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Companies find best wishes in e-cards

Electronic greeting cards are free, unprofitable, and may seem impersonal, but that hasn't stopped them from becoming one of the hottest commodities in e-commerce nowadays.

Electronic greeting cards are free, unprofitable, and may seem impersonal, but that hasn't stopped them from becoming one of the hottest commodities in e-commerce nowadays.

Just last week, Excite@Home bought privately held Blue Mountain Arts, the leading greeting card site, for a surprisingly large sum--$780 million in cash and stock.

At the same time, two of the industry's biggest players--Egreetings and planning to go public, having recently filed for multimillion-dollar IPOs. could go public as early as this week.

In addition, executives of giant greeting card companies, including ones from Hallmark, are jumping ship for Internet greeting card companies--just as in other industries.

E-cards have become popular because they are an effective way to generate traffic and acquire new customers, said Jared Schutz, executive director of Blue Mountain's online site. Although Excite@Home ended up with Blue Mountain, big players such as venture group CMGI and online toy store eToys were rumored to be interested in the company.

"All the major sites realize that greeting cards are important to their overall strategy," Schutz said. "The e-card space is a proven traffic generator."

Virtual cards, which companies such as Blue Mountain and Egreetings offer on their Web sites, typically are animated and include music. A card sender selects a card and types a message, then the e-greeting provider notifies the card's recipient via email to fetch the card at a special Web address.

Like paper greeting cards, the sites offer e-cards for all occasions; however, unlike paper ones, these are offered for free.

This can be a costly business. Egreetings, for example, lost $12.3 million during the first six months of this year on only $724,000 in revenue, according to regulatory filings. Although the company initially charged fees for its electronic cards, it changed course last year to offer free cards, supporting itself through advertising and other product sales.

Despite the new focus, the company projects continued losses for the "foreseeable future," according to the filing. "Our new business model is largely untested, and we cannot be sure that it will yield the results that we expect," Egreetings said. "Because the Internet is constantly changing, we may need to change our business model again to adapt to those changes."

And although Media Metrics has consistently ranked Blue Mountain as one of the top e-commerce sites in terms of traffic, its revenue has been negligible.

Gomez Advisors e-commerce analyst Hank Hudepohl said he doubts that these companies or any others will be able to charge for e-cards. "I don't see Hallmark creating a card that people will pay for when other people will give it away for free," Hudepohl said.

Companies such as see the cards as marketing tools. They use the cards to lure new consumers to their sites, where they can sell other products such as books, music, or gifts.

"For Amazon, the e-cards are a great way to generate traffic and to bring customers to the Amazon stores," said Eric Broussard, the company's general manager for e-cards.

Although the cards are popular, they have limitations, according to some observers. Sending someone a paper card through the mail still carries more meaning than emailing someone an e-card, said chief executive Felicia Lindau.

"There is nothing that will take the place of a tangible card," she said.