The animated bankers' card was a simple design. Dale Beisel, a staff artist in Sausalito, Calif., had drawn images of a banker, some with arms bent, some with arms outstretched, and all with dollar bills flying overhead. When the images were scanned into a computer, the series of pictures showed the banker jubilantly throwing money into the air -- which, of course, a banker never does, except when E-commerce is involved.
Gowan chose a clip of music to accompany the animation and combined it with a program that enables customers to customize the card -- they can choose either a male or a female banker, for instance -- and write a sensitive message. (Such as, "Thanks for calling the loan, bozo. You've forced me out of business. See you in court.") Once a customer chooses the card and types in a recipient's E-mail address, the card is stored on a computer at Blue Mountain Arts. An E-mail note then is sent to the recipient notifying him or her that a card waits at Blue Mountain. By clicking on a link, the banker is connected to the Blue Mountain Web site and picks up the card. Once there, he or she can write a personal message on a return card. (Such as, "I give you my personal assurance that foreclosure on your house will be carried out in a most respectful way.")
Because of the way Blue Mountain designed its site, each card produces a new customer in the recipient, and awareness of the Blue Mountain site thereby spreads quickly -- a concept known as "viral marketing." Before it was acquired, the on-line operation was subsidized by the company's line of printed cards, which got its start in the early 1970s. Back then Jared's parents, Stephen and Susan Polis Schutz, a pair of '60s flower children, produced posters and cards in their Boulder home. Stephen drew pastel airbrushed landscapes that framed Susan's free verse about love and friendship. The all-occasion Blue Mountain cards secured a new niche in a market filled with cards written for specific events such as birthdays, anniversaries, and holidays. With sales now amounting to about $60 million, Blue Mountain owns perhaps 1% of a market dominated by Hallmark, American Greetings, and Gibson Greetings.
It was Jared who expanded Blue Mountain's domain to the Internet. As an undergraduate at Princeton University, he started two Internet companies and sat on the board of a third. One of his two start-ups, American Information Systems, an Internet service provider in the Chicago area, attracted about 15,000 subscribers. He and his partners sold it last February, with Schutz taking 25% of the $21-million selling price.
In September 1996, Jared put Blue Mountain's Web site on-line with half a dozen free electronic greetings. "We didn't know we were launching an Internet company," he says. "We were just offering a service that would be fun and would help build our brand of printed cards. Only three years later we had one of the most-visited sites, but it was serendipitous."
While companies in the brick-and-mortar economy cling to the archaic notion that they should charge for their products or services, freebies are an accepted norm in cybercommerce. There's a certain logic behind the giveaways, which include such services as E-mail, Internet faxing, and digital publications. "The hope in E-commerce is to exploit the economies of scale," says Hal Varian, dean of the School of Information Management and Systems at the University of California at Berkeley. "There's a fixed cost to set up a system and then a very low cost to add each customer after that. Also, E-commerce is a new way of buying and selling for most people. Promotions help get people to try a product or service."
Last, and perhaps most important, is the perceived advantage gained by being the first to attract customers. "There is a belief, correct or not, that people will stay with the merchant they try first and get good service from," says Varian.
Maybe so, but there's no proven business model for converting eager freeloaders into eager paying customers. That leaves companies like Blue Mountain facing outsized risks, walking on the high wire of capitalism's odd new three-ring circus -- with no net underneath them.
Schutz's most important lesson in E-commerce came shortly after he began toying with the Blue Mountain site. In February 1997, Dan Cunningham, a Princeton classmate, opened a sporting-goods site called Sportscape.com. About six months later Schutz signed on as a director of Cunningham's company.
"We were selling other people's brands," says Schutz. "There were no margins in it."
On the Web, consumers can find the lowest price on any item with just a few clicks of the mouse -- there are even sites, known as shopping bots, that perform that task for bargain hunters (at no charge, naturally). For Schutz the lesson of Sportscape.com, which Cunningham sold in November 1998, was plain enough. "You have to brand your own stuff," he says.
That insight sent Schutz running in a different direction from the one taken by most other sites. The conventional Web-business model looks somewhat like that of a print publication. A site presents some type of content -- news, entertainment, or, in the case of Blue Mountain, electronic greetings -- that attracts a large number of people. Then it sells space on the site to advertisers that want exposure to that audience. In addition, content sites also form affiliations with on-line retailers. By embedding icons on their pages, affiliates encourage their customers to click through to the sites of various retailers selling books, videos, airline tickets, and other products. The affiliates usually take a 5% to 12% cut of the purchase price as a fee for the referral. But to Schutz, ads and affiliations by themselves looked like a dead end.
