Live

Watch CBSN Live

Over The Backyard Cyber-Fence

Online retailer Buy.com is inviting itself into the expanding social networking scene, acquiring a Web site that rewards members with checks or gift certificates if they persuade others to buy their favorite products.

The purchase of Metails.com piggybacks on a growing phenomenon: online services that link people with common interests and friends, creating bonds that transcend social, economic and geographic boundaries.

Following the success of established services such as Friendster.com and Meetup.com, Metails.com encourages members to not only socialize but collectively create word-of-mouth buzz about hot products.

Users create personal profiles on the site for free, search a database for others who share their purchasing and lifestyle habits and refer friends to products they like.

Jared Morgenstern, the year-old Boston-based startup's chief executive and co-founder, compares the site to "an online shopping mall experience with your friends."

Members can browse for specific products. The site plans to add a feature enabling users to filter out product recommendations from people they don't know or trust, Morgenstern said.

Privately held Buy.com, with 7 million customers, announced Monday it has acquired Metails.com for cash and private equity stock. Terms were not disclosed.

Buy.com hopes to reach young, tech-savvy consumers increasingly targeted by personalized marketing campaigns rather than traditional big media advertising.

"We're not going to beat Amazon. They're eight times bigger than us," Scott Blum, Buy.com's founder, chief executive and owner, said in an interview, referring to rival online retailer Amazon.com. "We have to take the tack that we're going to beat them in the long run. To do that, we have to focus on the next generation of shoppers."

There's money to be made linking online social networks and commerce, said David Weinberger, an author and commentator on business technology and the Internet.

"Word-of-mouth is clearly the best way of marketing," Weinberger said. "With the Internet, word of mouth has gone global — global, but globally disorganized.

"So, various services have arisen to help us make sense of the hundred of millions of mouths whose word we can hear. It's understandable why an e-commerce site such as Buy.com wants to take advantage of the organized word-of-mouth at Metails."

Metails.com was founded by recent Harvard University graduates who started the business with their own money and help from friends and family. The founders have already moved to join Buy.com at its Aliso Viejo, Calif., offices.

"We wanted to be a major player in this market, and we found a company that was smart enough to file the proper patents at the proper time," Blum said.

Buy.com's interest was sparked after sales of its products resulting from Metails.com referrals doubled each month, Blum said.

The acquisition follows last month's launch by Overstock.com of an online auction service that allows participants to consult social and business contacts to gauge the reputations of buyers or sellers.

Metails.com takes a similar approach but adds commissions and referral fees into the mix.

Members who add their profiles to the site can include pitches about favorite products. If an online acquaintance buys a product and selects the person who referred them to receive a reward, that person is sent a check representing a percentage of the purchase price, or gift certificates in the case of members younger than 18.

Rewards vary depending on the agreement Metails.com has with the retailer, but can reach up to 10 percent of an item's price. A user's product referral rewards must total at least $10 before a check is sent.

Metails.com also gets a commission from the company offering the product. It says it is building partnerships with more than 50 online retailers.

View CBS News In