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No crime to buy wine online
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March 24, 1999: 11:49 p.m. ET
Send.com gets financing support to develop network of local merchants
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SAN FRANCISCO (The Red Herring) - Send.com has raised $10 million from top-tier venture capitalists for a business model it developed to avoid breaking the law.
The virtual wine store, which is repositioning itself as a portal for upmarket gifts, partners with local bricks-and-mortar wine merchants to dodge laws that forbid shipping wine over state lines.
The site launched in November and sold enough wine over the holiday season to attract investment from major venture capital firms Greylock, Highland Capital Partners, Benchmark Capital and Charles River Ventures.
Send.com founder Mike Lannon said, "Successful Christmas sales fueled venture capital interest. It sealed the deal for us."
By partnering with local bricks-and-mortar stores, Send.com avoids storage and distribution costs, does not have to worry about running out of inventory and can guarantee speedy delivery.
But, unlike most e-commerce sites, Send.com charges customers a fee on top of the normal retail price, which means products are more expensive than if purchased at a corner market.
According to Jupiter Communications analyst Ken Cassar, this strategy would be a disaster in most e-commerce categories. Since Send.com is selling wines as gifts, however, it makes some sense.
"In a lot of other product categories, I'd say they were crazy, but online shoppers are much less price-sensitive when buying gifts," he says.
"E-commerce companies I have spoken to say people will pay a premium for last-minute service when purchasing a gift. The rules change when you factor guilt into the equation."
Guilt sells
According to Jupiter's 1999 Online Shopping Report, the market for online consumer specialty gifts is expected to reach $336 million this year. The more fragmented corporate gift market, which Send.com also hopes to serve, may be even larger.
Lannon said Send.com will target busy professionals who have little time to shop in bricks-and-mortar stores and are more concerned with speedy delivery, attractive packaging and quality products.
"We kind of backed into this business model, but I think it's going to work," Lannon said. "I never wanted to run a warehouse for trinkets and ashtrays."
He pointed to the success of selling flowers as gifts both online and over the telephone. "The average order of flowers is $50, even though you could buy the same bunch at the supermarket for $10."
The recent round of funding will allow the startup to expand from wine into other products that can be packaged and delivered as upscale gifts. Lannon is not saying which products Send.com will sell, but plans to launch the service in time for the 1999 holiday season.
An Internet holiday shopping study conducted by ZDNet projects that 24 million people will buy gifts online in 1999, compared to 7.8 million last year. The value of online shopping is also expected to ramp up from $4.1 billion to $13.7 billion.
Sniffing the future
Lannon has had a good time establishing the business. He spent 1996 touring the country tasting wines, to determine what consumers were looking for. "We were not operating in Internet time at that stage," he says.
In 1997 the company was established and a network of small, independent wine merchants developed to sell bottles of wine as gifts via the telephone.
Lannon finally got the Internet early last year. He purchased the Send.com address for $20,000 from someone who was not using the site for business purposes and reinvented the startup as a Web-based business.
The founder says he does not compete against other Internet wine sellers -- most of which he accuses of doing business illegally -- but on- and off-line gift vendors such as catalog company Harry and David and 1-800-Flowers. He also expects the portals will soon go after the gift market.
So, will one of the big portals want to acquire Send.com?
"Yeah," Lannon said. "That could happen."
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