Story of a start-up that has invented a market for itself.
Based on the relatively simple concept of sending digitized popular tunes over phone lines as gifts for all occasions, Dan and Tim Price have prepared the way for a potentially huge business. But to be successful, the Send-a-Song Corp. will have to gain public acceptance very quickly -- no mean feat when you're inventing a market
It's not often that a couple of guys with a hot business idea almost beg their attorneys to nuke the deal. Brothers Dan and Tim Price, however, couldn't be too cautious. They had hit upon something with such explosive potential they had to be sure there were no legal obstacles.
"We lawyered the daylights out of this thing," says Dan. "We'd get one opinion saying everything looked fine, then we'd triple-check it with other lawyers. We implored them to tell us why we couldn't do it. Finally, they assured us we were in the clear." What drove the brothers to legal overkill was, ironically, a simple idea. For years they'd enjoyed the musical messages left by their younger sister, Eileen. "She'd call us up when there was something special to celebrate or to commiserate about, and sing a song into the answering machine," Dan says. In short, she let the lyrics express her feelings.
That eventually got Tim thinking. A computer engineer with Westinghouse's electronic-systems group, in Baltimore, he saw the convergence of computers with new voice-processing technology. Why not computerize the singing-message concept, he thought, and see if people liked it?
In early 1990 he began tinkering at home with a way to write the enabling software, digitize popular recordings, and store them in his hard drive. It required some breakthrough work, but by that Christmas he had a prototype capable of sending songs from his personal computer to friends over the phone. And his friends could send songs through his system to their pals -- the whole network was automated.
His inventory of 125 songs ranged from Bing Crosby's "Happy Birthday to You" to such pop favorites as Billy Joel's "Just the Way You Are." They were familiar tunes with a strong hook, and for the recipients the impact was surprisingly powerful. The music evoked an almost visceral response. The effect was even stronger if there was an emotional tie, for instance, when one sent a love song. All told, the system was a big hit and lots of fun.
As Tim refined his model, the sound kept getting sharper. "I got it to where you couldn't tell if it was coming directly from the stereo or from the voice-processing gear," he says, with some modesty. "People said it sounded almost like a Walkman."
Meanwhile, Dan was doing investment banking in the Washington, D.C., area. He and Tim had always wanted to start a company; nothing else seemed as satisfying. And as they hashed out the song-by-phone concept, they thought they'd found a focus. Research showed that the "sentiment conveyance" market was booming. According to trade-group estimates, some 17 million greeting cards and 1.7 million bouquets are sent every day in the United States. Millions of dollars are spent on balloon deliveries. "Those numbers startled us," Dan says. "There was this huge demand for ways to express feelings."
Nowhere, however, was there a service that sent songs by phone. It was virgin territory. And it looked like a winner. "We thought about the inconvenience of going to a card store, the frustration of looking through racks," Dan says. "A lot of men, in particular, don't like doing that. And as a result, you let a lot of days slide by that you really shouldn't -- anniversaries, birthdays. With songs over the phone, you could send a message spontaneously. And a lot of popular music gets right to the point."
Analyzing the economics, he and Tim figured they could profitably sell their service for less than $10 a song. It wasn't a capital-intensive business, nor was it labor-intensive. It was a pure marketing play. By early 1991 the brothers had quit their jobs to work full-time on their creation, the Send-a-Song Corp.
As it usually is for a start-up, cash was tight. Legal fees devoured most of the $50,000 Dan and Tim Price had chipped in up front. Still, that seemed smart. "We wanted to take every legal step to protect our intellectual-property rights," Dan says. "So we trademarked it, copyrighted the software, and got patent-pending approval on the entire system."
Especially complex was the legal issue of licensing the rights to send music over the phone. Whom do you pay? How much? It wasn't like a licensing formula for a radio station. The Price brothers were pioneering a new field.
That uniqueness was a mixed blessing. It meant that, at least for a while, they'd have the business all to themselves. But because the technology was novel and difficult to comprehend without actually trying it, investors didn't easily grasp its appeal.
In his first fund-raising foray, in the spring of 1991, Dan Price approached an old friend, Daniel E. Moore, a general partner at Venture America, a venture-capital firm in Vienna, Va. Moore already liked the idea. As a test, he'd sent a song to his mother-in-law the previous New Year's Eve. The call came at 11:30 that night, during a family gathering.
