Yes, AmericanGreetings.com had a very happy Valentines Day, thank you. On one of the Web's hottest holidays, the egreetings publisher received over 70,000 love notes all in its favorite color, subscription-dollar green. But this was just another day in the life of a site that shocked the Web industry in early 2002 by announcing it had attracted over 1 million paid subscribers in the three months since it started charging for electronic greeting cards. After all the noggin scratching over "what users will pay for," who knew they would ante up for ecards? Go figure.
In fact, AmericanGreetings.com's (AG) success is the sum total of careful business calculations, plus a century of card-making expertise, plus a seven-year journey through various Web content business models. Online via AOL since 1995 and then from the Web as well in 1996, the company started with the same fee-based model as its offline parent, American Greetings. On the advice of AOL, the site responded to growing competition from free card venues by dropping much of its subscription wall in January 2000 and relying on ad sales.
"That fueled tremendous traffic growth, and when times were good it was a nice business," says president Charlie Fink, who came to the company after stints in Hollywood and at AOL. Indeed, the site became profitable in the third quarter 2001, almost entirely on ad sales, yet executives opted to go to a hybrid free/fee model in December because "the handwriting was on the wall," as Fink puts it. "Advertising was a cyclical business and was not in the long term going to provide the kind of margins that our investors and employees needed to be a growing and thriving concern."
Charging users in a category flush with free alternatives should have been a classic recipe for dotcom disaster. The company could well have been on the receiving end of sympathy ecards from its major no-fee competitors Yahoo! Greetings, Hallmark, and FlowGo. Even Fink admits he was among those who feared that "subscriptions might not work and that we would be beating a hasty retreat in the spring by offering much more free content."
It's A Conversion Business Now
Before dropping the tollgate, AG made the wise move of buying substantial market share throughout 2001 by acquiring competitors egreetings and the granddaddy of Web ecard brands, Blue Mountain Arts. The plan was to maintain a healthy amount of free content within the network, especially non-obligatory holiday cards and pass-around jokes, but put the more cherished must-send greetings behind a low ($11.95 a year) subscription wall. While each is aimed at different audience segments, AmericanGreetings.com, Egreetings.com, and BlueMountain.com now share the same blended free and fee model.
Most brick-and-mortar card buyers understand that the nominal fee amounted to three or four real-world card purchases. When the new model rolled out in December, the company had secured massive reach, 24 million unique users the previous month. This, says Fink, is the real key to making a hybrid model work. The site requires sustainable volume to maintain an ad inventory, but also convert a viable number of visitors to paying subscribers.
"The first week we were absolutely ecstatic," as massive and unexpected numbers of regular users opted in, says Fink. "The second week we started to see real resistance," as conversions dipped to around 15,000 sub sales a day until Christmas week. AG executives held their collective breath as Valentine's Day approached, traditionally one of the Web's most lucrative quasi-holidays and a true test of users' willingness to pay up when they really needed to send that card to a loved one...or else. "It went through the roof," says Fink. "We really exceeded expectations and turned the corner." Within weeks, paid subs passed 1 million, with no signs of market saturation. Fink expects several million to be on his rolls by year's end and perhaps another few million the following year.
Getting online subscriptions is a simple numbers games, Fink insists. "We are in the very unglamorous business of converting people 500 and 1,000 at a time." With a 1% to 3% conversion rate of incoming traffic, it is critical that AmericanGreetings. com's sites keep those potential customers coming. Two of the Web's great eyeball funnels help AG maintain the massive volume necessary to achieve the necessary conversions: original partner AOL, which once housed all of the company content in the mid-1990s, and MSN, a partnership that came with AG's purchase of Egreetings last year. But it is the Blue Mountain Arts site that has tremendous brand recognition among digital card senders and remains one of the surprising mainstays of the AG system.
Transforming Want Into Need
Until recently, the Web offered few examples of successful shifts from free to paid models. However, a couple of big, recognizable brands have begun to experience success selling online content because they either help users make money (WSJ.com with over 600,000 subscribers) or save money (ConsumerReports.org with over 800,000).
