VZones Corporate Updates

This page contains emails that were sent to Avaterra.com, Inc investors who had purchased stock or signed up to a mailing list for corporate information.

1999

October 6th

A Corporate Update From Avaterra.com CEO, David Andrews

A Corporate Update From Avaterra.com CEO, David Andrews October 6, 1999

When Avaterra.com, Inc. became a publicly traded entity in June 1999, we set out to establish the leadership position in the emerging virtual world market. To achieve this goal, we have focused on establishing a solid foundation for our marketing strategy and software platform.

We are delighted to report that, after only four months as a public company, we experienced a 75% growth in new accounts last month, signed five new partnership agreements, and are well on our way to building a solid business model as the definitive community site on the Internet. The remainder of this letter outlines our recent achievements and outlook.

Background

Avaterra.com's VZone technology generates 2.5D animated, graphical environments that we have recently trademarked as Virtual Zones (VZones). These include community-building and advertising features that are innovative and highly engaging for users. Compared to typical portals that attract millions of casual visitors with no loyalty, VZones produce a high level of loyalty, stickiness and extended session lengths, evidenced by our communities that have flourished for years.

Our virtual world based advertising takes banner ads to the next level. We provide a unique long term electronic commerce vehicle (in the form of Ad Objects) which promotes and facilitates repeat sales over long periods of time. Our Ad Objects are extremely compelling as they are integrated into the virtual environment, much like product placement in movies. Members welcome these ads and interact with them willingly because they are a natural and non-intrusive part of their online experience.

Our revenues are derived from multiple sources including consumer-oriented virtual zones where members pay fees for premium services and companies pay for advertising, sponsorship, and e-commerce. In business-oriented virtual zones, our clients pay for customized environments where interaction between staff, business clients and consumers can occur.

Strategy and goals

Avaterra.com's strategy is to utilize the technology's key benefits to continue to attract large, visible partners who want to offer their members the ability to participate in the community that our VZones offer. Partners such as Xoom (NBC), Delphi, and others have already experienced the power of our community-building technology. We are not only growing in our existing markets, but we are also gaining early entry into international markets which are experiencing high growth rates as we continue to penetrate the business market with new business-to-business and business-to-consumer applications.

What we have done

Our success in the marketplace will be enabled by the progress of our development team. We recently brought on Gary Chaikin as the new VP of Development to lead our development and creative teams. Gary has over twenty-five years of production, development and design experience and has developed applications for clients such as Merrill Lynch, Bayer Pharmaceuticals and Canadian Tire (eflyer). Under Gary's direction, Avaterra.com has developed the production capacity and organizational infrastructure to design and produce hundreds of VZone areas each week. Our production capacity has increased by approximately 300 percent, allowing us to meet the increasing demands of customers, partners, members and future advertising clients. Some of our major achievements include:

Reducing the size of the VZone software client to provide consumers with a simpler, quicker download and installation process. It will be released in stages over the next six weeks with the first release reduced to almost 50% of its original size, decreasing download time to 10 minutes. This is a major improvement in securing customers as long downloads are a disincentive to trial.

The addition of streaming audio and video into the client interface will introduce the capability for a wide range of content within our Zones, appealing to consumers as well as partners and advertisers. Consumers can enjoy watching movies or listening to music without ever leaving the zones, further increasing session lengths. Partners can test new marketing campaigns with virtual focus groups, hold live webcasts and showcase new music or movies. The potential is limitless and this development affords us many new opportunities.

Currently, under the umbrella of VZones, we have VZconnections (general audience) and VZdreamscape (fantasy/sci-fi audience). In the last month, we have seen an increase in the number of registered members of over 75%. Daily unique visitors are up 27% (3,200 per day) and time spent online has increased 34% (over 18,000 hours per day). This data shows a daily average visit length of over 5.6 hours per visitor, a time equal to television viewing. We believe the growth rate in daily unique visitors and time spent online are sustainable and will in fact grow due to the promotions we have planned.

European success

We expect our strategic revenue sharing partnership with Scottish Telecom to provide significant leverage in securing additional ISPs as partners in Europe. ScottishTelecom is one of the U.K.'s leading Internet and data solutions providers, and through the Demon Internet brand, Scottish Telecom is the fourth largest web host in the world. ScottishTelecom plans to distribute the VZone software to more than five million customers as part of its "in2home" free ISP CD introducing VZones to consumers across the U.K. over the next twelve months.

Where we are going

Our emphasis is to grow the traffic in our consumer VZones, while launching new ones. Both of these efforts will subsequently allow us to pursue our planned advertising and e-commerce initiatives. Our current priority is the launch of a new Zone, VZentertainment, which will include music, celebrities, gaming and television. We have signed a strategic marketing initiative with our first record label, First Madison, which will start with an innovative promotion showcasing new musical artists at over 1,000 college and high school campuses nationwide. This promotion is scheduled to begin in early November and will include distribution of over 250,000 CDs containing commercially unavailable sample tracks, video clips and the VZone software. The students receiving this software will also receive an invitation to participate in live chats with the artists after the show in VZentertainment.

While our direct selling efforts targeting partners have been in place since June, we've only recently begun to ramp up our consumer marketing. Elements of our upcoming marketing launch include the following:

Radio integrated live/produced spots tied into virtual zone events Print Internet lifestyle and online gaming publications Internet online publicity generation as well as banner ad campaigns Viral marketing programs capitalizes on word-of-mouth advertising Email campaigns to existing members promoting in-zone contests Tradeshows presence at key shows (Entertainment Online in NY, October)

There is a clear trend toward making the online experience more engaging.. Avaterra.com is poised to capitalize on this trend, as it's graphical interface and community-building features have proven to be one of the most involving and satisfying to date. We've grown incrementally up until now. But as the above activities suggest, we are positioning ourselves for a quantum leap in our membership and overall traffic numbers and to achieve our position of dominance in our space.

We wish to thank each of you for your interest and support in our new company and look forward to providing you future updates on our progress.

David Andrews Chief Executive Officer

In keeping with U.S. law, Avaterra.com, Inc. notes that this update includes forward-looking statements. Actual results may vary significantly due to various risks and uncertainties. Those include, but are not limited to, the risk that new technologies are inherently subject to development, timing and consumer acceptance risks.

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