Good morning.

(Raising a printed sheet of paper in his left hand) Email.

Email marketing includes newsletters like this, as well as product announcements, updates, contests, lists, advertising and stand-alone mailings. Building an email marketing program is quickly becoming a critical part of any business-to-business or consumer marketer's game plan.

Eighty-four percent of Internet users use email. Forty-five percent of Internet users are frustrated by unwanted email. A recent Jupiter Communications (http://www.jup.com) study estimated that by 2002, opt-in email would be a $3 billion market, including some 250 billion emails that Forester Research (http://www.forrester.com) believes will be outsourced by that same year.

Is email marketing the silver bullet? Will we continue to see double digit response rates and conversion figures, and who will we send all this mail to?

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We've come here this morning to learn and share what you can do today to use email marketing in your plans. You will shortly hear from Rosalind Resnick about the current email marketing landscape. After Rosalind speaks, we'll hear from you as we open it up to your questions. Interspersed throughout today's Q&A session will be three case studies from the marketing folks at Motley Fool (http://www.fool.com), CareerBuilder.com (http://www.careerbuilder.com) and National Geographic Interactive (http://www.nationalgeographic.com). For this session, we also solicited questions in advance through the Netpreneur Exchange Web site (http:/netpreneur.org) and its Ad/Marketing discussion group (http://netpreneur.org/connect/am). I'll also be asking a few questions as we move along.

Mitch, thank you very much. I want to say thank you so much for coming out this morning. It is gratifying to see a roomful of people who not only know what email marketing is, but actually want to use it.

Washington, DC will always have a special place in the history of email marketing. In June of 1997, I came here with my daughter to testify before the Federal Trade Commission (http://www.ftc.gov) at their consumer online privacy hearings. I was there to speak about opt-in email marketing. Sanford Wallace, who you may remember from his career as the world's biggest spammer at Cyber Promotions, sat across the desk from me. I talked about the virtues of opt-in (the practice of asking consumers' permission before emailing them with commercial materials), and Sanford extolled the virtues of spam (the practice of sending unrequested commercial emails in bulk). Well, my view is that it's better to reach consensus and partner with people who disagree with you than to completely shut them out, so, after the session was over, I gave him my business card and said, "Sanford, please email me, so we can continue the discussion, and please consider opt-in."

Now, interestingly enough, Sanford and I carried on an email conversation over a period of about two years. Even though most people write to me at NetCreations, I still had my old AOL address, and I would check that account once in a while, sometimes finding an email from Sanford-it was either Sanford or someone doing a really good job of pretending to be Sanford Wallace.

Anyway, he would email me from time to time, and would write something like: Well, Rosalind, maybe you're right about this. Maybe I should give up spamming. Maybe I should go opt-in.

And I wrote: That's great. We'd love you to come over to our side of the force. Better late than never.

Then I would get another email from him, saying: A couple of my friends and I are going to put up a backbone, and we're going to spam people. I'd write: Okay, fine.

This conversation continued for a couple of years, then I didn't hear from him for a while. Just about a month ago-the afternoon we filed for our IPO and the news popped up on the Web-I received a phone call from him. I thought maybe he had seen our filing and that's why he called. No, the reason he called was to tell me that he had just joined our affiliate program to build opt-in lists on the Web. We chatted and I asked him what he was doing. He said that having been sued by AOL and Earthlink and every ISP out there, he's not the big spammer that he used to be. He and his wife are now running a little company out of their basement. They now want to go the opt-in route and have seen the light. He said to me: I only wish I had listened to you two years ago when you were trying to tell me to go opt-in because I could have been a rich man today. I said, "Sanford, it is never too late to come over to the opt-in side of the force."

Three-and-a-half years ago, when we started doing this, there were people who thought opt-in email marketing was going to be outlawed. There were direct marketers from the postal side of the business who said to me, "Nobody is going to come to your site to sign up to get junk mail. We said, "You guys are wrong. If people really want to get this mail, if they're really interested in these topics, they're going to come and sign up." I'm proud to say that today we have a network of over 175 partner sites on the Internet and more than 2,000 clients. Over 4 million list members have signed up at our Web site and our partner sites. Seeing all of you here in this room tells me that opt-in email marketing has hit the mainstream. It's become the big success that we always knew it would be. So, I want to say thank you for believing in opt-in email marketing. The future is yet to come, and we're going to do great things with this business. Not just our company, but all of you and the many other companies entering this industry.

