Excite@Home buys online greeting card site for $780 million

Blue Mountain is the 14th most-trafficked Web property, according to research firm Media Metrix. It also ranks third among e-commerce sites, behind Amazon.com and eBay. With the holiday season just around the corner, Excite@Home said it would make an additional payment of up to $270 million in stock contingent upon Blue Mountain reaching traffic and other performances goals.

The two companies said the demographics of Blue Mountain users are consistent with those of people who subscribe to residential broadband services, adding that broadband is ideal for Blue Mountain's interactive greeting cards and e-commerce offerings. The companies said their users tend to be older, more experienced, and heavy home Net users.

The acquisition comes amid mounting competition in the online greeting card market. Another player, Egreetings, filed for an initial public offering earlier this month. Meanwhile, as traffic has flattened or dropped off lately among the portals, the sites are always looking for ways to differentiate themselves.

Under the terms of the agreement, Excite@Home will issue about 11 million shares, worth about $430 million, and $350 million in cash. The company said it also will assume all outstanding employee options. The transaction is expected to close before the end of the year.

Excite@Home said it expects this acquisition to create e-commerce opportunities with every greeting card sent, while attracting many of Blue Mountain's 9 million unique monthly visitors to subscribe to Excite@Home's consumer broadband service.

Blue Mountain said it services more than 1 million transactions per day relating to gift-giving events. Its online greeting cards are free.

But some analysts anticipate a rocky transition for Blue Mountain, which up to now has cultivated a folksy, grassroots image. The company's image, many say, has helped it hold onto its lead as AOL, Amazon, and others have entered the greeting card market. A change from the firm's homespun image into a commercial center could turn off some users.

"It is a critical juncture for Blue Mountain," said Drew Ianni, senior analyst at Jupiter Communications. "Excite@Home does have to be careful and not over-commercialize the site, nor can they be too aggressive in trying to pitch Blue Mountain users with other services."

Ianni said the site has been successful not only because it is free, but also because the company did not try to push related services on its users. Excite@Home said it plans to capitalize on the traffic to the site by enhancing e-commerce throughout Blue Mountain, giving users the opportunity to send gifts when they are sending free greeting cards.

Excite@Home, however, said it will handle the transition smoothly, with attention to the concerns of Blue Mountain users.

"We absolutely intend to preserve the [Blue Mountain] brand," said Excite@Home president George Bell in a telephone conference call today. "We think it is an enormously powerful one--built of the back of a zero marketing and zero distribution budget."

Bell added: "A very important part of what we bought today is the ability to continue to grow and leverage that brand online."

Despite the eventual effects of the deal, some analysts say it was meant to be.

"I think that it was inevitable that Blue Mountain would find a home within a larger portal environment," said Andrea Williams, an analyst at E*Offerings. "They can bring their traffic into an environment where revenues can be generated."

Williams noted that many free services have had viral popularity--that is, they have grown with little or no marketing--but have had a difficult time generating revenues from that popularity until becoming part of a larger site.

"I think the concept is workable within a more heavily trafficked environment," she said, pointing to the several other examples, including AOL's ICQ instant messaging service and Yahoo's GeoCities home page building service.

Excite@Home said the acquisition stands to bring wider reach to its narrowband portal Excite.com and a chance to generate revenue from significant new page views.

"For Excite@Home, this acquisition promises to be a significant platform for future growth in both narrow and broadband content to generate increases in registered users, @Home broadband subscribers, and revenue," Bell said in a statement.

Separately, Excite@Home said it entered into distribution agreements with Internet florist Proflowers.com, Dan's Chocolates--a former Bluemountain subsidiary--and Lucidity. The three companies have agreed to pay Excite@Home a combined minimum of $34 million in advertising fees over a period of three years.