Thought Leaders in Mobile and Social: David Stone, CEO of CastStar (Part 3)

Sramana Mitra: That’s not what I want to know, though. I want to know what are the dynamics of the business model?

David Stone: The dynamics of the business model are three core dynamics. First, you have to get the retailers that are offering the cards because without the retailers, you don’t have anything. The retailers provide the currency. Sixty percent of our retailers, heading into Christmas, provided an e-gift card offering of some sort. When we started the company, only 5% did. In 2010, before Christmas, it was about 40%. So, we’ve seen that grow twelve-fold.

Our first year, fewer than a million consumers had ever given an e-gift.  We estimate that in the past six months, over 12 million consumers have given e-gift. So, that’s a twelve-fold increase over the past three years. Our own sales grew in aggregate about three times over the previous year.

SM: Speaking about trends, you said that consumers were not used to giving gift cards in a digital mode. What are the dynamics of the consumer adoption?

DS: The barriers to adoption. First of all, very little availability, except for Amazon and a few others many years ago. So, the first dynamic is creating the network. We believe in the old Metcalfe’s law – you’re probably familiar with that – the value of the network is equal to the square of the number of users. Now, we have 60% of retailers with an e-gift card offering. You can find them on their websites with relative ease. The second is awareness. How many consumers know the product exists? A year ago only 5% of consumers knew about an e-gift card. I can’t tell you what it is today, but certainly the media covered it widely this past holiday. Either we or our retailers were in the Wall Street Journal and Fortune, TechCrunch, MSNBC.com, and all those hubs. There’s a lot more awareness. Third is the experience, making that digital experience as personal and convenient as possible for the consumer, the buyer.

If you stop and think about it, a gift is a very personal expression of yourself. You really care about it. With physical gifts, as great as they are, about 30% of them never get used or are returned. You have a one-in-three chance of that gift never being used. With a digital gift, not only can you gift your favorite brand, but you can also make it incredibly personal because of the technology of the digital palette you have.

With a digital gift or digital gift card, you’re not limited. You can create lots of designs or refresh designs constantly. For example, Home Depot has a card that says, “Dad, you rule.” It has a ruler on it. They have it only for one week of the year, [during Father’s Day]. It’s pretty expensive for plastic. With our cards, not only can you choose from lots of designs, but you can write a message on the card of up to 260 characters. We have people who write poems. On Valentine’s Day, they write odes to love and all kinds of things. You can also upload a photo or an image to the card and embed it in there so that when it arrives, the recipient sees it. You can even embed a video from your webcam or iPhone. Imagine, if you will, you’re traveling on the road, and your sweetheart is not nearby. You can record yourself on your webcam blowing a kiss and that person a Williams Sonoma, Wine Enthusiasts, Sony, or BestBuy gift card.

SM: It’s almost like a digital greeting card, which is also a gift card, yes?

DS: Yes, except I think it’s a lot different. With this product, you can use it in the real world. The e-card, which is a nice product, is kind of fleeting. With this product, you can either use it online to buy something or you can print it out like you would with an airline boarding pass or movie ticket. It has all the personalization on it.

SM: Why would a consumer want to print it out?

DS: Well, if you want to use it in the real world, which most people do, this is kind of the cool part.