"She listened to the song and started bawling like a baby," Moore says. "The other sons-in-law gave me grief, but her reaction was so human and good that I thought, Hey, these guys might have something here."
What they needed, Moore said, was some objective assessment of the idea, as well as consumer trials. He ponied up $10,000 to split the cost of a focus group and the building of five "take one" displays for placement in stores. If things went well, he'd invest more. "That was our story every step of the way," Dan says. "Prove a little bit more, and we'll give you more money."
That July a focus group of 12 gift-store and greeting-card-store owners convened in downtown Washington. The moderator first described the idea, then played a few clips of the music. "You could just see their looks change when they heard it," says Dan, who watched from another room. "Imagine having Nat King Cole sing 'Unforgettable' to your sweetheart. It's conveying a message in this really fun, sentimental way.
"One woman who'd been in the gift business for 30 years started to tear up when she heard the music. She said she had to have this in her store."
Encouraged, the Prices built some stand-alone displays, complete with phone handsets so shoppers could hear the music. They made copies of their song list, put them in small plastic bags, and stapled them to the displays. Inside each package was a personal-identification number -- a PIN -- that would serve as a customer's membership code.
Dan traded his car for a pickup and started hauling the displays to gift and card shops in the Washington area. "With limited capital, we thought the best way to market this was in places where people were predisposed to buy a sentimental greeting," he says. The deal was simple: if the owner allowed the display in the store, he or she would get half of the $6.95 that it cost to send one song.
It worked -- sales began trickling in. At that point, the songs were still being sent from the personal computer in Tim's apartment, using only a local phone number. But soon customers who'd bought their Send-a-Song packages in Washington were calling from as far as Texas and California to see if they could send songs elsewhere.
Seeing the potential, Venture America invested another $40,000. That was enough to fund more displays and the addition of an 800 number on a 20-line system. And at Moore's behest, Send-a-Song moved into cramped quarters in Vienna, Va.
The company's first big break came in 1992. "I thought this story would have good press appeal, particularly for Valentine's Day," Dan says. "So in early February we paid $1,500 to a public-relations firm to see if they could make something happen."
Did it ever. Word came that on February 11 -- three days before Valentine's Day -- Send-a-Song would be highlighted in the "tip-off" box at the top of the front page of USA Today's "Life" section.
"I thought that might be a little too good," Dan says. "I was petrified -- we had 12 hours to get ready. We thought the phones would ring off the hook, and we wouldn't get to them all. We called all our family and friends to be operators. Then we worried that we didn't have enough gear. So we raced out and bought $20,000 worth of phones and computers. We borrowed the office next door and had hardware and cables all over the place -- it looked like the underbelly of the Starship Enterprise. We worked all night to put it together."
The next day, February 11, there it was. "Send your Valentine a song by phone," ran the tip-off copy. It briefly described the service and listed the 800 number needed to place an order.
The first calls came from deejays who'd spotted the blurb. Dan did 20 live radio interviews that day. Clearly, the concept had pop-culture cachet. Then customers kicked in. Till then, the best day had brought 100 calls. But on February 11, more than 3,000 poured in, and that pace kept up for a few days. The operators took credit-card orders, issued PINs, and provided a sampling of the songs. "We had to stop taking orders," Tim recalls. "Our capacity was going to be maxed out for Valentine's Day delivery."
"As frantic as it was, there was almost a tangible sense of something being born," says Dan. "This thing was coming to life."
The money folks took notice. A fund-raiser with several dozen "angel" investors the previous month had netted only $10,000. But after the Valentine's Day bonanza, they put $170,000 into the company. Venture America weighed in with another $100,000. One investor, a D.C. stockbroker named Gene Jewett, rushed over with a check for $15,000 even as the telephonic frenzy was at full tilt. Later he added $50,000 more.
"This is a major deal," Jewett says. "I've never seen the emotional response to a card or a letter that I've seen to this. Women are nutso about it. I know several sharp female investors who wanted to know where to send their checks after trying it with their husbands.
