Go Sell It on the Mountain

Blue Mountain Arts hatched a bold plan to transform its Web site's popularity into profits. But as it turned out, it could only go so far on its own

The investment banker has come to make his pitch, and Jared Schutz, shifting in his seat, is making it clear that he doesn't have much time to hear it. Schutz, the 24-year-old executive director of Blue Mountain Arts Inc., a greeting-card company in Boulder, Colo., has entertained a vice-president from nearly every major money house on Wall Street in the past year. He can't remember all the VPs' names. In his mind, they all morph into one gray suit with one shared goal: becoming the underwriter for an initial public offering that could fatten their bonus checks by a BMW come Christmas.

"What are you looking at in terms of cash needs?" asks the VP.

"We have no need for capital right now," says Schutz politely. "But we're keeping our options open."

Schutz is uncomfortable talking about finance, an area in which he has had little experience. What makes this dance tolerable for him is that every suitor confirms a bit of intelligence that he finds particularly agreeable: at current market valuations, bluemountain.com, the company's three-year-old Web site, is worth about $1 billion. Schutz and his parents own the whole thing.

Why is the valuation so high? Five months into the year, 54 million customers have stormed the virtual doors of the Schutzes' greeting-card store, an extraordinary number that would give even the sales managers of, say, Sears reason for jubilation. Taking advantage of thousands of offerings, visitors to bluemountain.com have sent cards for every conceivable holiday (National Boss Day, October 16) and pseudospecial occasion (coffee breaks). Under ordinary circumstances, such a large volume of customers would produce sales of about a quarter of a billion dollars -- and that's with more than half the year and the biggest holiday months still to come.

The Schutzes' army of customers, however, have produced not one cent of sales for the company's line of electronic greeting cards. It's not that they don't like the cards, and they aren't deadbeats. It's that Schutz has kept his price on electronic cards very attractive: they're free. "We have," Schutz tells the banker, "negligible revenues."

"Got it. Got the scoop," the banker replies. He's not surprised. Fifty-four million customers and negligible revenues -- a deal to die for. After all, this is a market in which eToys, with revenues of $35 million and losses of $73 million, reached a market valuation on May 20, the day of its IPO, that was a third higher than that of Toys 'R' Us, a rival with more than 300 times the revenues. The market valuation of Barnesandnoble.com reached $3.5 billion at its IPO, on May 25 -- a valuation 50% higher than its brick-and-mortar counterpart.

Blue Mountain's site, according to September figures compiled by Media Metrix Inc., ranks 14th on the list of the most-visited sites on the Internet. Although it's classified as a commercial site, commercial is used loosely when the Internet is involved, since the term covers sites that give away their products. What's considered as important as revenues or profits, at least in these adolescent days of electronic commerce, is a site that attracts a crowd -- a big crowd. And Blue Mountain draws a throng almost as large as that of the much-celebrated Amazon.com.

Eventually, so the thinking goes, sites like Blue Mountain will coax many of those 10 million or so monthly customers to treat it like a real business and actually spend money there. But that requires making a tough leap: after all, people who have found the proverbial free lunch may not be the kind of customers who dig deep into their pockets. They may, in fact, be the kind who are likely to tune out any commercial messages.

That's clearly not a theory that Schutz buys. Over the past couple of years he began putting together what may have been the boldest plan yet for making money in the new world of E-commerce. But he could go only so far on the company's limited resources. So on October 25 Blue Mountain agreed to sell its Web site to Excite@Home. The Internet portal company plans to broaden the Web site's E-commerce offerings. "The person sending a card should be given the opportunity to engage in a commercial activity," reasons Mark Stevens, executive VP of corporate and business development at Excite@Home.

Then again, it's too early to tell how customers have reacted to the presence of any E-commerce at all. "This is risky," says consultant Peter S. Cohan, author of Net Profit: How to Invest and Compete in the Real World of Internet Business. "I have a feeling that people using the site would react negatively to any commercialization. There's a purity to it now, a sharing of emotions with each other. If they try to turn it into a business and the values of the business are not consistent with the values that got them there, that's the biggest risk. They'll just be another E-commerce site that's trying to make money."

Even before selling out to Excite -- in a deal valued at $780 million in cash and stock -- Schutz says he found it "bizarre" that the company could be worth so much. Others agree. "The purchase price seems fairly extraordinary for a business that has little revenue," confirms Ken Cassar, an electronic-commerce analyst at Jupiter Communications, the Internet consulting firm. "But it's an appealing acquisition for Excite, which values traffic."

The interest from investors began with the cards themselves. On the same day in May that Schutz was meeting with the investment banker, Faith Gowan was creating one of those free electronic greeting cards -- for Bankers' Day, no less. Gowan, an art director for the Blue Mountain Web site, is one of 18 or so artists who work on the site. "I put up a few new cards each day," says Gowan, who works in a studio in downtown Boulder.