To Pay or Not to Pay

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.”

Internet Retailer Top 500 Guide

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

Analysts say Hallmark does a great job of using the web for what its customers need as well as encouraging web visitors to go to the stores. “Online is not where the heart of Hallmark’s multi-channel strategy is but they are encouraging use of the web site to increase the value of the loyalty points program,” Calvin says. “Consumers get extra points for buying paper cards and the web site promotes seasonal coupons good only at the stores. Hallmark does an excellent job of taking the consumer’s experience in the brick-and-mortar stores and tying it back into the web site.”

Furthermore, Hallmark is adding sales of items to its web site, such as Hallmark Stories, a product in which consumers download digital photos and create a custom photo album for $55. “Hallmark has a very clear idea of who their customers are,” Calvin says. “They know for example that people put a lot of time into picking out photo albums because they represent about 20% of the offline store products. So this is something they can do on the web that they can’t do in the stores.”

Hallmark also is using the web to broaden its product offerings to items it would have more difficulty selling in stores, analysts say. “The web site extends Hallmark’s offerings with the extra things it sells online like cookies and flowers,” Calvin says.

Although Hallmark did not comment for this story, analysts believe its web strategy is producing additional foot traffic. For one thing, they say, use of web coupons in stores appears to be a successful tactic.

Hallmark is not likely to add a subscription-based service to its site because it is able to draw visitors with free e-cards, observers says. Then, with an array of gift products, it can encourage card-shoppers to buy something at the site or entice them into a store with a coupon or loyalty points, analysts say.

No. 3 in the greeting card race is Yahoo Greetings. While it has card deals with such well-known characters and brands as Ziggy, Garfield, Dilbert and Hello Kitty, it relies on traffic to its well known site to drive card traffic. Its cards are free.

Analysts agree that the battle for e-greeting dominance is not over yet and that consumers could adjust to the fees just as they have to ATM fees. A million consumers paying $11.95 a year to AmericanGreetings says something about the market. Yet, analysts say, the market must pay attention to how many renew their subscriptions at the end of this year. “The industry is still waiting to see if consumers will pay for e-cards or if it should remain free content,” Yeh says. “Because the switch in strategies is recent, the greeting card market bears watching.”