"Marketing is the issue here," he adds. "They need a lot of money to get name recognition to grow big quickly. I'm working right now to get them $5 million. If the service is marketed right, this could be a $1-billion company."* * *
By this past June, however, the brothers had raised about $500,000. With orders running 300 to 500 a day, they were still operating in the red, to a tune of a projected $275,000 loss for 1993. They expect their cash flow to turn positive soon, though, as their new marketing and distribution strategies unfold.
It's clear that aggressive promotion works for them. Eager to build momentum, they launched a $75,000 public-relations blitz in the first quarter of 1993. It generated heavy publicity, particularly around Valentine's Day.
"The response to this is unbelievable," says Kevin Foster, an account executive at the Newlin Co., a Manhattan public-relations firm that helped pilot the campaign. "When you tell media people about the service, it's hard for them to conceptualize it. But then we send them a song list and some free access codes and let them try it. That's the key. Once people try Send-a-Song, they love it."
USA Today ran another Send-a-Song tip-off. CNN Headline News mentioned the company at the top of the hour for a couple of days. More than 30 TV stations across the country carried a story about the service, and dozens of big newspapers gave it some play. Over last Valentine's Day weekend, some 60,000 orders were processed. The company now has the infrastructure to cope with that kind of volume. Last year Tim duplicated his prototype technology on a large computer system at Call Interactive, in Omaha. A business unit of First Data Corp. (the offspring of a joint venture between AT&T and American Express Information Services), Call Interactive is a telephone service bureau that was ideal for Send-a-Song.
"We contracted with them, and they process the orders now," Tim says. "They can handle 10,000 incoming and outgoing calls almost simultaneously. That would make comfortably for 50,000 calls an hour, which you might get on peak days."
Technically, the system is very smooth. The music's fidelity is superb, and the song roster has grown to nearly 200 choices. They are divided into 14 categories -- birthday, friendship, congratulations, get well, and so on. Love themes fall into four sections -- top hits, contemporary, classics, and sexy. Selections range from Elvis Presley's "All Shook Up" to "I Want Your Sex," by George Michael. Among the most popular is Stevie Wonder's "I Just Called to Say I Love You."
The company doesn't send the entire song but sends a clip lasting about 80 seconds, featuring the most familiar verse and a chorus or two. "At that length," Dan says, "you don't get bored."
Sending a song is a snap. New customers calling the 800 number reach one of the 1,500 live operators at Call Interactive. They take down your major credit-card number and verify your account standing in seconds. They get your name and address, then assign you a nine-digit access code. That's it -- you're set to send a song. If you don't know which one, you can sample a few.
To make it more personal, you record your name and the recipient's on the Call Interactive system. They are spliced into the message that precedes the song. And after the music, you can leave a 20-second greeting. After placing an order, you get to listen to the same clip that the recipient will hear. That costs the company more, because callers are on the phone longer. But, Dan says, "we want customers to think when they hang up, Wow, this is going to be great."
Through the mail, you then get a song list and a membership card. When you call in another order, a computerized touch-tone menu walks you through the process and automatically debits your credit account. It's painless and quick.
Send-a-Song has more than 10,000 card-carrying customers. And since the company has their names and addresses, it mails postcard reminders before holidays. One-shot deals won't suffice; it needs repeat business.
To boost multiple sales, the company sells one song for $9.95 but three for $24.95. "When we raised the price from $6.95, we didn't see a big drop-off," Dan says. "We wanted to set it high enough that this seems really special. A song won't replace a gift, but it's much cheaper than flowers and more convenient than sending a card." Some regulars use the system 3 times a month, but 4-to-6-times-a-year customers are more common. A few Send-a-Song junkies, however, have used the service more than 100 times each.
Where the technology really shines is in delivery. The company guarantees that every song will get through, and it has ways to handle anything from answering machines to busy signals to not-at-homes. The computers in Omaha call repeatedly if necessary, leave instructions for song retrieval on message machines, and even summon the recipient to the phone if someone else answers. Like a voice-mail system, it's all done through touch tones, but live operators assist those with rotary phones.
If a customer needs a song sent immediately, it goes out from Omaha within five minutes. But customers also can have songs sent up to six months later. "That's a neat feature," says venture capitalist Moore. "You can take care of an obligation right away, or you can schedule some things out. A friend of mine programmed in eight different birthdays in advance."* * *
With all that in place, the challenge now is to generate mass awareness and trials. To accomplish that on a tight budget, the company has devised a three-channeled marketing strategy.
