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Company Perspectives:
Our objective is to become the leading Generation Y media, direct marketing, and marketing services company. We intend to achieve this objective through the following strategies: Increase our sponsorship and advertising revenues by cross-selling and marketing our unique integrated platform to advertisers; grow and refine our Generation Y database to expand our merchandising business and advertising opportunities; expand the number of Generation Y consumers we reach through our existing or new media franchises; broaden our platform through strategic acquisitions.
Alloy, Inc. is a multimedia marketing services company that targets the fastest-growing demographic in the United States, Generation Y, or those between the ages of 10 and 24. Alloy uses direct mail catalogs, Web sites, print media, promotional events, and on-campus marketing programs to attract its audience, generating revenue from products and services sold to the youth markets from offering advertisers access to Alloy's target market. The company's Web sites include alloy.com and ccs-strength.com, designed for teen girls and teen boys, respectively. The company's catalogs include Alloy, CCS, and Strength. Alloy possesses a database containing detailed information about roughly ten million consumers classified within Generation Y.
Origins
When Alloy entered the business world, the company's founders, Matthew C. Diamond and James K. Johnson, were only slightly older than the age group that would dictate the success of their entrepreneurial creation. Diamond received his undergraduate degree from the University of North Carolina in 1991. Johnson attended Hamilton College, earning a B.A. in history in 1989. During the early 1990s, the pair worked for General Electric Co., holding various financial and business development positions at the massive conglomerate. Diamond left General Electric in 1994 to attend the Harvard Graduate School of Business, where he earned his M.B.A. in 1996. When Alloy was incorporated in 1996, Diamond was 27 years old and Johnson was 28 years old. They were two members of Generation X attempting to entice the constituents of Generation Y.
Alloy's business strategy centered on winning the minds and wallets of the roughly 55 million 10- to 24-year-olds who composed Generation Y in 1996. According to the United States Census Bureau, the demographic popularly defined as Generation Y was expected to reach 63.5 million people by 2015, outpacing the growth of the general population by nearly 20 percent. During the late 1990s, Generation Y accounted for $250 billion in annual disposable income, 70 percent of which was deemed discretionary, according to Diamond's and Johnson's estimates. By positioning Alloy as a brand, the founders hoped to garner as much as they could of the $175 billion up for grabs. As the primary tool to communicate the Alloy brand, Diamond and Johnson selected the Internet, the electronic superhighway populated by Generation Y.
Generation Y was the first generation to grow up with the Internet as part of daily life. Like Generation Y itself, the Internet was growing rapidly during the late 1990s, developing into an economic force popularly referred to as e-commerce, or electronic-commerce. Industry sources projected exponential growth of e-commerce during Alloy's formative years, particularly in relation to the company's target audience. Teen online spending was expected to increase from less than $100 million in 1996 to $1.3 billion by 2002. During the same period, the number of teens and college-age students who accessed the Internet at least twice a week for an hour or more was expected to more than double.
As part of the Internet's maturation during the early 1990s, the number of community Web sites increased. Community Web sites, like the site launched by Diamond and Johnson, served as online destinations for like-minded users, providing a gathering point tailored to the particular interests of a particular group. Community Web sites also could act as e-commerce hubs, serving as a single site offering products and services related to a particular group that could also draw the business of third-party marketers wishing to reach a particular group. Diamond and Johnson intended to create such a hub, designing it to attract Generation Y and the companies wishing to market products to Generation Y.
After incorporating Alloy in January 1996, Diamond and Johnson launched their community Web site, alloy.com, in August 1996. Alloy.com offered visitors free e-mail; a channel containing celebrity gossip, horoscopes, and other teen-oriented news items; a shopping channel; an entertainment channel; a chat channel; a sports channel; and a fashion channel, as well as a number of other features designed to attract Generation Y. A majority of the features and services on the Web site were accessible by all visitors, but some of the services required visitors to register. With the information gleaned from registrations, Alloy was able to compile a database of names that could be used to attract advertisers and sponsors to place their business on alloy.com.
