Free iPod is no free lunch -- Page 2

To understand how these companies give away free stuff, think of it not as free, but as barter, because getting the stuff takes work.

The first step toward earning merchandise on these sites typically is signing up for a trial offer from a company such as AOL, Netflix, Blockbuster, BMG, Columbia House or one of several credit card companies. You'll want to read these offers carefully to make sure the offer you sign up for is either one you really want or one you can easily opt out of after a trial period.

"Read the fine print on the offers before you commit to one," advises David Gutowski, a Web developer in Decatur, Ala., who has snagged more than $1,700 in free stuff from Gratis including a free iPod, iPod Shuffle, iPod Photo, desktop computer, Neiman Marcus gift certificate for $250 toward a designer handbag, Sony PS2, Sony PSP, a 27-inch Sony WEGA flat-screen television and $225 cash, along with a Nintendo DS from Offercentric. "I try to sign up for offers that I truly use, like Netflix, eFax or Real's Rhapsody music service."

Once you have signed up for the initial offer, the real work begins, because you'll need to recruit a few friends to do the same. Gratis, for instance, requires you to refer five friends in order to earn an iPod, and 10 for the iPod photo. Each of the friends you refer must then choose one offer, just as you did, and fulfill the entire obligation.

The companies are very careful about screening for fake names and addresses, and some have a one-offer-per-household rule, so your referrals must be legitimate and preferably with different last names and addresses than you. The tough screening sometimes leads to real referrals being refused, and consumers occasionally have to battle the companies' customer service departments to ensure that referral credit is given where it's due.

Once your referrals are credited, your order is processed, and you can receive your merchandise anywhere from a week to several months later, depending on whether the company has the product in stock.

If you're wondering how these companies can possibly make money, the answer lies within a two-part business model. The part the companies generally discuss is that they get paid for each lead they deliver to their client companies. Gratis co-founder Peter Martin says that his company gets paid anywhere from $30 to $70 per lead. So, if you sign up for a free offer and so do five friends, and Gratis receives an average of $50 per lead, they wind up with $300. Then, they send you an iPod, which usually sells for $300.

So the question again becomes, how do these companies make money? The secret, says Alex Zhardanovsky, lies in something called "breakage." Zhardanovsky is the co-founder of AzoogleAds, an online ad agency that connects companies such as Gratis with advertisers such as Blockbuster and Stamps.com. According to Zhardanovsky, who says that Gratis' fee per lead is usually more in the $30 to $40 range, "most consumers will not fulfill all the requirements of the program, and will not receive their iPod."

Think of this as similar to the health club business model. Your health club signs you up for a 12-month membership, knowing full well you'll probably come to the gym for three weeks and then fall back into spending your nights eating cookies on the couch. So let's say you sign up for the free iPod, which requires you to fulfill one client offer and then have five friends do the same. You may sign up for an offer, but only get two or three friends to join you before you forget about it or give up. When this happens, the company still gets approximately $35 for each lead, but they spend nothing. Zhardanovsky confirms that this is what keeps this business model afloat.

Knowing this, however, can be good news for consumers willing to do the work. The presence of legitimate free merchandise companies has spawned a mini-subculture on the Internet. A quick stop at the sites mentioned above, or a Google search of Gratis or Offercentric, turns up a host of "tribute" sites dedicated to free merchandise -- in reality, sites geared toward helping people get more referrals so they can get more free stuff. The people running these sites even have a term, "conga line," for a series of connected sites designed to increase referrals.

The bottom line is that free stuff is available on the Internet, but it takes commitment. If you're not in it for the long haul, you could wind up wasting your time.

New York psychologist Mitch Shapiro heard about free iPod opportunities on the Internet and signed up at Gratis' freeipods.com site. "You basically just had to sign up for one offer, and refer five of your friends for the same deal," says Shapiro, who signed on for a VISA credit card.

He sent an e-mail to 15 friends asking them to join, and after receiving no iPod for several months, thought he had been scammed. But the truth was, not enough of his referrals signed up. "One or two said they were going to do it," says Shapiro,"but I never got anyone who said they actually did."