by Tony Fannin, president, BE Branded
It’s been very interesting to me seeing a flood of .com companies advertising on TV. Everyone from Google to Etrade to ServiceMagic. To me, these are signs that the online companies are understanding what it takes to not only run profitable business, but to increase and drive sales to new groups of customers. Of course, there are exceptions to every guideline. Amazon is one of those examples. Another trend that is bearing out is that the “brick and mortar” may not be dead, but it may become the edge for a .com business. Here is a category example that I’ve just recently ran across.
The Gift-card industry – There are some opportunistic entrepreneurs who have created a business around the unused and unredeemed gift cards that we all have lying around. The web sites and business models are very interesting and innovative. Almost all are exclusively an online business. Out of the 4 examples, there is only one that is profitable and that one has a traditional “brick and mortar” presence along with its online store.
GiftZip.com (started in June of 2009) – This site allows shoppers to choose a merchant “card”. They receive an e-card via email which can be used at the selected merchant. The company makes money by receiving a percentage from merchants whos cards have been sold through GiftZip.com. Profitability: The founders hope to break even by next year.
PlasticJungle.com (started in 2006)– In essence, this is a trading site. Customers can buy, sell, or trade their gift cards. Their real money maker is buying cards at 65%-85% of face value from customers and then reselling them at a profit. Profitability: It has seen growth of 60% in the last quarter, but has yet to turn a profit in 3 years.
SharedProgress.com (started in 2005)– There are three web sites within this program. GiftCardBuyback.com buys cards from customers at 64%-83% of face value. GiftCardsAgain.com resells the gift cards at a 3%-20% discount. GiftCardDoner.com accepts cards from nonprofit groups and the charities get 70% of revenue. Profitability: The business almost breaks even which is what the founders wanted it to do in the first place.
Swapagift.com (started in 2003) – This company allows consumers to mail in or take their gift cards to one of 600 kiosks and swap them for a different gift card. The buy back rates depend on popularity. This is one of the few who have separated themselves in the Gift Card industry by having a brick and mortar presence along with their web site store front. Profitability: Has seen 200% annual growth since launch. Bought out in 2008 for an undisclosed sum.
LeverageCard.com (started in 2007) – You can buy or swap gift cards and earn a 1% APR on cards from the merchants. First you register your cards online. This allows you to redeem your cards, even if you lose them. The merchant cards you register qualifies you for interest payments from that store. Profitability: Has yet to break even and is still in “start-up” mode in the opinion of the founders.
What does this industry example mean? To me, it shows how much more powerful a brand and business can be if it reaches beyond cyberspace. Whether you have a brick and mortar presence or market and advertise in other media besides the web, some .com businesses are realizing we still live in a physical world and that people still like to touch, feel, and see what they are buying. Even if it is just gift cards. I had a narrow minded colleague say that there will no longer be a need for sales training in 3 to 5 years because all sales will be done online and you don’t need sales people for that. It was very naive statement, but unfortunately, too many .com businesses believe that in their heart. As for me, give me a top-flight sales team over a web-only business with no sales people any day. A solid web business that leverages ALL of the marketing and advertising tools, combined with a great sales team and a brick a mortar presence is a hard company to beat.