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Uncertain
prospects greet
online card industry
By
Denise Gellene
Los Angeles Times
The online
greeting card industry could use some of the good cheer
it helped spread during the holiday season.
A slower economy is dispensing gloom in a business that
instead should be celebrating its busiest season ever. Los
Angeles-based Getacard.com, for example, last week announced
that it is for sale, despite an increasing march of visitors
to its site.
An anticipated slowdown in advertising spending is one reason
for the industry's post-holiday blues. Internet advertising
declined for the first time in the third quarter of 2000.
And direct marketing expenditures are expected to grow 5.4
percent this year, down from 5.7 percent in 2000, according
to one estimate.
The industry faces "a lot of challenges," said analyst Jeffrey
S. Stein, who follows American Greetings for the Cleveland
investment company of McDonald & Co.
Online greeting card companies fall into two business models,
neither of which is profitable. The largest sites, led by
BlueMountain.com, American Greetings and Egreetings, focus
on electronic greetings sent by e-mail. The greetings are
free to consumers, so the companies raise revenue primarily
through advertising on their Web sites.
A smaller category of online greeting card companies sell,
address and mail paper cards for customers who use their
Web sites. Getacard and rival CardStore.com, based in Emeryville,
Calif., target businesses that use cards year-round as thank-you
notes or invitations. Sparks.com, the largest paper card
site, targets consumers and employs "scribes" who add handwritten
greetings for an additional charge.
The experience of Getacard.com points to another worry facing
the emerging online card industry: funding. Chief Executive
Gary Hickox said the company ran into investor skittishness
after its launch in April. It hasn't raised money beyond
the initial $3.5-million round from investors such as Belo
Media and former Universal Studios President Frank Biondi.
That has hurt operations, said Hickox. Getacard has spent
$500,000 on marketing, less than competitors and not enough
to reach large numbers of potential clients, said Hickox.
It slashed its work force by 54 percent to 22 from 48.
"We've taken body blow after body blow, and we still ship
cards," Hickox said. "We make a positive gross margin when
we sell a card. The basic business is good. It is just very
difficult to raise money."
CardStore, with a client roster that includes Bank of America,
Staples and Martha Stewart Living Omnimedia, is raising
an additional $15 million in capital. Chief executive and
co-founder Jinne Tao is optimistic as the company'ss initial
backers - Highland Capital Partners, Roda Group and Crimson
Global Internet Fund - have agreed to ante up additional
funds.
"We're lucky, because it is a tough environment," said Tao,
who declined to provide revenue figures.
In CardStore's favor is the historical resilience of the
direct marketing business to economic slowdowns. "It generally
holds up well and outperforms broader (industry) trends,"
said Lauren Fine, advertising industry analyst at Merrill
Lynch & Co. "Of course, that is no guarantee."
The Direct Marketing Association, a New York-based trade
group, is forecasting 5.4 percent growth. Jack Myers, a
New York media consultant, said direct mail advertising
will grow 3 percent, up slightly over the 2.3 percent expected
for 2000.
Internet advertising, a product of boom times, hasn't yet
faced the test of a sluggish economy. The decline in the
third quarter signals caution for electronic card sites,
although Myers predicts growth overall, once barter deals
and equity transfers are factored out. Egreetings, the third-largest
electronic card site, slashed its revenue projections for
the fourth quarter in half to between $2.5 million and $3
million. In October, it laid off 60 employees and its chief
executive resigned.
"I think everyone is a little concerned" about a slowdown,
said Mark Rinella, vice president and general manager of
BlueMountain.com, which is owned by Excite. That concern
comes despite news that, according to research company Media
Metrix, growth in visitors to online card sites outpaces
growth in Web users overall.
The electronic card sites are developing additional sources
of revenue to supplement ad dollars. BlueMountain, for example,
derives a fee when consumers attach a gift certificate from
its marketing partners, which include 1-800-Flowers, Harry
& David and Mrs. Fields. Analyst Stein doesn't believe gifts
will overtake advertising as a source of revenue for online
card companies, although, he said, "It makes sense as a
product category."
American Greetings and much smaller Sparks.com face an additional
worry: the malaise in paper greeting cards aimed at consumers.
According to Stein, the market for nonspecial-occasion cards
is shrinking, and that category accounts for about 30 percent
of American Greetings' sales.
The card business is being hurt by other easy ways to communicate,
such as e-mail and cell phone. "Advances in technology have
created alternatives to cards," he said.
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