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what you don't know can hurt you:

email marketing

From stand-alone promotions to electronic newsletters, from customer acquisition to customer retention, email is perhaps the most powerful tool direct marketers have ever had. Even if you're not using it to grow your own business, your competitors are using it grow theirs. At this Morino Institute Netpreneur Program Coffee & DoughNets meeting held September 23, 1999, Rosalind Resnick, a pioneer in email marketing, helped Internet entrepreneurs understand what email can do, how to use it effectively and where email marketing is heading tomorrow. Complementing her presentation are real-life case studies from three netpreneurs. The session was produced by the Morino Institute (

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  

Copyright 1999 Morino Institute. All rights reserved. Edited for length and clarity.  


mitch arnowitz: introductions

Good morning.

(Reading from the envelope of a direct mail advertisement) "To the Arnowitz family or current resident. Look inside for savings you want, quality you deserve."

(Opens the envelope and reads from the enclosed letter) "Dear Mitch: Check it out. Here are the latest releases in the music categories you told us interest you. There's some great music here. We know you'll find something you like."

(Holding the letter raised in his right hand) Traditional mail.

(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 ( study estimated that by 2002, opt-in email would be a $3 billion market, including some 250 billion emails that Forester Research ( 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 (, ( and National Geographic Interactive ( For this session, we also solicited questions in advance through the Netpreneur Exchange Web site (http:/ and its Ad/Marketing discussion group ( I'll also be asking a few questions as we move along.

Rosalind Resnick is a true pioneer and trailblazer. She began her career in the newspaper industry, spending five years as a business writer at the Miami Herald ( She is also the co-author of the Internet Business Guide, and former editor and publisher of Interactive Publishing Alert which was eventually merged into Phillips' Interactive PR & Marketing newsletter ( Rosalind also created America Online's (AOL) ( NetGirl forum and she spent some time in this area attending Johns Hopkins University ( in Baltimore. Rosalind's company, NetCreations (, is the Internet's leading provider of opt-in email marketing services. NetCreations' Postmaster Direct service acts as a list manager and broker for over 3.5 million email addresses in more than 3,000 topical categories. NetCreations has a network of more than 175 partner sites and has conducted opt-in email marketing campaigns for more than 2000 customers, including Dell, Compaq and J. Crew. For more on NetCreations and how opt-in email works, see The company, which just filed for an IPO, is headquartered in New York City and was founded in 1995 by Rosalind and her partner, Ryan Scott.

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rosalind resnick: the force is with you

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 ( 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 (, 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

Because of my experience as a freelance writer, I realized that when you're a small company you should not have other small companies or consumers as customers. As a freelance writer, my customers were the major newspapers and magazines that I sold stories to. I realized it would be a lot easier to sell a $1000 product to a handful of major corporations than to sell a $1 product to a million people. It was one of the things that we did differently from some of our competitors at the time. Postmaster was a more robust program than some of the others out there, so we weren't giving it away for free. We were charging $500 for it, and, as a result we were able to sell it to Fortune 500 companies, ad agencies, PR firms, etc.

Postmaster was a big hit for us, but, then in mid-1996, we realized that it had a problem. Actually it had two problems. One problem, from a business point of view, was that we had developed a piece of software which we knew could and would be duplicated and ultimately the price would go down to zero. That's exactly what happened.

But the bigger problem, from our clients' point of view, was that they began to complain that Postmaster was just not working anymore. It wasn't that the technology wasn't working, but now, just because got you listed in Yahoo! under gifts, nobody was going to find your link if you were number 647 on the list. Basically, our customers were asking for a more direct way to get people to their Web sites. At that time, there weren't very many off-the-shelf Web marketing tools, so we had to develop our own. One that we developed was called Web List, one of the early email distribution programs that allowed you to send broadcast email from a Web page.

At first, we tried selling it as software; however, we realized that we weren't Microsoft and decided, "Why not just use this for ourselves?" We began to build our own little customer list or "house file"—even though we didn't know what a house file was since we hadn't discovered direct marketing yet.