Alloy.com represented the first of many media platforms Alloy launched during its first several years of business. Eventually, as the company developed into a multimedia teen marketer, Diamond and Johnson extended their reach into other mediums, either launching or acquiring a spectrum of media properties, including catalogs, magazines, books, and display media boards. Alloy.com was the first company property, however, and, as such, it bore the burden of serving as the lone source of income for the nascent company. By the end of its truncated, inaugural year, alloy.com had only generated a pittance of revenue for the company, a mere $25,000. During that same time span, from August 1996 to the end of January 1997, Alloy accumulated $118,000 in losses. In the years ahead, Alloy would continue to remain unprofitable--not an uncommon financial record for an Internet-reliant company--but its ability to generate revenue improved greatly once Diamond and Johnson began developing Alloy's business beyond the Internet.
1997 Launch of Catalog Unleashes Financial Growth
Throughout much of 1997, Alloy, dependent entirely on alloy.com, generated negligible sales figures. The turning point in the company's financial magnitude occurred after the launch of the first Alloy catalog in August 1997, one year after the debut of alloy.com. In later manifestations, the typical Alloy catalog ranged between 72 and 96 pages, featuring approximately 400 items, including apparel, footwear, and room furnishings. Initially, the merchandise available from an Alloy catalog was geared for both boys and girls, but as the company developed, both alloy.com and Alloy catalogs were designed exclusively for the female members of Generation Y. (Pre-teen, teenage, and college-age males would be given their own domains, both online and offline, once Alloy's expansion began in earnest).
Although Diamond and Johnson later would stress building advertising and sponsorship revenue, initially the company derived almost all of its revenue from the sale of merchandise. Thanks primarily to the distribution of Alloy, the company recorded $1.8 million in revenue by the end of January 1998, a significant increase from the $25,000 collected the previous year. The losses had mounted, however, driven upwards by the escalating marketing costs the company was incurring. The $1.8 million registered in sales for the year was coupled with a loss of nearly $1.9 million. The following year, the company's operations gained momentum, snowballing financially in two opposite directions. The financial totals for 1998, which included the first month of 1999, revealed an impressive gain in revenue to $10.2 million, driven by a 460 percent jump in merchandise sales, but the increase was tempered by a loss of $6.36 million.
Alloy's losses were not unexpected, particularly in an era notorious for unprofitable e-commerce enterprises. Profits and revenue increases would arrive, according the business plan mapped out by Diamond and Johnson, when Alloy flowered into a genuine multimedia marketer, and its properties could serve not only as a convergence point for Generation Y but also for the commercial interests in pursuit of Generation Y.
The development of the described enterprise began in earnest not long after Alloy turned to Wall Street. In March 1999, Alloy filed with the Securities and Exchange Commission (SEC) for an initial public offering (IPO) of stock. In May 1999, Alloy completed the offering, issuing 3.7 million shares of common stock at $15 per share, marking its debut as a publicly-traded concern. By the end of the summer, the company had launched its first advertising campaign on television, a $1 million expenditure that saw the Alloy name broadcast on ESPN, Fox, and, primarily, on MTV.
In December 1999, Alloy followed up on the television advertising campaign with the acquisition of Celebrity Sightings, LLC. Based in Marina del Ray, Celebrity Sightings operated a Web site featuring an online magazine revolving around teen celebrities. The following month, Alloy acquired 17th Street Acquisition Corp., a New York-based developer and producer of media properties for teens. As the company that had produced best-selling teenage books such as Roswell High, Fearless, and Sweet Valley High, 17th Street was embraced by Diamond. In a January 17, 2000, interview with Publishers Weekly, he referred to the acquisition, saying it "represents another step toward our long-term goal of expanding Alloy's multimedia platform."