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Growing Up With The Internet

One of the things Mitch wanted me to do this morning was to tell you not just about opt-in email marketing-I have a sense that you are pretty well aware of it-but also to tell you a little bit about our business and of how we've evolved as entrepreneurs.

NetCreations started four-and-a-half years ago, in March of 1995. We never intended for it to be a public company. Quite the opposite. I was a journalist who worked five years at the Miami Herald. I quit the Herald ten years ago when I had a baby and my editor basically said come back full time or quit. Not wanting to leave my baby at a day care center, I decided to quit and work from home as a freelance writer.

Originally, I wrote business stories from home, then I became intrigued by computers and the Internet. I was one of the first journalists to write articles about the Internet and online services for computer magazines. I joined AOL, Prodigy, CompuServe, Genie, Delphi, all kinds of bulletin boards, then started writing computer books. I was one of the first journalists to recognize the potential of going online, and the reason was because of my own experience. There I was, a journalist needing to do online research, and a freelance mom working from home, lonely for some adult conversation. I was going to the Net to meet other freelance moms, talking to other people who were doing interesting things. Going online was a way for me to communicate, to reach out from my house in Hollywood, Florida, and to connect with the world.

So, in 1994 I wrote a book entitled The Internet Business Guide with Dave Taylor, a programmer. I don't know if you remember it. The funny thing about it was that the publisher, Prentice-Hall (http://www.prenticehall.com), wanted the book to be at least 300 pages. I think that I put a screen shot of every commercial site on the Net in that book, and I still had to pad it. I think we had something like five shots of the H-P site just to make sure we got up to 300 pages. That was our challenge in 1994.

That book put me on the map as one of the early Internet business viewers and consultants. I began to do some consulting work as well as my journalism. I had eight online accounts and spent most of my day just checking my email. Even though I loved the graphical interfaces on AOL, Prodigy and CompuServe, I thought that there had to be a better way. When the Internet came along, I thought, "Wouldn't it be cool to have a system people could use to communicate with anybody they wanted to, anywhere." The Internet was an open system which you could use to share files, share email and surf the Web. It just seemed logical to me that it was the way everything was going to go. When I saw Mosaic and Netscape's Navigator, I saw that it was the graphical interface that would allow mainstream consumers and small business owners like myself to reach out and use this thing.

So, I became a big believer in the Net. I started pointing people to the Internet as opposed to putting up forums on the proprietary online services. My only problem was that I wasn't a technical person. I knew how to use a computer and how to get onto the Internet, but I wasn't the person writing the code or putting up the Web site. I called our local Internet service provider (ISP) and they put me in touch with a young programmer named Ryan Scott who was doing some Web design work for them. Ryan became my partner, both personally and professionally, and, in early 1995, we went around south Florida where we still lived at the time. Even though we were two people working from our spare bedroom, we became one of the leading Web design firms there. We put up Web sites for some major companies and law firms, won some awards and did pretty well with it, but then we thought to ourselves, "We don't want to scale up and become a huge agency." Instead, we wanted to create cool software and services on the Web.

We created a tool to help us market our clients' Web sites that we called Postmaster. It was kind of coincidental that we became a direct marketing company because, back then, we didn't have a clue what direct marketing was even about. The idea behind Postmaster was, if you remember way back then, the only way to get traffic to your site was to go to Yahoo!, Lycos and the other search sites, fill out their submission forms and get your site posted. That was a manual, time consuming process. Being a programmer, my partner thought, "Why not automate it? After all, it's just one computer talking to another." Let people come to our site, fill out one form, then, within half an hour, get your site listed with 400 different search engines, directories, What's New and What's Cool lists. Back then, there were very few Internet marketing tools, so without spending a dime to advertise or promote or do PR, the world started coming to us. Pretty soon, we got good reviews in BoardWatch, Internet World and the other trade publications, and realized that we had a business on our hands.

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To Move To Online Marketing

The amazing thing about it was, even though all we had at the time was a list of email addresses and the knowledge that they wanted to get targeted mail—we didn't have names, zip codes or demographics—this ZD circulation manager got a response that blew away anything he had ever gotten from postal, direct mail or telemarketing. Needless to say, we were golden at ZD, and it is one of our biggest customers today.

We decided to reach out to what is now our network of partners, which includes such companies as Internet.com, Alta Vista, CMPnet, Link Exchange and Morebusiness.com. We now have a network of over 175 sites where Internet users can go, check a box and request mail on a topic that interests them. They supply their email address, as well as other demographic information if they want to. Today, our database has over four million email addresses of Internet users who said, "I want to opt in. I want to get mail."

