IQ News: Analysis - E-mail Direct

Advertisers have found that e-mail lists are ideal vehicles to deliver their ad messages. But is anyone reading? With banner ads getting ever-lower clickthroughs, rich media still too rich for most low-speed users' blood and interstitials a little too in-your-face, e-mail list advertising presents a promising alternative. "There's going to be a lot of growth in the next few years, a lot of people jumping in," says Kathleen Santosus, a senior analyst at eMarketer, a New York-based research firm. "The dollars spent on e-mail advertising will explode," though she cautions that as the novelty wears off, response rates will probably decline. E-mail lists are like newsletters or mailing lists, only virtual. An e-mail list sponsored by a comedy site might send out jokes once a day. Or, a group of people with herpes, for example, might form a list to share support or treatment tips. Obviously, the potential for targeted advertising is great with such narrowly defined interest groups. "Some list members get 50 or more e-mails per week," says Ariel Poler, CEO of Topica, a San Francisco-based network of e-mail lists with 5 million users. "If you are willing to get that much e-mail related to a topic, you're probably willing to look at or click on an ad related to that topic." Companies such as Topica offer free hosting and administration in exchange for putting ads in the group's messages. Different e-mail list companies have different features, such as Topica's Yahoo!-style directory of lists and Chicago-based Pennmedia's emphasis on content rather than discussion. Analysts predict growth in e-mail advertising will continue. E-mail ads accounted for $97 million worth of advertisers' dollars in 1999, and this amount is projected to rise to $289 million by the end of 2000, according to eMarketer. The field comprised 1 percent of Web advertising dollars in 1998, 3 percent in 1999 and is expected to rise to 15 percent by 2003. "Member-defined targeting, in which we can reach people at their highest level of passion," is what attracts advertisers to e-mail groups, according to Jacqueline Maartense, vice president of marketing at San Francisco-based free e-mail group service eGroups, which has 15 million members. After acquiring former rival Onelist in November 1999, eGroups launched a Web site incorporating "the best features of both companies" on April 10. "We used member feedback to guide the engineers on how to retool, and added 100 usability improvements including new categories and increased storage space," says Maartense. Staying true to its own model, the company used an e-mail group for members to send feedback to engineers creating the new site. EGroups focuses on discussion and community, and many of the e-mail lists are generated by individuals in the groups. The advertising appears at the bottom or on the side of the messages. Roping in Readers EGroups' ads appear in HTML or text depending on the individual subscriber's capabilities. If the subscriber's e-mail application can read HTML, banner ads appear at the bottom of the message; otherwise, the ad appears in text format. Some e-mail list companies also offer the option of putting the ads at the top or within the text of the message. EGroups, like most companies, allows its publishers to opt out of the ads, "though only about 1 percent do so," Maartense claims. EGroups' advertisers, which include Pets.com and DLJdirect, are charged by CPM, with rates varying depending on the degree to which the category is targeted. This is generally the case with other e-mail list companies. Unlike eGroups, New York's Infobeat provides users with messages compiled by teams of experts in each topic. "We deliver customized news to be delivered to users' inboxes so they don't have to go surfing all over the Web for it," says Jim Smith, vice president of advertising and marketing partnerships for Sony Online Entertainment, which acquired Infobeat last year. Users can elect to receive e-mail bulletins on subjects ranging from stocks to weather to sports and more. "People in general are not sports fans as a whole. They tend to be New York Knicks fans," says Smith. "Same with finance. Most people are not interested in how the stock market as a whole does. They are interested in how their stock does. We supply that information, selected by an editorial team that separates the chaff from the wheat on the Net." In addition to Infobeat, Sony has an e-mail presence for each one of its entertainment sites. An example is sonymusic.com, which has e-mail lists for "everything from a genre of music to almost every single artist site," Smith says. The company carries ads from companies including Coca-Cola, AT&T and Microsoft. "The ads range from plain text to dynamic rich media, and we charge in various ways, including CPM and performance," Smith says. "Targeting costs more--for teenagers 18-34 in three specific states, for example, we'll charge a premium." REACH USERS WHERE THEY LIVE Topica, another major contender in the field, features a directory of e-mail lists and offers free hosting services for lists. It has been around for about a year, currently boasting 5 million unique users. In March, Topica acquired TipWorld, a former IDG property that sends newsletters and tips to subscribers, broadening its reach. "The core of our business is useful information on topics people are interested in," Poler says. "The beauty of this approach is that users want this content and are getting what they're used to seeing on the Web: banner ads at the top or bottom of the message." Though list group moderators do not have to accept advertising to be hosted by Topica, most of the groups hosted by the company do run advertising. On HTML-enabled mailing lists, the company runs conventional banner ads with links at the top or bottom of the page. On text lists a line of text with a link