The cost of expanding Alloy's multimedia platform continued to increase the company's annual losses, although revenues swelled. After completing the acquisition of 17th Street, Alloy announced its financial totals for the previous year. Revenues, driven by a 180 percent increase in merchandise sales, reached $28.2 million. One source of revenue that would become increasingly important in the coming years delivered its first meaningful contribution in 1999. The company's in-house advertising sales group, benefiting from an increased number of visitors to alloy.com, was able to leverage the popularity of the Web site to substantially increase Alloy's advertising and sponsorship revenue. Efforts to cultivate commercial relationships, which began in 1998 and generated $100,000, produced nearly $3 million in revenue in 1999. For the year, however, the company's losses widened, increasing from a deficit of $6.4 million to a deficit of $14.9 million.
Expansion Campaign Begins in 2000
Alloy's management pressed ahead in 2000, making an important acquisition that complemented the company's increasingly popular alloy.com site. In March 2000, an independent survey firm recorded 1.1 million unique visitors to alloy.com, up substantially from the 263,000 visitors recorded in April 1999. From these visitors, Alloy obtained detailed information on 1.7 million teens who had registered to receive the company's weekly electronic magazine. To this growing database, the company added another, acquiring Kubic Marketing, Inc. in July 2000. Kubic owned CCS, Inc., a leading direct marketer to teenage boys that possessed a database with 1.5 million names. Once CCS was acquired, Alloy's catalogs and Web sites became gender specific, with the Alloy brand built around Generation Y girls, and CCS, through ccs.com and CCS catalog, serving as a brand for Generation Y boys.
At a time when most e-commerce firms were resigned to treading water, Alloy pursued expansion aggressively. Diamond believed the economic and market conditions provided an opportunity for the company to acquire other firms, which led to a buying spree that began in December 2000. The company purchased Triple Dot Communications, Inc., a marketing services company the helped other companies identify the members of Generation Y. In February 2001, Alloy acquired Strength magazine, a skateboarding lifestyle publication that the company subsequently melded with CCS, creating ccs-strength.com. The following month, Alloy purchased Carnegie Communications, Inc., a publisher and Web site operator that provided information on colleges and universities to teens. In July 2001, Alloy reached an agreement to acquire CASS Communications, a leading owner of rights to sell advertisements in college campus newspapers across the country.
In the fall of 2001, the company completed a flurry of acquisitions. In October, Alloy purchased Dan's Competition, Inc., a direct marketer that offered BMX biking equipment and related apparel. The $38 million deal, a combination of cash and stock, was expected to add as much as $15 million in annual revenue to Alloy's balance sheet. In November, the company acquired Target Marketing & Promotions, which spearheaded promotional marketing programs and media merchandising efforts for clients such as Hasbro, Jose Cuervo, Frito-Lay, and Cadbury-Schweppes. Under Alloy's control, Target Marketing worked with Triple Dot to create and execute marketing strategies. Alloy also acquired the 360 Youth division of MarketSource Corp., which was perceived by industry pundits as a strategic complement to the company's acquisition of CASS Communications. Generating an estimated $16 million in annual sales, 360 Youth provided marketing services targeted toward teens and college-age men and women.
As Alloy celebrated its fifth anniversary and prepared for the future, its management could take pride in the company's performance. Unlike most e-commerce firms, the company was a success story, a status underscored by the announcement of financial figures in 2002. During the first quarter of the year, Alloy posted a profit, registering $2.5 million in net income, which represented a considerable swing from the $10.3 million loss the company reported for the same period in 2001. On the heels of the encouraging news, the company completed another acquisition, presumably not the last purchase it would complete during through the first decade of the 21st century. In July, Alloy acquired Market Place Media, which focused on marketing to college students, multicultural audiences, and the military. With $48 million in annual revenues, Market Place was added to Alloy's 360 Youth media and marketing services operation.
Principal Subsidiaries: 360 Youth Inc.; Target Marketing and Promotions, Inc.; Private Colleges and Universities, Inc.
Principal Competitors: AOL Time Warner Inc.; Bolt, Inc.; PRIMEDIA, Inc.
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