Such sites let players play free games with the chance to win millions of dollars in cash and prizes, and the companies that run them say their games are nothing more than harmless entertainment. However, experts say these increasingly popular Web sites could be leading some people into compulsive online gambling where real money is won and lost.
Among the 50 most popular sites on the Internet in December 2000, sweepstakes sites Grab.com and Iwon.com ranked 17th and 26th respectively, and gaming network Uproar ranked No. 20, according to Jupiter Media Metrix. That's substantial, considering that most of the other sites listed are either multibillion-dollar Internet properties such as America Online and Yahoo! or popular e-commerce sites such as Amazon.com. In fact, Grab, which promises US$1 million jackpots, was ranked the top new Internet site of 2000 by Jupiter Media Metrix, tallying up 13.5 million unique visitors for December.
It's difficult to gauge the exact size of the industry, since there are so many sites operated around the globe and many of them are privately held. Bingo.com, one of the few publicly traded sweepstakes sites, had $544,416 in revenue for the third quarter of 2000, and a net loss of $1.1 million.
But it's clearly a fast-growing business, as evidenced by Uproar's acquisition this month by Vivendi Universal Publishing's gaming unit Flipside for $140 million, creating the biggest online gaming site in the world. The combined entities would have ranked as the ninth most popular Internet site for December, with more than 16 million combined unique users, according to research firm PC Data.
Considering the large number of competitors in the space - which include Bingo.com, Freelotto, Pogo.com and scores of others - these sites are big business, offering prize winnings that amount to billions of dollars.
That's not bad for online companies that don't require large warehouses of products or need to spend millions of dollars in offline advertising to get the word out. The business model is based on relatively low overhead: These sites attract users largely by word of mouth and traffic-sharing arrangements; their inventory is a room of servers calculating each move.
"I would agree, generally, that it's not that expensive to run our site," says Scott Kaufman, executive vice president of product development at New York-based Uproar, which has about 100 employees.
Since visitors to Uproar and other gaming and sweepstakes sites are playing for free, the revenue comes almost exclusively from advertising. But it's advertising like no other, says Kevin Aronin, chief executive of Freelotto. While users don't have to give $1 per entry like a typical offline lottery, they do provide extensive information about themselves, which Aronin says makes for attractive advertising demographics to prospective marketers. "We have over 16 million members and over 40 billion pieces of information on these members," he says.
When he saw there was $140 billion spent worldwide on lottery tickets, Aronin says, his choice of creating a business was a no-brainer. "The lottery [industry] tells you that you need 'a dollar and a dream,'" he says. "We tell you, 'Just bring the dream and keep the buck.'"
Freelotto is simpler than most other sites: It just asks people to register and pick six numbers, with the same odds as a typical lottery. Since it opened in June 1999, Freelotto has given away almost $30 million. That includes several $1 million payouts, one $10 million jackpot recently won by a man in India and 150 people riding around the world today in cars they won from Freelotto.
Aronin, who spent 27 years in the direct marketing business before starting Freelotto, says he's applying those simple polling techniques to Internet advertising. How accurate is it? Five days before the presidential election, Freelotto took a voter poll. Based on those results, Freelotto not only predicted George W. Bush as the winner of the Electoral College, but also that Al Gore would win the popular vote and that Florida would be a toss-up state.
