The weekly newsletter for everyone interested in barter--the world's most versatile business tool!
September 21, 1999
In this week's report. . .
Ingenious Barter Arrangement Cements Strategic Tie
Do you receive a "reward" when you buy from your suppliers? Probably not. But here's an example of what's being done in some sectors of the marketplace.
Sun Microsystems has worked out a barter deal with Ancor Communications, a supplier of Internet storage switches. Bartering is not much of a leap for these technology companies, which for years have been using their high-flying shares for acquisitions and employee compensation, that they could never afford to pay for in cash.
Warrants Used As Incentive To Buy/Sell Products
Here's how the deal works. For every $67 in revenue Ancor receives from Sun, one warrant share (exercisable at $7.30) is vested. To be vested for the full 1.5 million shares, Sun must buy $100 million in switches from Ancor.
Win-Win Arrangement For Both
Ancor says the equity relationship was designed to cement a strategic tie. And under this relationship both companies benefit. Sun gets an ownership stake in Ancor, and earns a nice paper gain on the warrants, and as a result of the deal Ancor's stock has been given a boost.
When the agreement was announced in June, Ancor was selling at $10-1/4. Now the stock price is $26, after hitting a high of $38-1/2. And last month Ancor was able to sell a follow-up offering of 2.5 million shares at $27-5/8 each. A price far more than they would have been able to do without the Sun deal.
If you're not a public company, but you wish to develop some strategic relationships with critical suppliers, consider offering an incentive by working through your trade exchange, to accomplish your goal.
Provide your supplier with a set amount of "purchasing power per sale" in the form of trade dollars. Simply open up a sub-account in the supplier's name, and deposit trade dollars at various intervals. (Contact your barter company for details on a sub-account.)
Tradewell To Handle $50 Million In Media Buying For American Media
According to David J. Pecker, CEO, chairman and president of American Media they have signed an exclusive, multi-year contract with NYC-located Tradewell for media buying and trading services,
"Having worked with Tradewell and Senior Vice President Margaret Carroll for years," explained Pecker, "I am very pleased to bring such an experienced and innovative team on board for two of American's premier publicationsthe National Enquirer and the Star."
William S. Steinberg, president of Tradewell and one of the leaders in the highly-competitive corporate barter industry, said they were "extremely pleased to be given this opportunity to contribute to the repositioning and continued growth of American Media.
"To support American's amplified marketing efforts Tradewell will handle all media buying-print, television, cable, radio, out-of-homeand provide additional (barter) services as required," Steinberg affirmed.
According to Lantana (FL)-based American Media, the National Enquirer is the best-selling weekly paper in the U.S., at an average of 2.2 million copies per week. The Star has a total average weekly circulation of 1.8 million.
Dot.com Currency, Not Cash, Drives Internet Growth
The explosive growth of the Internet can be attributed to barter venture capitalism. It's where eyeballs are worth more than dollars...because everyone on the web is looking for traffic.
Advertising and promotional services are like gold to the young internet-using companies. And with hundreds of web sites hitting the cyberwaves each day, the Dot.coms will do just about anything to get noticed.
And those companies who have the moxie and the inventory-the traditional advertising mediums, as well as the web portals-are bartering their way into the Dot.com world, and no money is needed!
CBS, for example, has acquired $905 million of equity in internet companies without using a penny of cash, or even stock. Instead they've bartered something they have an abundance ofadvertising and promotional services from their radio and TV stations.
Portals Follow Suit
The big portals, like America Online, Excite and Lycos, are busily cutting deals and acquiring equity in new Dot.com companies too.
The portal deals are worthwhile for both sides. The equity-rich but cash-poor startups, with competitors on every side, get the chance to distinguish themselves by basking in a portal's spotlight. And the portals get the startup's content and serviceswhich makes their sites more appealingand a chunk of potentially lucrative stock.
In some barter deals no stock changes hands, but the rewards of a trade are obvious. Such was the case when TV Guide Online agreed to become the main provider of television program listings, and online chats with TV stars and personalities on AOL Live. In exchange AOL gave TV Guide prominent placement in eight AOL topic areas.
As the Internet continues its incredible expansion we can look for more creative barter deals to be consummated. But already bartering activity on the internet is ten times more prevalent than in the offline world. Maybe there's a message here for all of us.
Two Reasons For Focusing On Your Barter Efforts
Every dollar saved through your bartering efforts can be dramatically magnified through these two simple steps. Future results and the accumulation of wealth come from the choices you make moment-to-moment.
1) Keep in mind that every dollar saved through barter can be magnified to your advantage. Consider your 30-year mortgage. A home loan is like a huge credit card, in that lenders want you to make the minimum payment on the loan every month to keep the interest amount high.
Outfox them by paying more whenever you can. (Use the cash you saved through a recent trade you've made.) At current rates, a paltry $10 added to every monthly payment saves you over $8,000 in interest during the course of the loan.
2) Are you able to take a 2% discount when you pay invoices within ten days? If so, every time you take advantage of such an offer you're essentially earning 36% on your money. Where else can you obtain such safe and above average cash yields?
Trade Dollar Inflation Ahead. . .
Handing out uncollateralized trade dollars, (via the internet) as described below in these two examples is reminiscent of the earlier days of the trade exchange industry (two decades ago).
Back then it was believed that "deficit spending" was the way to prime the pump and activate trading activity, rather than the sound policy (now used) of making prudent extension of credit to worthy new members.
What occurred, however, was the creation of an inflationary environmentand a resultant gridlock with everyone holding excess trade dollars. There were no winners when this happened.
Are You Ready To Lasso?
At the Los Angeles Times Small Business Strategies Conference this coming Friday and Saturday (Sept. 24 & 25) LassoBucks.com (an electronic commerce trade exchange) is offering all attendees, who register at their booth, 50 LassoBucks.
Timothy Fong, CEO of LassoBucks, says his company enables "next-generation barter" at his e-commerce site by offering this source of "bootstrap capital" for entrepreneurs.
"Turning The Unused into The Usable"
That's the slogan of Targetbarter.com, which is now offering $250 trade dollars to spend immediately to anyone who lists an item to trade.
Coming Soon. . .
We welcome your comments, questions, and observations.
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