Lessons from the Web's lone wolves
Two privately-held companies, Xoom and Blue Mountain Arts, are poised to teach the giants a thing or two about new avenues in Web commerce.
Each company is finding new ways to make money by offering surfers popular services for free. And that may help Xoom, at least, soon join the ranks of publicly-held Internet giants.
IPO ambition
According to a source close to the company, who asked not
to be named, this San Francisco-based company appears poised
to soon, possibly Friday, file for an initial public offering of stock.
Xoom is already working with investment banks, the source added.
A spokesman for the company all but confirmed this by disclosing that neither he nor company officials could comment for this story because Xoom was in a "quiet period," an event that generally accompanies new stock offerings and earnings announcements.
So what does this potential new entrant to the sizzling "Internet stock" category do?
Offer a collection of popular free Web services that surfers can only use if they give Xoom a name and e-mail address. Call it "spam-lite." Xoom's goal is to make most of its money by e-mailing product pitches to those who register. That makes it a direct marketing company, much like Publishers Clearinghouse, except that Xoom does all the work online, and asks your permission before mailing a pitch.
The free features on the Xoom.com site include:
A free personal Web-page with up to 11 megabytes of space.
Like other similar homesteading areas at Tripod and Geocities,
home pages are organized by area of interest (hobbies, religion,
sports, etc.)
Online chat, including the ability to set up a personal chat
service on your personal home page.
A database of thousands of clip art images you can copy and
paste onto other documents.
A database of movies you can play online. (Mostly older
movies, like the 1940 classic 'Killer Bats,' starring Bela
Lugosi.)
Free online greeting cards and free Web-based e-mail.
Surfers are flocking. Media Metrix ranked Xoom the 20th most popular Web site in June, with visits from 7.1 percent of home-based surfers. Xoom says it has more than 2.4 million members, and is adding more than 22,000 per day. Revenues? According to a company overview circulated to potential investors earlier this year, roughly $2 million from January to May.
Will the IPO work?
Hard to say whether the IPO will work, until a filing is made. But
veteran Wall Streeters told me the company has a good
reputation.
A couple of key notes:
Xoom claims to receive 65 percent of its sales from
"e-commerce." But these are a different breed from other
e-commerce sites. Rather than offering all of the products in a
single category, like an Amazom.com, or taking in commissions
from sales referrals (a common feature of big e-commerce deals
at Yahoo, America Online and other top sites), Xoom aims to
directly sell items from its own inventory. The company plans to
test market items to members before buying them in order to
limit inventory risk.
The company's top-seller so far has been clip art
CD-ROMs featuring images 38-year-old co-founder and CEO
Laurent Massa gathered in an earlier venture. The company has
also sold modems and Web page utilities.
While Xoom accepts advertising, it does not put ads
on personal home pages, distinguishing it from top homepage
area Geocities, which has been criticized by some surfers for
that commercialization of their personal space.
Xoom's chairman is Chris Kitze, a
39-year-old former Lycos executive who started Point
Communications, the company that did the cheeky but
widespread "Top 5%" Web site plugs.
Gratis greetings
Blue Mountain Arts, a privately-held greeting card
company based in Boulder, Colo., has a much softer sell -- free
online greeting cards for birthdays, Christmas, Hannukah, and
even goofy events like Brothers and Sisters Day.
It's Web site, www.bluemountainarts.com, is the most visited on the Internet for free greeting cards and one of the top traffic-getters overall, ranking 14th in Media Metrix's June ranking, with visits from 8.1 percent of home-based surfers.
Meanwhile, industry giants Hallmark and American Greetings don't even crack the top 25 list.
At first, the husband and wife illustrator and writer team of Steven Schutz and Susan Polis Schutz didn't know how to position their 27-year-old company for the Web. They launched a Web site three years ago, figuring they could use it to sell their paper greeting cards. But that fizzled, according to the Schutz' son 23-year old Jared, who helps oversee the Web site as Blue Mountain's business development director.
So two years ago, Blue Mountain began offering free electronic cards on the site, and the concept caught on, prompting Hallmark and American Greetings to counter with their own offerings. But even now, one top Internet researcher, who asked not to be named for fear of alienating clients, says he prefers Blue Mountain's design. "I have the singular impression that they are easier to use," he says.
The payoff for Blue Mountain? Nothing obvious. You can't actually buy anything on the Blue Mountain site, since the company no longer sells paper greeting cards online. Nor does Blue Mountain accept online advertising.
Instead, Jared Schutz says the site is great for marketing -- millions of people see samples of Blue Mountain's work, making them more likely to buy Blue Mountain cards in stores.
"We've had substantial [sales] increases this year and last year, and we think part of that is because of our Web site," Schutz says.
Schutz would not disclose sales. But he maintains that they were up more than 15 percent each of the past two years, while the industry has been growing in the low single digits.
"It's really helped Blue Mountain Arts become a household name in greeting cards," he says.