Why do employees at big companies get deals like 30 percent off airline tickets? Because there's a lot of them. That's what Nick Grouf realized after he and his former co-workers at Firefly went to work for Microsoft and caught wind of their new perks.
How could individuals get similar deals without working for a gargantuan corporation? That's a question Grouf and other Firefly veterans aim to answer. They're betting that the power of the Net can make for better shopping.
The company they're launching on Monday -- PeoplePC -- offers the chance for members to exercise their collective shopping muscle to get discounts at the likes of Amazon, Cdnow, ETrade, and Dean & Deluca. PeoplePC members also get a pretty decent computer from the likes of Toshiba with a 366 MHz Celeron processor, 64 MB of RAM, 6 GB in the hard drive, and Net access for about US$25 bucks a month, plus a cobranded First USA Visa card.
"It's a nice model," said Joe Laszlo, analyst at Jupiter Communications. "We've seen it in bits and pieces from free PC vendors. They're among the first to pull it all together. Multiple revenue streams are going to be necessary" for such a model to succeed.
PeoplePC, based in San Francisco, signs on merchants and gets either a cut of the revenue from each sale or a customer acquisition fee from its merchant partners.
Members -- who must sign up for three years -- get an opt-out style biweekly newsletter announcing the latest bargains together with offers delivered to the start pages of their computers -- messages they're at liberty to change. At a time when companies are spending $200 to acquire one customer through advertising and marketing, PeoplePC thinks it can deliver customers to merchants' doors for less.
So far, the bargains include 5 percent off books at Amazon.com, CDs at CDnow, free shipping at online pharmacist more.com, $100 credits to their ETrade accounts, free printers, and 40 percent off VStream's Netcall conference calling service.
Admittedly, the model relies on how many shopping members PeoplePC can drum up. Competing Web sites like Accompany are trying out similar models -- Accompany has limited-time product offers like PalmPilots that get cheaper as more people sign up to buy them. PeoplePC is hoping that adding the Net connection package will prove attractive enough to lure frugal shopaholic members their way.
The company has also got funding from heavy hitters like Softbank Technology Ventures, and some Softbank companies are among the PeoplePC merchant partners. Board members include Esther Dyson, chairman of ICANN, and Christine Varney, former FTC commissioner.
The power of collective buying could make future concepts like mass customization a reality, said Shanda Bahles, partner at El Dorado Ventures.
Mass customization -- where products like red BMWs with a CD player or Levi's jeans are custom-made for each individual -- would be cheaper if groups of people wanting the exact same thing can get together and order in bulk.
But not everyone is convinced that giving out one's private data -- name, address, items purchased -- is worth the bargains.
"It's an interesting business model," conceded Paul Schwartz, professor of law at Brooklyn Law School and co-author of Data Privacy Law. But "it's another example of how people wind up giving up all kinds of personal information with very little added value."
"We're not in the business ... of making money [by] taking this info and selling it to others," Grouf said of his involvement with his old company Firefly, which developed collaborative filtering technologies that helped users find others with similar tastes and also helped create the P3P standard for personal data on the Internet. "When you sell [personal] information, you violate privacy," he said.
The company will not take advantage of personal data "without the explicit consent" of the user, Grouf said. The company's privacy policy says the company does share anonymous descriptions of the membership "as a whole."
