With 140 merchants and 1 million users, Flooz, the online currency is delivering buyers to stores

Now Flooz, creator of an online currency, is making the same pitch to online merchants. Accept Flooz and we’ll bring you a base of consumers who will be more likely to buy than other potential customers. It’s working. Today Flooz, which started in 1998 and was one of the first online gift certificate/currency companies, is building a brand name, has created a network of 140 high quality merchants and owns a customer base of more than 1 million.

It helps that Whoopi Goldberg is a part-owner of Flooz and is its public face. Goldberg promotes Flooz both online via her own web site as well at Flooz.com and in television commercials. “Whoopi speaks to everyone—men, women, black, white—and we wanted all that for Flooz,” says Robert Levitan, CEO and cofounder of Flooz with Spencer Waxman. Flooz—the word was slang for money on the Duke University campus—was the brainchild of Waxman, who was in real estate, and not ecommerce, when he came up with the idea.

He and Levitan, both Duke alums, quickly realized that they could draw on Levitan’s Internet expertise to develop the product. Levitan is one of the founders of iVillage.com, an early Internet portal, where he was responsible for developing sponsorship sales strategies. Before that, he was a consultant to America Online.

“Robert was a long time friend who has achieved enormous success in the industry,” says Waxman, Flooz vice chairman and president. “He was instrumental in the early development of the company. He knew everyone in the space and he knew how to set up merchant partnerships.”

Flooz combines email and electronic greeting cards with its own stored value platform. Consumers can send Flooz online gift currency to anyone with an email address. Among Flooz’s 140 retailers are Godiva.com, Jcrew.com, Sephora.com and Outpost.com, which accept Flooz as a form of payment. Recipients get a Flooz account. Flooz’s centralized processing system keeps track of purchases and remaining Flooz balance and authorizes transactions for merchants.

From his days at America Online in the mid-1990s, Levitan saw that part of achieving success on the web was the building of an online community. “You could tell people were communicating,” he says. “And you could see that email and online greeting cards were becoming a big deal.”

But more importantly, he noticed that online retailers were searching for customers and a return on their investments. “The retailers who bought sponsorships on AOL were increasingly measuring their customer acquisition costs,” Levitan says.

And they believed they could do it in a way that would make them some flooz of their own: “We could do it on a pay-for-performance basis,” Levitan says. That approach would give consumers a way to give cash gifts online and give retailers a captive online audience who were required to use their online cash only at their stores.

Flooz makes its money through merchant relationships. Levitan and Waxman based the business model on online customer acquisition costs, a model that Waxman says is the result of Levitan’s keen understanding of what online merchants need in marketing partners. “Robert understood the economics of how retailers want to acquire customers and why Flooz was a good value proposition,” Waxman says. “Flooz is a performance-based model, versus the portal deals.”

Waxman says Levitan had the foresight to see that online marketing efforts were shifting from portal deals, where retailer and portal operators hope that consumers will click through to merchant web sites to shop, to models like Flooz, where consumers are required to shop certain merchants to use the value of their gift certificates.

Flooz merchants pay a consumer acquisition fee for new customers or a percentage transaction fee for returning customers. The acquisition fee typically runs between 10-20%, says Levitan, who explains that most deals allow Flooz to charge less than what the merchant pays for new customers online.

We drive down customer acquisition costs and that’s a big deal right now,” Levitan says. “If it costs a merchant $30 to acquire a new customer, we’ll propose that they pay us half of that, for example.” The second reason merchants are interested in being a part of Flooz is that Flooz helps drive up conversion rates. “The average conversion rate is 2% and retailers are struggling with that,” explains Levitan, who adds that some Flooz merchants report Flooz conversion rates up to 30%.

Because Flooz has what amounts to a captive audience, it can practically guarantee delivering customers to online merchants. “They’re in a good position in terms of working with premier merchants online,” says Rob Leathern, digital commerce analyst at Jupiter Media Metrix.

Although merchants are clamoring to become part of the Flooz network—the company gets up to 150 inquiries per week—Levitan insists that Flooz will strive to maintain an “American Express” level of exclusive and upscale merchants. “We want Flooz to be associated with quality brands,” he says. In fact, quality attracts quality—the level of merchants was one of the attractions for Godiva. “They are in line with our image and brand and we didn’t feel out of place,” Brown says.

To sign up merchants, Flooz employs a direct sales team of five. Waxman works on merchant strategy, making sure the merchant mix is in line with consumer demand and that merchants complement each other, rather than compete. Levitan says there are two goals in being strict about which brands Flooz associates with: one is that Flooz wants to work only with online merchants who provide a quality shopping experience; the other is that Flooz is scaling its merchant network as it scales its account base so it can make an impact for the retail partners it has now by not spreading the ranks too thin.

Flooz is geared toward online consumers too busy for gift shopping, typically 25- to 54-year-old professionals with high incomes. Levitan reports that, similar to his experience at iVillage, women are the best online customers. But they’re not the only ones. While Flooz is meant to meet the needs of time-strapped gift givers (as Levitan describes himself), it also has gained quite a following among corporate clients. Levitan says more than 50% of Flooz’s business comes from corporations who use Flooz to reward employees.

“We’re not really selling Flooz to the companies, we’re selling access to merchant partners and bringing the merchants into the corporate space,” Levitan says. Flooz has a direct sales team of 10 who sign up corporate clients. “Some companies buy $1 million in Flooz. And the beauty of that is that it not only provides a less expensive solution for businesses because there are no administration fees, the retailers really love the corporate clients for the sales and amount of customers,” he says.

Goldberg’s efforts—as well Flooz’s other marketing activities such as dressing actors in superhero tights and capes and having them pass out Flooz on the streets of major cities—are working. More than 50% of Internet users are aware of Flooz, said a quarterly survey in July by research company Greenfield Online, while Media Metrix has ranked Flooz the number one gift site.

“Robert has a great sense of branding and marketing and that helped us get the word out very quickly,” Waxman says. He created goals and priorities, the first of which was to perfect the customer experience, Waxman says. “He has really been able to get that commitment to customers into every nook and cranny of the company. Listening to what the customers say and learning from them was very important in order to take this product a long way.”

“We want to continue to improve on what we’re doing, which is making shopping with Flooz a great experience and solving people’s gift-giving problems,” Levitan says. Adds Waxman: “That means getting more merchants, more consumers and more corporations using Flooz. We’ll continue to enhance the product in different ways that make our relationship with our partners deeper.”

Jupiter’s Leathern says the challenge for Flooz is to continue to sell its product into companies as well as to take advantage of the viral nature of the Internet. “They should look for ways they can use existing customers as their sales force to spread the word,” he says.

He also says the web site’s features go beyond other online gift certificate options. The site features an occasion-reminder service and a Flooz address book that keeps track of all potential Flooz recipients so users can send Flooz without having to look up individual addresses.

“Flooz seems to have a better chance of staying with consumer appeal by integrating web content, providing additional services and by featuring premier merchants,” Leathern says.