appears at the top or bottom. Poler says the response to text ads is surprisingly good. For one thing, unlike most Web sites, text is relatively uncluttered. There aren't a lot of elements fighting for the user's attention. "And it's clear what the ad is about," he adds. Santosus agrees. "There are reports that you get better responses from HTML in e-mail, but text ads hold their own. If it's in the context of the newsletter, and if the ad is well-targeted, it should be of interest." Poler feels that "if you have a few lines of text that clearly describe an item, those who do click on it are likely to be seriously interested in the product." He points out that users often click on ads because they are attracted by graphics or catchy text and don't realize what the product is. For instance, with the MCI "shop naked" ads, says Poler, "Most people clicked on that ad because they thought it was porn, but when they found out what it was, they left." Though there are ads on the Topica Web site, the bulk of the ad activity is in e-mail. Advertisers, which include Providian Financial and Kmart's Bluelight.com, are charged by CPM. Because e-mail is more personal, people are apt to be more receptive to it, Poler says. He also says that "people have more time to pay attention to their e-mail. Not everybody has two phone lines, so people may not want to spend as much time on the Net. But they can read e-mail at [their] leisure." Jaffer Ali, CEO of Chicago-based Pennmedia, agrees, adding, "E-mail subscribers are 'e-responsive,' meaning that they have already responded via e-mail for something and once they do that they self-select." Pennmedia is a network of sites carrying e-mail advertising. "We estimate that Pennmedia has 20 million users," says Ali. The company launched its services in January 1999. The e-mail advertising model relies on a self-selecting population that opts to receive daily or weekly updates such as horoscopes, jokes or inspiring quotes. The text-based, 50-word ads include a link to the commerce site and appear within the content. "For example, in one of the joke newsletters in our network, an ad for zing.com, a greeting card site with many humorous cards, appears between two jokes," says Ali. Pennmedia's advertisers include zing.com, Intel, Columbia House and Smarterkids.com. There are 480 mailing lists in the network. According to Ali, there are several advantages to e-mail advertising. "With e-mail you read your content when you want to, when you have time. The ad stays with you. Commercials on TV are fleeting, banner ads are fleeting. But the e-mail, it's there." VIRAL E-MAIL There's also a strong viral aspect to e-mail advertising. "Let's say you subscribe to an inspirational quote of the day, and a quote hits a chord with you, so you send it to a family member. When they get the e-mail your return address is on it and they're going to open it because it's from you," Ali says. Unlike other e-mail list companies, Pennmedia relies completely on text ads "because many mail programs cannot read HTML," he adds. According to Ali, the average clickthrough for stand-alone e-mail ads is 11.5 percent. The clickthrough for e-mail newsletters is 1.5 percent, Ali says, compared to a little more than one-half of 1 percent for banners, "though this varies widely and some e-mail ad clickthroughs are as low as 1 percent. Ali claims that the conversion rate for the ads purveyed by his company is 6 to 20 times better than banner ads. "That's the actual conversion rate converting to an order, a download, a registration. People are reading something and clicking on it," he says. Santosus says that the conversion rate for e-mail yields a better return on investment. "The cost of banner ads is low compared to e-mail ads, but the clickthrough for e-mail ads is better." Though e-mail advertising is touted by many for its targeting opportunities, Ali downplays this aspect. "It's not so much that e-mail advertising is targeted. You can target banners, too. You can also do ROS, run of the system, advertising. If somebody wants to hit 5 million people in one day they can do that with us." Ali says he believes that people spend more time reading e-mail than surfing online. EMarketer's Santosus says, "It's true that people read their e-mail every time they go online, and it's estimated that something in the neighborhood of 45 percent of online time is spent reading e-mail." Ali, who claims that e-mail is the future of online advertising, says, "Whoever controls the e-mail box is the person who controls the advertising dollars for the industry." While Santosus agrees that e-mail advertising will continue to grow, she cautions that "at the same time, we expect the response rates to decline, just as with banner ads. There's only so much time in the day for people to respond to these things, so as e-mail messages fill peoples' mailboxes, they're going to have to be selective." With banners, once the novelty wore off, people got in the habit of filtering them out, Santosus says. "A lot of this will also happen with e-mail ads. The trick will be not so much using e-mail ads to acquire new customers, but creating and maintaining relationships with existing customers." If marketers abuse the privilege of being invited into peoples' inboxes, sending too much mail or material that's off-topic, there will be a backlash, Santosus says. "Even if it doesn't start as spam, it could turn into that if you send more than the recipient wants. This is a private space--like a cell phone--and you would not tolerate marketing calls on a cell phone." If advertisers can avoid this mistake, Santosus says she believes they will fare well. "If it is used wisely, e-mail advertising can avoid the fate of the banner ad."

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IQ News: Analysis - E-mail Direct

Janis Mara

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