AmericanGreetings.com represents another tier of lesser-known winners in the fee-based model sweepstakes, among them alumni network Classmates.com (over 2 million paid users), genealogy resource Ancestry.com (over 665,000 subs), and online personals providers like Match.com (300,000+). These content services connect users with one another, and they make their sale at just that point when a visitor's desire to contact another becomes a compelling need. "Communication is the killer app," says Fink. "People will pay for that because that is where the real value of the Internet lies."
Selling the ecard concept is not a matter of wearing down users visit by visit by giving them limited free access, but with the threat of hitting an ever-present subscription wall. Nor is it a matter of persuading them about the value of an annual subscription to one of the most respected archives of greeting card content available—although all of that helps. AG users buy once their want becomes a need, when they hit an obligatory holiday and haven't remembered to send a card or when they find a card that says exactly what they want to say.
"From all of our marketing efforts, the one that's getting the best conversion is when the person gets to picking out the card they want to send and they hit that 'Click Here to Order Now' button," says Schneider. In fact, AG divides it inventory into obligatory cards (birthdays, anniversaries, etc.) for which users pay and non-obligatory holiday greetings that remain free. The idea is to keep you coming back until just that moment when you must buy something. "You have to be needed on some level to charge users," says Fink.
While tiered subscriptions and variable pricing models may work with other types of content, AG found that a single, uncomplicated offer was right for this niche. The company surveyed 5,000 users about their response to a fee-based system, and "all of our research said that at this point—simple, simple, simple," says Fink. "Consumers are really able to absorb one clear message at a time."
The secret of AG's success, being there with the right content at a user's moment of immediate need, could also be the source of future trouble, proving to the user the long-term value of the service when renewal time rolls around. Of course, only time—and Valentine's Day 2003—will tell. Fink is sanguine because subscribers generally have been extremely active in the system after they pay for that one critical card.
But AG's real ace in the hole, its killer retention app, could be the Family Plan. New subscribers actually get three accounts,two of which can be handed over to friends and relatives. In this truly inspired example of true Web marketing, AG has woven its business model into the P2P appeal of ecards by tying one person's subscription to another's. When the primary subscriber cancels or fails to renew, all the attached accounts go dead as well. The company is hoping that for the low price of $11.95, a paying subscriber will think twice or thrice at renewal time before cutting off Aunt Lucy's "free" ecard account. But even if the primary subscriber does decide not to re-up, AG figures that it can turn around and sell Aunt Lucy her own account.
Blended for Success
For all of his quick subscription-selling success, Fink believes that the Web must follow the same business model that fuels magazines and cable TV: a hybrid of user fees and ad revenues. While the introduction of the subscription model in December affected a drop in overall network traffic from 24 million unique users to about 18 million, Fink expects his ad inventory to remain robust enough to account for half or more of company revenue this year. Once subscriptions pass a tipping point of about 2 million to 3 million, he expects user fees to be the majority of income.
AmericanGreetings.com could be an important test case for the online content business generally, especially as we watch competitors respond to its success. With all of that reach and aggregated brand recognition, it raises an interesting question: is it possible for a major brand to unilaterally decide to move to a fee-based model and get the rest of the industry to follow along.
Not likely, say some of Fink's competitors. "eUniverse [FlowGo.com] has been profitable for a year under the ad model," says president Shawn Gold. His users are coming for entertainment, on the whole, for which they are willing to trade their personal information. He sees no reason to abandon the database-driven, direct marketing model that has made his company an enviable success. As for that other big card brand, it claims to be skimming off the many non-paying customers Fink is turning away. "We saw an enormous jump in traffic and revenue when our competitors jumped to this model," says Hallmark spokesperson Cathi Mishek. Her company regards free ecards as a marketing tool for the ecommerce gift shop where it sees substantial revenues, so don't expect to see a subscription wall anytime soon, she says. More to the point is "how you define success," she warns about the perennial arch-rival. "I would be very careful and look at what their books are really saying when it comes to the definition of success."
Fink thinks that the economics are in his favor and that it is only a matter of time and mounting losses before his rivals also bring down a subscription wall. "I'm telling you I would be surprised if a year from now Yahoo! Mail is still free. I just don't think that is a sustainable business."