Making Email Marketing Work Today

It also meant that our list would be a lot more responsive. When was the last time you clicked on a banner ad? When was the last time anybody clicked on a banner ad? That's why banner response rates have fallen to below 1%, while clickthroughs on opt-in email lists are still in the 5-15% range, and even higher for some of our lists.

Follow The Market

We have a manifesto on our site (http://www.netcreations.com:80/manifesto.html), feel free to check it out. Point number four of that manifesto, before our investment bankers made us change it, was "If you don't know where you're going, it's impossible to get lost." We also said, "Business plans are worthless." I think that was the part that our bankers didn't like much.

My advice to you netpreneurs is to follow the market; it won't steer you wrong. Even though, today, we do have a business plan, a CFO and projections—all that stuff—at the same time, the way I navigate this business is still by my instincts and by my gut feel. One of the reasons I was so happy to come down to talk you to is not to hear myself, I've heard myself millions of times, but because I want to hear from you. I want to know what you're doing, what businesses you're creating, and how we can help you make your business a success. Thank you.

Mr. Odio: I'm Daniel Odio with VIPclubbing.com (http://vipclubbing.com). I have found through personal experience that doing a weekly newsletter and getting advertisers involved is much more effective than almost any other way to charge for advertising. Can you tell us about response rates or other metrics related to that?

Ms. Resnick: First, let me differentiate a couple of things. When I talked about the 5-15% response rates, I was talking about click-through rates. When it comes to conversion, the number of people who actually buy the product, that's a lot lower. We sell our lists on a "cost-per-thousand viewers" (CPM) basis, typically between 10 and 30 cents a name, or a $100-$300 CPM. The way direct marketers do the math, they will test 5,000-10,000 names, add the CPM price, then figure out the cost per acquisition. Depending upon the mailer and the marketer, different levels of cost per acquisitions are acceptable. For an online brokerage company which typically spends $300-$400 to get one customer to open an account, a cost per acquisition of $300 after a mailing to our list might be considered acceptable. However, when we work with a book club like Doubleday, they're looking for a cost per acquisition of $30 or $40, or else it doesn't make sense to them. Even when you factor in things like lifetime value, the numbers have to work out right for the direct marketer renting the lists, or it's not cost-effective.

The other issue you raise that's important is that, when I talk about opt-in email lists like those we have in our database, I'm talking about lists of people who have said, "Sign me up to receive advertising." Our mail consists of offers straight from the advertiser, not a newsletter. There's no content wrapped around it, simply the advertisement. For example, we'll send out an ad from J. Crew saying, "Come to our site and get $20 off an $80 order," or an offer from Dell saying, "Click to our site and get a discount on this computer." For those kinds of offers, we're charging typically $200 to $250 CPM or 20 to 25 cents per message. Now, those CPMs are very high compared to something like banner advertising. You can run a banner ad on Alta Vista for something like $2 CPM. In between are the email newsletters you talk about, with rates typically anywhere from $30-$50 CPM. How much are you charging on your newsletter?

Mr. Odio: It had a scalable rate depending on the audiences the advertiser wanted access to. We were able to segment the audience in several different ways. It was anything from $500-$2,000 for one email insertion, and that was pretty attractive to the advertisers. I wasn't calculating CPM; it was a flat fee.

Ms. Resnick: I can tell you that a lot of email newsletters charge $30-$50 CPM, which is a lot lower than what we charge. From what I've heard, however, clickthrough rates on email newsletters tend to be lower than the 5-15% we are getting. That's because you're not just sending out the one ad, you're sending it out with a lot of content. What have you found in your experience?

Mr. Odio: The response rate is probably down around 5%.

Ms. Resnick: Okay. Our mailers tell us that it varies from newsletter to newsletter. Yours sounds highly targeted, but with a lot of newsletters, even though the CPM is lower, the click-through is lower as well. When direct marketers do the math, it could be that it's more cost-effective for them to pay a higher CPM and send out only their own ad than to advertise in a newsletter. Sometimes it's about equivalent. I would encourage all of you, as direct marketers, to test both opt-in email lists and opt-in email newsletters because I really think there is value from both of them. The great thing about newsletters is the content that puts the ad in the proper context. Even though sheer response rates might be lower, you're definitely building your brand, so there are advantages to both.

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