The most important is radio. Working with Cynthia Michel Public Relations, in Hermosa Beach, Calif., the Prices are signing up leading radio stations as partners. In effect, the company licenses the Send-a-Song name to them for nothing, and they in turn advertise the service as if it were their own.
As far as listeners know, it is. Each partner station gets exclusive rights in its broadcast area and its own 800 number linked to Call Interactive. When someone dials in an order, the Omaha system knows instantly which station generated the sale, based on the incoming area code and exchange. The caller hears something like "Welcome to the WXYZ Send-a-Song service."
The stations get paid in two ways. They can take 50% of the first call's price, normally $9.95, with no residuals for subsequent orders. Or they can accept a lower cut up front and pocket maybe 20% of the price of follow-on calls.
This is all done at little out-of-pocket cost to Send-a-Song. And at the rate they're going, the Prices expect to have deals with 100 stations by August. "We anticipate 10 to 20 calls a day from each one," Dan says. "That would be 1,000 to 2,000 daily from radio alone."
Those numbers seem plausible. "This is perfect for radio," says Randi Alderman, director of sales, marketing, and development at WMXV-FM in New York City. "Everyone likes to do dedications, and now they can do their own. I think it's novel enough, and inexpensive enough, that it will really catch on. Everyone here who has sent one has sent around five. And it generates extra revenue for the station."
A second channel involves corporate tie-ins. In a recent deal with Revlon in Dallas, people who bought $20 worth of cosmetics received a free Send-a-Song coupon. That sparked 500 calls. "We'd like to try this in a lot of markets," says Kevin Foster at Newlin. "It's a great corporate promotion."
Local distributorships constitute the third channel. Already there are three, in New York City, Washington, D.C., and Sacramento. "We may start charging for them, but for now they're free," Dan says. "We expect those reps to be as enterprising as possible to stimulate business. They'll work mainly through stores selling flowers, gifts, and cards."
At Call Interactive, a back-end reporting system based on codes tracks the source of all sales, be they from radio or retailers, to ensure accurate payment.* * *
For now Send-A-Song is like a high-tech factory operating at a small fraction of its capacity. It needs economies of scale in marketing and telecommunications to really thrive. But the biggest hurdle the company must clear to hit projected sales of $22 million in 1994 and $56 million in 1995 is simply getting people to give the service a try.
That could be tough. "If there's a downside," notes investor Gene Jewett, "it's that people don't see the model on this -- it's unique." And at $9.95 a song, it might be too pricey for consumers who, unless they do try the service, won't quite comprehend its appeal.
Somehow, the company needs to reach a critical mass, to get so big so fast that copycats can't easily jump into the market with knockoffs. It has already shut down a California outfit that ripped off the idea. But other competitors, including some big operators, are almost sure to try to enter the business if it looks like a big-time opportunity. The real edge for the Price brothers is that, by being the first players in the field, they can dominate it.
The Send-a-Song Corp., in Vienna, Va.
Concept: By merging computers with voice-processing and telecommunications technology, to build a national company that enables customers to send popular songs as gifts over the phone. As Send-a-Song is the first company in the field, the system is patentable
Projections: A 1993 loss of $275,000 on revenues of $875,000. Revenues rising to $22 million in 1994 and $56 million in 1995, when pretax profits are expected to reach $7.8 million
Hurdles: Generating mass awareness and trials, plus repeat business. Getting quickly to a size that will enable it to withstand major competitive assaults
Daniel J. Price, 35, CEO; Timothy M. Price, 32, president
Education: Dan Price -- B.S. in accounting, University of Maryland; certified public accountant; M.B.A., Harvard Business School. Tim Price -- B.S., mechanical engineering, University of Maryland
Personal funds invested: $50,000 combined
Equity held: 46% combined, with options to reach 55%
Family: Both single
Salary: $60,000 each
Other companies started: None
Last job held: Dan Price -- mergers-and-acquisitions specialist, Alexandria, Va. Tim Price -- engineer, Westinghouse electronic-systems group, Baltimore
The Send-a-Song Corp. Financial Projections (in thousands)
1993 1994 1995
Revenues $875 $22,000 $56,000
Cost of revenues 350 7,700 18,200
Gross profit 525 14,300 37,800
Expenses 800 12,000 30,000
Pretax profit (275) 2,300 7,800
WHAT THE EXPERTS SAY
Richard McCullough, managing partner of Arthur Andersen's Richmond, Va., office, which specializes in services for emerging companies
The revenue projections of $22 million in 1994 and $56 million in 1995 are very aggressive based on Send-a-Song's current call rate. Still, there seem to be no technological barriers to reaching those goals. The company has the infrastructure to handle 10,000 calls almost at once.
