty that some users were posting pictures of their pay-out checks on the web, and others were printing out the pictures and trying to cash them as checks. Free programs like FakeSurf and MyAdvantage appeared that faked web surfing, so a user could be paid while not surfing – or even set up robotic PCs to receive checks.

As Jorgensen points out, AllAdvantage was well aware of these schemes and took steps to combat them. They appointed a Chief Privacy Officer and had a fraud department, staffed with PhDs, who sat on a windowless room and were aided by anonymous white hat crusaders, some of whom (rumor has it) may have been behind the original hack-apps.

But as #PaleoAdTech listeners know all too well, the year 2000 was cruel to everybody in the advertising business.

When the floor fell away from dot-com funding starting around March, 2000, as IPOs and other exits grew unrealistic, the dot-coms pulled their ad spend and the publishers and intermediaries suffered. Here’s a chart of online advertising (indexed to 10/99 = 100) showing the massive spike as AllAdvantage prepped for its IPO and the vertiginous cliff-walk after AOL acquired Time Warner in March.

The usual layoffs and shuffling happened throughout 2000, but the company closed its virtual doors in February 2021, almost exactly two years after its conception.

Interestingly, the get-paid-to-watch-ads paradigm remains, and it was not original to AllAdvantage. Jorgensen mentions the precedent of NetZero, launched a year before AllAdvantage, which provided free ISP service in exchange for enduring a 3.5-inch viewbar with ads. There was also PowerAgent, briefly headed by Paleo Ad Tech guest David Carlick, which was formed in 1994; it originally focused on email ads and managed to raise almost $20 million from power players such as Ross Perot’s EDS. It couldn’t seem to release a product out of beta. Others in the space included Juno, Freei, Spinway and BlueLight Internet (owned by Kmart) … and more.

These days, Jorgensen remains in the Bay Area and has a number of start-up ventures running. None is in ad tech.