Companies trying to enhance security and privacy online have faced a stubborn problem: they are typically competing against things available for free on the Internet. Cocoon, a Santa Barbara, Calif. company, thinks it may have the solution to this puzzle: offer users cash back on their shopping.
For more than a year, I’ve been following Cocoon, which offers a browser add-on that allows you to surf the Internet through their computers in California. That means they block ad tracking and cookies and absorb viruses from nasty sites. Jeff Bermant, a successful local real estate developer, grew interested in the idea after first learning years ago that one of his tenant companies could remotely access office computers from home. A computer virus that later disabled his office for a day further inspired him to create a service to protect against viruses and against the widespread data collection that fuels the Internet.
“I have enough money in my own life so I don't need to make any more. My wife says why do you do this, and it's because I am sort of fed up with the world taking advantage of people's privacy,” he says. “I didn't realize when I signed up for the Internet that I was signing up so that you could know all about me. So I’m offended by it.”
Cocoon’s original business model focused on a free service with ads, or a $29 annual fee to eliminate the ads. Because it routes the entire Internet experience through their browser, the company can put in additional ads into what his users see. Thus if free users goes to nytimes.com, they see ads appearing to all users as well as a supplementary message on the side added by Cocoon.
About 60,000 to 90,000 people use Cocoon actively every month, only a thousand of whom pay for the ad-free version. In 2013, the company projected revenue of just $131,000, versus expenses of $1.5 million--not a very viable business model as it stands. “People want privacy but most people want the Internet for free,” he says. “Our trick has to be how do you provide this free product—and make money doing it?”
“This business will die unless we figure out how to get people to keep their privacy yet get them to shop online and or look at ads.”
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So today the company says it will start Cocoon Shopping, which offers cash back on items purchased through the site, including one percent off from Nordstrom, two percent from Wal-Mart and three percent from Kobo.com. Bermant says he has signed up 1,800 stores and will add others, including Amazon, after his service proves it can generate traffic. The idea follows in the footsteps of companies such as Ebates, which says its users have earned more than $250 million cash back. Retailers pay such sites a commission for driving traffic their way, part of which is refunded to the purchaser.
Jeff Bermant, founder of Cocoon (Photo courtesy of Jeff Bermant)
To differentiate itself from Ebates, Cocoon Shopping adds the privacy dimension of creating a second layer between you and the Internet. This interface took developers more than two years to master before users would not notice any slowdown in service. “When we first did it, it didn’t work at all, it was a mess. All the videos wouldn't play,” Bermant says.
I’ve used the paid service from time to time over the past year and found that it generally works well with no difference from normal browsing. However, it sometimes needs to be reinstalled after Firefox updates its browser; some browser extensions also conflict with Cocoon after updates.
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The company faces a dilemma in trying to attract advertisers. On one hand, Cocoon is the ultimate tracker, because it sees every site someone visits. Such knowledge presents some temptation to go to the dark side, Bermant himself acknowledges. He knows, for example, that about 20 percent of his traffic is from users visiting porn sites. He says he tries to reach a balance by telling marketers he can place ads to people interested in a broad topic such as sports, but he will not share individual IP addresses which could identify the actual person.
Cocoon is also seeing growing interest abroad, with many users coming from India, Pakistan and Indonesia. It also plans to open a VPN service for Internet users in China.
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