March 28, 2002, 12:00 AM

To Pay or Not to Pay

With the mainstreaming of the web, the one-size-fits-all business model is dead. Nowhere is that truer than in greeting cards.

When the Internet mantra was “First-mover advantage,” everyone on the web did what the leader did. If giving things away drove traffic, everyone gave stuff away. If dropping millions of dollars at portals brought traffic, everyone was willing to make the portals rich.

But the Internet has matured and today businesses are figuring out what works best for them and pursuing their own strategies. Nowhere is that truer than in the greeting card business.

Gone are the days when everyone believed that online greeting cards had to be free and the greeting card sites would make it up in ad revenue. In fact, AmericanGreetings.com, the leader in greeting card sites, in December started charging $11.95 a year for access to cards and reminder services and already has nearly 1 million customers signed up. And greeting card industry leader Hallmark still offers free cards at Hallmark.com, but its real intention is to attract shoppers to stores.

“Like many personal activities on the web, sending greeting cards means different things to different people,” says Duif Calvin, vice president of the global retail practice at Scient Inc., which has consulted on the Hallmarkstories.com site. “That means there is room for services with different focuses and different levels of customer offerings and service.”

Popular destinations

Greeting card sites continue to be among the most popular destinations on the web. Internet measurement service Nielsen/NetRatings says Cleveland-based AmericanGreetings.com had 7.4 million unique visitors in January, while AmericanGreetings-owned BlueMountain.com had 6.9 million. Kansas City, Mo.-based Hallmark.com had 4.6 million visitors in January and YahooGreetings had 3.2 million.

Betty Yeh, Internet analyst at Nielsen/NetRatings, says it’s too early to say which model will bring the most success because the online greeting card is still evolving. “Greeting card companies are evaluating customer loyalty and the ability to convert visitors to buyers as well as paid subscribers,” she says. “The different business models are starting to target different segments of the population online.”

American Greetings says it is pleased with the response to the subscription offer. For their $11.95, consumers get unlimited access to e-greetings for all occasions, the ability to create and print cards, reminders of upcoming occasions and an online address book. They can sign up three users for each account. American Greetings promotes the service via a pop-up window at its site.

The success of America Greetings’ approach is reflected in the fact that AmericanGreetings.com added more than 150,000 paid subscribers the week of Valentine’s Day, adding 70,000 on Valentine’s Day alone. “In subscription sales we are meeting our expectations,” says Charlie Fink, president of AmericanGreetings.com.

Different strokes

AmericanGreetings.com made the change to a subscription model partly in response to an advertising market that is not living up to expectations. “It’s been a down advertising market,” Fink says. But, he adds, a subscription base not only helps AmericanGreetings.com through the tough advertising climate but also gives the company a diversified revenue base when advertising picks up again. He believes that with 1 million users and continued rank as a top-visited web site, AmericanGreetings.com will become attractive to advertisers.

“Ultimately we view ourselves as a media company,” he says, “and we are not going to stop selling advertising because we have subscriptions.” American Greetings owns several of the leading online greeting sites, including its flagship site AmericanGreetings.com, former competitors BlueMountain.com and eGreetings.com, free site BeatGreets.com, from which consumers can send music from top artists, and PassItAround.com, a November 2001 launch that offers workplace-related greetings and is also free.

Analysts say AmericanGreetings’ successful conversion of free users to paid users is a measure of market maturity. “This is recognition that there are different kinds of card senders,” Calvin says. “Some people may like having an easy-access addition to their e-mail service (as with Yahoo! Greetings), some want hundreds of choices to find the exact sentiment and the right image for an online card, and some may just want a small choice of cards.”

AmericanGreetings.com did, however, pay a price in traffic for levying a fee. New York-based research firm Jupiter Media Metrix reported that unique visitors to all American Greetings web sites that imposed a fee-AmericanGreetings.com, BlueMountain and Egreetings.com-declined 10% from 25.5 million in November to 22.9 million in December. Meanwhile, the second and third-ranked sites presumably picked up the disenfranchised traffic: YahooGreetings’ traffic increased 70%, from 5.4 million unique visitors in November to 9.1 million in December, while Hallmark.com increased its unique visitors 74%, from 4.7 million to 8.2 million.

Even though Jupiter Media Metrix’s numbers showed a decline, Charles Buchwalter, vice president of media research at Jupiter Media Metrix, says American Greetings may simply be in front of the market by adding subscription services. “There’s no question that all the players in online media need to diversify their business models,” he says. “Firms that are starting to implement subscription services are willing to lose some traffic for true online revenue.”

Companies who are willing to give up traffic for revenue may come out ahead, analysts say. “Once a company has that under their belt they can start to plow the revenue back into the product,” Buchwalter says. “And in the long haul it might be quality and selection that people look for. Many people who find a site that takes care of them will keep going back.”

Meanwhile, Hallmark is using its brand name to attract store traffic. It offers free cards online but packages that offering with online gift certificates. Those certificates accounted for 10% of the site’s sales within 90 days of launch of the certificates last fall. The e-gift certificates can be redeemed at more than 300 big-name retailers, including Amazon.com, Macy’s and KB Kids. Hallmark also offers online customers rewards such as spend $30 or more and earn a $10 gift certificate for use at Hallmark retail stores. Online customers also can earn Gold Crown loyalty points that can be redeemed only in stores.

Great integration

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