Internet advertising, although it's growing quickly, is relatively small at this point. This year $3.2 billion will be spent on on-line ads, and on-line ad revenues are projected to grow to $11.5 billion in 2003. But "80% of the on-line-ad inventory goes unsold," notes Jupiter's Cassar. Furthermore, some recent studies have shown that Internet advertising is generally ineffective; new software may even enable users to block ads from their computer screens.
Affiliations may be more promising, but referrals to the most popular commercial sites like Amazon.com are so plentiful that consumers may well become inured to them. It's unclear how successful ads are in getting visitors to click through to partners' sites and make a purchase. And the more upscale the affiliate, the more difficult it generally is for a site like Blue Mountain's to gain generous referral fees from it. "You have to look at the details of each deal," says Berkeley's Varian. "But when you partner with a strong brand, you get less favorable terms."
Schutz put a limited amount of advertising on the Blue Mountain site this year. Instead, he pursued a much more daring strategy: launching new companies, each one producing a branded product aimed at appealing to Blue Mountain's customers. Doing so, he figured, would give Blue Mountain the opportunity to make bigger profit margins on the sales -- and to build equity in a successful brand name. "If you buy books, you can buy the same book at Barnes & Noble or Amazon.com. But this is a brand strategy," Schutz explains. "We looked at brandable, high-margin goods."
Fortunately for Schutz, deciding which goods to offer wasn't a matter of utter guesswork. Even without asking for any personal information about his customers -- a practice followed by many sites, including competitor Egreetings Network -- Schutz gained valuable insights by seeing which particular cards visitors sent. "Cards provide very meaningful information," he says. "It's about the mind-set of the person, rather than about the person. It's the same mind-set involved in sending a greeting card that's involved in sending a gift. Everyone who comes to the site is engaged in an event-oriented communication with a loved one."
With 2,000 cards to choose from, customers can reveal something important about themselves, giving Blue Mountain the opportunity to make an appropriate offer. Although the Blue Mountain site hasn't done so, the possibilities for highly targeted sales pitches are legion. If, for example, a customer sends a Bastille Day card to a friend in Paris, perhaps either or both of them might be interested in a special phone rate or a discounted airline ticket between the two countries. Such an ad could pop up as soon as the card is sent. Customers exchanging cards for a holiday such as Passover might want to buy special holiday foods, or a person sending a birthday card to a grandchild might buy calcium and vitamin supplements.
But a much bigger opportunity likely lies in selling traditional gifts related to card giving. Customers who come to the Blue Mountain site to send a card may be celebrating an occasion that also calls for a gift. Therefore, Schutz figured, customers might appreciate the convenience of taking care of a special occasion with a few mouse clicks. Which gift offer, for instance, might attract the attention of a man sending an electronic birthday greeting to his girlfriend? "After the card is sent, there's an opportunity to sell flowers," says Schutz. Which is why, he adds, "we've used the site as a launching pad for our own flower company."
Blue Mountain could have referred customers to many other flower sites, including those owned by industry giants 1-800-Flowers and FTD, but Schutz saw that there was money to be made in building his own brand. And so, in July 1998, Blue Mountain Arts launched Proflowers.com, a flower company in San Diego owned primarily by Jared Schutz and his parents. It has been taking orders over the Internet -- and enjoying its status as the only flower company with access to the millions of customers using the Blue Mountain site.
Exposure alone guarantees nothing, of course. Proflowers, though, draws attention to itself by undercutting other flower companies on price. Schutz followed the Staples business model of buying inventory right from the manufacturers. Because customers' orders are filled directly by the growers -- a system that eliminates wholesalers and local flower shops -- Schutz offers cut flowers and bouquets for about half the going rate of his big competitors. "We cut all the inefficiencies out," he says.
Schutz contracts with 10 flower farms in California to supply the new company. After Blue Mountain customers send an electronic greeting card, they receive an offer to buy flowers. Their order travels electronically to a computer at Proflowers, which verifies their credit-card information and then faxes the order, a gift message, and a FedEx label to the flower farm that has the inventory to fulfill the purchase. Schutz says that the flowers are cut just a few days before they are delivered overnight in a box, still in a bud state, making them fresher by far than flowers purchased from a shop.