This company is not capital intensive in the traditional sense of hard assets. It's more customer-acquisition intensive, and it reminds me of the early days of cellular phones. Nobody knew if people would spend the money and use the service, and it cost hundreds of dollars to sign up a customer. As cellular phones gained acceptance, the cost of acquiring a customer went way down, and you had a strong revenue stream.
This appears similar. Send-a-Song needs to establish a subscriber base of repeat callers. I like the overall concept, and I'm impressed with the strategies Dan and Tim Price are using to build a customer base. The joint ventures with radio stations, the distributorships, and working with companies like Revlon can substantially leverage what Send-a-Song could do by itself. In every case, it is giving up some revenue, but it seems to me those channels will dramatically improve its reach. If this thing catches on, it has the potential to be something that suddenly becomes a normal thing for people to do. It could create some phenomenal numbers. But the success of its marketing approach is yet to be determined.
The cost, at $9.95 a song, might limit customers to the high end of the market, but that's a large number of people. I compliment the Price brothers on the legal effort they put into building some barriers to entry into this field. I also really like the feature of combining the song with a personal message.* * *
John Sortino, president of the Vermont Teddy Bear Co., in Shelburne, Vt. Advertising exclusively on 135 radio stations, the $10.6-million business sends customized teddy bears as special-occasion gifts
The song idea is a very good one. The key is how the company markets it, and right now I think Send-a-Song is groping for marketing approaches. My advice would be to spend every single minute raising capital. The Prices need that to experiment with the best ways to market their service.
If you can advertise on radio on a cost-per-sale basis, that's great. But I wonder if the Send-a-Song system is easy enough to explain on the radio that it can generate those 10 to 20 calls a day for each station.
A lot of radio stations do this cost-per-lead advertising and haven't had real long-term stability with it because it's a difficult thing to keep up. Many novel ideas like this seem to have a short life span because the novelty wears off.
When it comes to sending gifts, people are definitely looking for convenience, and this is superconvenient -- you never have to leave your desk. But in my experience, it wouldn't be enough of a gift to satisfy most people -- so it might have to be given in addition to something else.* * *
Jorjanne Arnold Gausman of Springfield, Va., who uses the service to send 10 to 20 songs a year
I discovered the company when it was just starting out, and I got addicted to sending songs, mostly because of the reactions of the people who received them. It was a kick for me and fun for them, so I'd get even more excited the next time I sent one. Recipients are just blown away, and they feel special, even more so than if I had bought a card and written a note.
I still send a lot of cards, and I save the songs for really special occasions. To preserve the novelty of it, I wouldn't send songs more than once a year to any one person. But I don't send them just for birthdays. I send them to people I work with, to maybe apologize for a mistake I made at work.
The great thing is that if you have forgotten someone's birthday, you can wire flowers, which cost a minimum of $30, or you can send a song immediately for $9.95.
I think this will catch on. Once you receive a song, you can't help wanting to send one yourself.* * *
Michael J. Valentino, vice-president of sales and general manager of WMXV-FM, an adult contemporary radio station in New York City. One of the most successful stations in New York City in revenues and ratings, it has a listenership of 1.5 million people
We look at our relationship with Send-a-Song as a profit-sharing joint venture in which we feel as if we're part of the company. We do very few deals like this, but we thought this was a good opportunity to take part in a company with great potential, without any major commitment on our part, using advertising inventory whenever we can. We plan to run about 25 spots a week to advertise the service.
A possible downside is that people will think $9.95 a song is a lot of money, or they'll use it once or find it too complicated.
Send-a-Song's goal of signing up 100 stations by late summer seems reasonable. The top 10 markets, however, are really tough with this sort of thing [profit-center endeavor], especially at certain times of the year when inventoried advertising time is scarce.