Roses Are Red, Violets Are Blue, Hallmarks Online, But What Can It Do? - Company Business and Marketing

Industry Standard, The, Nov 27, 2000 by Susan Orenstein

While Hallmark was venturing with all due deliberateness onto the Web, its tiny competitor, Blue Mountain Arts, quickly overtook the landscape for electronic cards and became an industry darling. Founded by ex-hippies Stephen and Susan Schutz in 1971, Blue Mountain has featured the couple's inspirational art and poetry, and at times outsaps even Hallmark with card tides like "Sending You a Teddy Bear" or "Rainbows Follow Special People." But apart from their sentimentality, Blue Mountain's electronic cards came with a more distinctive feature: They were free. Purely by word-of-mouth, they became an overnight phenomenon when they hit the Web in September 1996. The Schutzes, who once shared an office in a converted bus barn, said they cared not about profits, but about providing a "poetry and emotional center." Their story had obvious media appeal, further bolstering their buzz. By November 1998, the company had eclipsed Amazon.com in traffic. In December of that year it became the 10th most-visited site on th e Web, in the same elite club as America Online and Yahoo. With a creeping arrogance that might have something to do with having a billion-dollar market valuation, the Schutzes' son Jared called the Hallmark and American Greetings sites "irrelevant" in the New York Times in January 1999.

Blue Mountain's dominance made it impossible for others to continue selling electronic cards. In May 1999, Hallmark announced that all its e-cards would be free. In the strange economics of a year ago, having a core product that was given away didn't hurt a company's image: In October 1999, Excite@Home acquired Blue Mountain for more than $750 million in cash and stock. Poetry indeed.

But since then, every major player in the field, including Excite, has had to contend with the nagging question of how to make money from free cards. They are something of a tease -- hugely popular but not obviously profitable. A full 57.3 percent of online consumers have sent e-cards in the last year, according to a study last May by Jupiter Research. That ranks behind only sending and receiving e-mail, using search engines, researching products and services and gathering information on local events, restaurants, maps or traffic.

AmericanGreetings.com, a spinoff of Hallmark's longtime rival (one industry insider described them as the Hatfields and McCoys of the greeting card business), is viewed as far more aggressive than Hallmark in fighting back Blue Mountain. In August 1999, AmericanGreetings.com signed a deal with AOL, calling for it to pay $100 million over five years to be the portal's exclusive e-greetings partner. (It also struck deals with Lycos and Yahoo.) Visitors to the American Greetings site have indeed spiked, from 414,000 in December, 1998 to 7.3 million in September of this year, according to Media Metrix. Blue Mountain had 10.3 million, while Hallmark had 1.9 million visitors. "In all candor," says AmericanGreetings.com CEO Josef Mandelbaum. "Hallmark woke up a little late."