BW Online | January 16, 2001 | The Star Power That Got Flooz Flying

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JANUARY 16, 2001

COMPANY CLOSEUP
By Faith Keenan

The Star Power That Got Flooz Flying
Whoopi Goldberg helped turn the online gift certificates into a brand. Now can Flooz keep the momentum going?

Whoopi Goldberg: Flooz pitchwoman

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A hug from a CEO is the kind of employee contact that can land an executive a serious lawsuit these days. At Flooz.com, though, there was good reason for CEO Robert Levitan to embrace his corporate counsel as she finished work on the last business day of 2000. The team had just closed a new round of financing, pulling in $8 million and bringing total venture-capital funding to $43 million.

Not much, you say? Levitan begs to differ. The injection from original backers such as Oak Investment Partners of Westport, Conn., and Maveron LLC of Seattle is more than enough to carry Flooz through June, Levitan says. By then, he predicts, the gift-currency site will be earning more money than it spends and will become a self-sustaining business.

MOROCCAN SLANG. The survival of a site with a weird name (it's an ancient Persian word that has become Moroccan slang for cash) and a stranger business model owes much to Whoopi Goldberg. The irreverent Hollywood actress has helped Flooz build a brand image with TV and print ads pushing viewers to "choose your own damn gift." Says a grateful Levitan: "Without Whoopi and the word 'Flooz,' we might not be here."

Identity has been a big issue from the startup's beginning in August, 1998. Levitan and co-founder Spencer Waxman, a college buddy, knew they wanted to use the Web to combine e-mail, gift giving, and online customer acquisition. But they didn't want their product to be known by a fuddy-duddy term such as "gift certificate" or "gift currency." Waxman had heard the word "flooz" in his travels and thought it would be a fitting moniker for the business.

Next, they figured they needed star power to promote it. "We had no brand equity. One way to quickly build it is to associate yourself with somebody," says Levitan, who was a co-founder of women's site iVillage in 1995. "We wanted Flooz to be just like Whoopi -- funny but smart. She's got attitude, but she's dignified." The star signed on in September, 1999, in exchange for cash and equity. She now owns less than 10% of Flooz, according to Levitan.

THE HARD-TO-SHOP-FOR. The image may be hip and the idea innovative. But Flooz is, in fact, an online gift currency, drab as that may sound. Someone who wants to send Flooz as a gift logs on to Flooz.com, designates the amount to be sent (careful, the default value is $50), types in the recipient's name and e-mail address, and if desired, attaches a personalized e-greeting. The sender pays by typing in a credit-card number. The recipient receives a Flooz e-mail instantly and can then shop online at nearly 70 online stores in 17 merchandise categories, including TowerRecords.com, Barnes & Noble.com, and jcrew.com. Flooz appears as a payment option at checkout.

Consumers aren't Flooz's only customers. Like other dot-coms, Flooz's business has evolved to rely more on corporate accounts than on consumers. Companies now contribute 65% of revenue, up from 10% a year ago, Levitan says. Verizon, Cox Communications, Cisco, and IBM are among the companies that offer Flooz as incentives for their sales teams.

Flooz promises something for everyone. Consumers get an easy way to send a gift to someone who might be hard to shop for, and that person can choose where to shop. Merchants stand to benefit from new customers. At TowerRecords.com, Flooz spenders make up 13% of its online shoppers. Of those, 80% are new to Tower, says Russ Eisenman, director of marketing for TowerRecords.com. And Flooz tries to stick to one merchant per product category -- so Tower won't have to worry about competing with Virgin for Flooz customers. "We think it's important to have fewer stores and make a bigger difference for them," Levitan says. "If we wanted to give everyone the ability to shop at any store, we'd give you a Visa or debit card."

"THRILLED." Corporations, for their part, have a paper-free way to provide incentives to their sales team. Flooz makes money from the merchants and corporate accounts, either as a small percentage of the sale, a customer acquisition fee, or a flat fee for corporate accounts (all corporate customers buy Flooz at an undisclosed discount). Levitan says the blended rate of all the fees comes out to more than 10% of Flooz's sales.

Flooz was an easy sell for Sara Dial, a consultant based in Phoenix. Dial saw the Whoopi TV commercials and decided to try Flooz in early December. She had just given birth and didn't think she'd be able to get out to shop. So, about 10 of her nieces, nephews, and cousins received Flooz for Christmas. "They're difficult to shop for, so that gave them options to choose from," Dial says. "They were thrilled. Flooz even provided a system where they could send thank-you notes." Those, too, were a first for Dial.

Christmas 2000 was merry for Flooz as well. In a season when many dot-coms failed to hit 1999 sales levels, the site saw sales rise 400%, albeit from a small base. Since Flooz is privately held, Levitan declined to release overall revenue figures.

CLOSEST COUSINS. If corporations are Flooz's flooz, the question is whether the company can sustain its momentum in a climate of corporate cost-cutting. Some analysts remain skeptical but say it's hard to judge how Flooz is doing because the company doesn't divulge hard numbers. "No news is not good news," says James Van Dyke, a senior analyst at Jupiter. Says Levitan: "We like our numbers."

Van Dyke acknowledges, though, that rewards could be huge for a company that creates virtual money that catches on. Plenty are trying, in different ways. Sites such as GiftCertificates.com and webcertificate.com are the closest cousins to Flooz. According to Jupiter Media Metrix, Flooz received more average monthly visitors -- 654,000 -- than both during the 13 months through November, 2000: 50% more than GiftCertificates and more than triple those of Webcertificate.

More distant relatives are sites such as beenz and MyPoints, direct-marketing and loyalty programs that give people "beenz" or points as they surf the Web. The points can be redeemed for gifts, and Flooz has deals with both that allow beenz and MyPoints to be converted to Flooz.

While Flooz has been busy cutting deals, it also has found ways to control expenses. It has kept its employee count at 85 and, unlike plenty of other dot-coms, hired professionals older than the 39-year-old Levitan to head finance and marketing. It has reduced advertising spending and also saved several million dollars when it nixed plans last year to expand in Britain.

SALES INCENTIVES. Corporate testimonials from big-name clients such as Verizon, IBM, and Cox could become Flooz's best marketing tool, Whoopi notwithstanding. Nancy Petralia, a former sales strategist at Verizon who's now starting her own online-consulting firm, bought nearly $500,000 of Flooz in early 2000 to use as incentives for sales agents. "I wanted something that would be unique and different. And because they were selling our Internet products, doing something related to the Internet was a fun thing to do," Petralia says.

Before Flooz, Verizon mainly used American Express gift certificates as perks. Petralia says she prefers Flooz because it's electronic, making the program a snap to run. She doesn't have to worry about losing valuable paper certificates, and Flooz is available in large denominations, of $1,000. AmEx' ceiling was $100, she says.

The next step for Flooz is to become more creative with corporate marketing, Levitan says. For instance, companies could help their employees save up Flooz in private accounts for a big-ticket purchase. Or they could use Flooz to promote products. Nestlé, for one, offers $5 of Flooz with a purchase of 10 Lean Cuisine meals. Buy 20, and you get $20 of Flooz. Merchants such as Tower try to draw more traffic by offering free shipping for selected Flooz corporate customers. "The push this year will not be just to expand corporate sales but develop new products for corporate clients," Levitan says.

Or, as Whoopi would say: Let people have their own bad taste.