AOL Acquires Stake in Netcentives

America Online announced today that it has acquired a stake in online rewards and direct marketing company Netcentives (Nasdaq: NCNT) and that it will apply the company’s services to two key e-commerce bonus programs.

The San Francisco, California-based Netcentives will provide the underlying infrastructure for AOL AAdvantage, a frequent-flyer program run by AOL and American Airlines. Netcentives will also create a rewards program for AOL’s ICQ network, an online communications community with 50 million registered members.

In exchange, AOL will become a “significant” shareholder in Netcentives, the company said. It did not disclose the financial terms of the alliance.

Reward Programs

AOL’s new AAdvantage program with American Airlines will launch across several of its properties by spring. It will be jointly operated by the interactive media giant and the airline, one of America’s largest.

The ICQ “ClickRewards” program will be modeled on Netcentives’ existing program, which provides frequent flyer miles from 10 major American airlines to online shoppers. The company said that a majority of the 50 million registered ICQ members live outside the U.S., and that it would tailor the program to offer internationally redeemable rewards.

“We believe that our e-marketing infrastructure will bring value to any individual or merchant who signs up with the new AOL AAdvantage rewards program or ICQ ‘ClickRewards,’ and that this agreement will benefit our commerce partners by expanding our network,” said Netcentives CEO West Shell.

Rewards to the Victor

Netcentives is one of the leaders in a burgeoning field of online incentive programs. Recognized by some as a crucial link in developing and rewarding e-commerce shopper loyalty, the industry has mushroomed over the last year.

Competitors CyberGold, Webstakes and MyPoints have all gone public in recent months and are all developing programs and alliances.

Webstakes and CyberGold offer cash for browsing Web sites and buying products from affiliate partners, while Netcentives and MyPoints use the tried-and-true method of frequent flyer miles to reward consumers.

All of these companies are all scrambling to turn rewards into profits. For example, Netcentives lost $27.7 million (US$) through the first nine months of last year, while MyPoints booked a $15.7 million loss in the first six months of the year.

Industry observers expect the field to thin in the future and the survivors to offer an easy-to-use system that provides the best bang for the buck. Netcentives says that customers that shopped over the holidays using its program spent an average of $113 per transaction as opposed to an industry average of $59.

The company sells a variety of custom-made rewards programs and also provides sponsorship, advertising and direct mail campaign management, as well as technical consulting.

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