The Tech Scene: Don’t Spend Your Last Flooz On Web Money

Say goodbye to yet another supposedly bright idea for the Internet: alternate currencies that could be bought, bartered, accumulated, and cashed in for online merchandise.

The one that seems to have soared the highest and crashed the fastest is Flooz.com, which shuttered its Web site recently. The company, perhaps best known for an $8 million advertising campaign that featured Whoopi Goldberg and included cryptic little blurbs that ran on the front page of The New York Times, sold “flooz,” a digital currency that was meant primarily for online gift certificates. A consumer could charge, say, $50 worth of flooz on a credit card, e-mail it to a friend, and let the friend use the flooz (which could not be turned back into cash) to buy things online from merchants that accepted it.

Though Flooz.com secured some choice corporate partners — NextCard Inc. was an investor, and premier Web sites like BarnesandNoble.com were accepting the flimsy stuff as currency — it clearly lacked a raison d’etre, or in corporate terms, a business case. While the creators of flooz and a similar currency, Beenz.com, must have had visions that consumers would be as eager to collect their products as housewives of yore were to amass S&H Green Stamps, the systems they set up did not mesh well with the existing payments system. This is becoming a classic flaw for Internet companies.

At press time it was not clear what the official operating status of either company was, and several attempts to reach executives and customer service representatives were unsuccessful. No broad announcements have been made. What we do know is that Flooz.com’s Web site says the company is “working very hard to resume operations,” and Beenz.com’s once-impressive list of collaborators has dwindled to a few.

These signals of the companies’ poor health offer additional proof that the payment instruments we use in the real world are the ones that will flourish on the Internet. This is something that companies like CyberCash Inc. and Digicash Inc. already found out when they tried to create alternative payment systems. After those systems did not catch fire, Digicash sold its intellectual property to eCash Technologies Inc., and CyberCash sold its Internet payments business to VeriSign Inc.

While CyberCash and Digicash were originally run by technologists and cryptographers who thought they could engineer a new online payments system, the second-generation Internet companies like Flooz.com and Beenz.com were marketing firms that tried to use existing payment methods to establish parallel currencies. Beenz, which uses the slogan “a new kind of money” and a kidney-shaped logo, lets people accumulate points (or beenz) by registering at Web sites, taking surveys, and making purchases, then redeem their pile of beenz for merchandise. This system, along with the equally ill-named flooz, must have seemed like a clever gimmick to the dozens of Web merchants, card companies, and others that agreed to work with them.

Indeed Beenz, which was founded in March 1998, last year won a cobranded debit card deal with MasterCard International and Columbus Bank and Trust. The latter, a Synovus Financial Corp. subsidiary, agreed to issue a “rewardzCard” that would let Beenz customers — whom the company said numbered 1.4 million in April 2000 — transfer beenz value to a debit card that could be used in the real world. The same year, Beenz.com of New York opened an office in Hong Kong to serve China and the surrounding regions, and announced a joint development deal with the Mondex smart card organization, a MasterCard division, to create ways that beenz could be used online and off.

Today, two Web sites set up for beenz counters, BeenzQueen. com and GotBeenz.com, are gone, and the handful of merchants still accepting beenz are not exactly household names (examples include My TrueType.com, which will make a “true type font out of your handwriting for only 5,600 beenz,” and Globogift.com, which says it “links over 1,000 exclusive department stores worldwide.”) Philip Letts, who was the chairman and chief executive officer of Beenz for most of its lifetime and who told American Banker in 1999 that his vision was “to create the global Web currency,” is no longer with the company.

Flooz.com, another New York firm, had a similarly wild ride. It was set up in September 1999 by Robert Levitan, an iVillage.com co-founder who was hailed in 2000 as a wizard of the Internet. “Levitan’s company is thriving as an e-commerce player in B2B and B2C,” gushed @NY, a Web zine. Mr. Levitan “is not only a Silicon Alley survivor, he’s become a calming voice in the Internet/new media scene,” the magazine said in December 2000.

As recently as this January, Flooz.com said it had secured $8 million in financing — its third round — from Oak Investment Partners, Brentwood Venture Capital, and other firms, and high-profile ads followed. But by April, Flooz was laying off half its staff, and at least one merchant — Barnes&Noble.com — confirms that it was asked to remove a link to flooz.com.

“There’s an important question people should have asked before they started this,” said James Punishill, an analyst at Forrester Research in Cambridge, Mass. “What was the need for a new currency? Do we need one, or does other stuff work fine?”

Mr. Punishill said that systems like flooz and beenz were “too much work. Consumers are lazy” and need good reasons to change their behavior.

Mr. Punishill further predicted that companies that sell so-called “disposable” credit card number systems, such as Orbiscom Inc., are “going to be a big nowheresville as well.” He said he has higher hopes for companies like RocketCash Corp., which markets prepaid online accounts for teenagers. “There is something there, a market there, it’s just a matter of how you go about giving the access and the control to parents and kids.”

Ray Sheridan, Orbiscom’s chief operating officer for the United States, said his company’s technology is often misunderstood. “We’ve invented a technology that is an enhancement to the existing infrastructure of the card payment industry,” he said, adding that Orbiscom has deals with MBNA Corp. and the Discover Financial Services division of Morgan Stanley Dean Witter & Co.

“Strategically, when we set out to develop this technology, the objective we had was that we not try to invent a whole new payment mechanism,” Mr. Sheridan said. “We’ve seen people who try to invent new payment mechanisms fail, because the banking industry has been around forever, billions of dollars have been spent to create this tremendous infrastructure.

“The challenge is that all the market research indicates that consumers have a strong preference not to be revealing their real credit card details across the Internet because of the risk of identity theft, fraud, and misuse of their credit card.”

While bankers can rest assured that they payments system they control will not be challenged by a separate system for the Internet, they should also be wary of spending too much money to support the latest online fad. As companies like Flooz.com and Beenz.com — and CyberCash and Digicash before them — have learned, many ideas that look like sure bets can get snagged quite easily in the vagaries of the Web.