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When American Greetings started charging for online greeting cards in late 2001, we got a number of unhappy e-mails. One read: “I’ll never buy another Hallmark card.” We were, of course, pleased at the prospect of taking business from our major competitor, but the emotions in this and other e-mails made for a delicate issue. How could we—and the many other companies attempting the same thing—get customers accustomed to paying for greeting cards and other types of electronic products and services available online? Would the communicative gentleman who once e-mailed 15,000 of our free greeting cards in a single year actually be willing to pay? After all, we all spent years conditioning Internet users to expect almost all kinds of information free. Early on, people even said the very ethic of the Internet was that information yearns to be free. The short answer is that we successfully switched to a paid model because we had to. The consensus in the late 1990s was that the game was to capture as many eyeballs as possible, then figure out later how to make money from those users. But the main means for turning a nonpaying audience into revenue is advertising, and online ad revenue has dried up over the past two years. Unless we could get people to pay for cards, we wouldn’t be able to generate profits and cash from our Web sites—which are americangreetings.com, bluemountain.com, and egreetings.com—and wouldn’t be able to continue developing the Internet’s capabilities as a means for what we in the industry call social expressions. The long answer is that customers value the ability to send social expressions electronically and that we put a huge amount of effort into getting the details right when we were preparing to make the switch. Because we got it right, we have had nearly 1.5 million people sign up for annual subscriptions, at $11.95 each. By comparison, Maxim, the fastest-growing print magazine, took two years to increase its circulation to about 1.4 million readers. Our online business is both profitable and cash-flow positive. Here is how we made the switch: SETTING THE STAGE. Before starting to charge for greeting cards, we primed the pump by trying to boost traffic as high as possible, to increase the number of customers who might convert to paid subscriptions. We made several acquisitions, including bluemountain.com, which boasted a large and loyal customer base. Our timing was good: Because of the dot-com stock-market crash, we had to pay just $35 million in 2001 to buy Blue Mountain from Excite@Home, which had purchased the company a couple of years earlier for $980 million in cash and stock. In addition, we lined up critical business partners. We struck deals with MSN (www.msn.com) and America Online Inc. (www.aol.com), for instance, so that when the customers of these Internet service providers wanted to use greetings, they would get us. In addition, the partnerships allow us the possibility of extending alternative billing options such as charging customers as a part of their general ISP bill. DECIDING WHAT IS FREE. We decided that not everything had to carry a price. Giving away certain cards would keep drawing new people to our site and provide us a chance to convert them into paying subscribers later. Of course, we didn’t want to give away more than we had to. We had two main options. We could charge for the best cards—“best” meaning the most popular—while leaving less-popular cards free, or our charges could be based on category. For instance, we might charge for birthday cards but not for everyday cards with simple sentiments such as, “Thinking of you.” Our research showed that it was too hard to sell an online user on the value of a particular card—90% of customers don’t even go looking beyond the first page of cards. So we decided to sell subscriptions on the basis of “need to have” rather than “nice to have.” “Nice to have” is an especially good “Thinking of you” card. “Need to have” is an anniversary card that a husband e-mails his wife after he wakes up at 2 a.m. on their anniversary and realizes he forgot to buy her a card. Based on our distinction, customers pay for holiday greetings and cards for special occasions such as birthdays and anniversaries. Everyday cards still are available free. TIMING IT RIGHT. In the social-expressions industry, the end of the year clearly was the right time to launch. People send a phenomenal number of cards during the Christmas holiday season. In addition, we guessed that customers going to free sites for cards would find that those sites couldn’t handle the volume of traffic. We were right: Many free sites were down for days. During December 2001 alone, we picked up about a half million subscribers. PRICING IT RIGHT. Research showed that the optimal price was $11.95 a year. A lower price compromised people’s perception of quality, while a higher price would have kept too many people away. We chose to have subscriptions last one year. That way, customers don’t have to bother with making multiple payments, and, when the year is up, the birthday or holiday that got them to sign up in the first place is approaching again. We expect much of the growth in the greeting-card industry will come from electronic greeting cards. During the past six years, in fact, sales of paper greeting cards have remained stable—500 million cards a month—while online communications have increased to 100 million cards a month from essentially nothing. All the more reason for making the online business profitable now.
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