Our Postmaster service continued to be popular and we had a free trial email service that people could use before they bought, so a lot of webmasters began coming to our site to check it out. While they were there, we gave them an opportunity to check a box offering to send information about the Internet, Web software, ISPs, hosting and various Internet-related topics. We had 15,000 webmasters opt in and tell us, "Yes, send me your mail." We began using that list ourselves to get more people to come back to use our Postmaster service, but, in addition, we started renting that list to other Internet companies.

In mid-1996, we began renting this list to Web posting companies, software companies and companies doing Internet marketing for infrastructure. We started doing pretty well with it, but our big break came in October of that year when a circulation manager from Ziff-Davis (ZD) (, one of the leading computer magazine publishers, surfed by our site, signed up for our webmaster list, then called me a month later and asked to rent the list to promote their new magazine, ZDInternet. We said, "Sure."

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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 realized that the market was not in renting lists to a handful of little Internet marketing companies; it was over here, with the $50 billion direct marketing industry. All of a sudden, we realized that we ere in the direct marketing business. As a former journalist, I decided to find out as much as I could about it. We subscribed to Direct Marketing News (, the Bible of the industry. We joined the Direct Marketing Association ( We started going to trade shows. I called that ZD circulation manager every day, asking question after question until he kicked me off the phone. Eventually, we began to realize what we were doing. The more we learned and the more we rented these lists to other mailers, we began to realize that we had invented a better wheel. We'd invented something that was better, faster and cheaper than traditional telemarketing or direct mail. Coincidentally, while we were looking for a bigger market for our product, unbeknownst to us, the direct marketing industry had been looking for a solution to their problem, the rising cost and decreasing response rate to traditional direct marketing.

I guess it was inevitable that the two markets would find each other. We did so in the fall of 1996. From then on, over the last three years, we've faced two challenges. One is convincing the market that email is not spam—that people could opt in at a Web site by checking a box and selecting the topics they were interested in. That way, the consumer calls the shots, and email can be something good and valuable as opposed to something that should be outlawed out of existence.

The bigger problem we faced, once we convinced everyone that this was something that really worked, was getting enough names. As a small site, we got about 10,000 people a day. That was good as far as it went, but for a major mailer like ZD, 15,000 email addresses was a drop in the bucket. We knew that we needed to create a large database with millions or tens of millions of people. Once we found out about the direct marketing industry and how it worked, we realized that instead of becoming a list owner, which would require all kinds of traffic and money to acquire customers, we decided to be a list manager. As a small company, we've always taken a business-to-business approach that's allowed us to grow profitably without taking in any outside money.

We decided to reach out to what is now our network of partners, which includes such companies as, Alta Vista, CMPnet, Link Exchange and 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."

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Making Email Marketing Work Today

We realized early on, however, that just because you signed up and said, "I want to get mail from Postmaster Direct," it didn't mean that you'd want anything else from us. If you signed up for our gardening list, you didn't necessarily want to get information about multi-level marketing schemes.

We also realized that just because you opted in today, it didn't mean that you would want to be on our list forever. If you sign up for our Caribbean cruise list because you're about to go on vacation, you don't necessarily want to get offers when you get back. We realized that it's important not only to get people to opt in, but also to give them a chance to opt out every time they got a message from us.

How many of you are Postmaster Direct list members? That makes me feel good. If you sign up for Postmaster Direct or any of the other services out there, you'll see a header at the top identifying who the messages comes from and telling you how to opt out. A lot of traditional direct marketers told us that this wouldn't work. First of all, they didn't think consumers would voluntarily allow their names to be rented. They'd compare it to cows walking up to Burger King and allowing themselves to be made into hamburger—saying, "Go ahead, make money off my name." Our view, as Internet consumers and shoppers ourselves, was that we would willingly trade permission to rent our name in return for targeted offers and discounts and new products that we were interested in. But we realized that we needed to let people opt in, and we needed to let them opt out.

About a year later, we realized that these were public Web sites we were dealing with. Just because somebody came, checked a few boxes and put in an email address, didn't mean that that was actually the person who was signing up. As you know, even though the Internet today is much more commercial than it used to be, people still love to play pranks on each other. People would come and sign up their boss for 100 lists. They would sign up their best friend or their enemy. Because we were so visible in coming out against spam, spammers would come to our site and sign up anti-spammers. Then the anti-spammers would think we were spamming them, so the anti-spammers would sign up the spammers. It turned into a mess, and, all of a sudden, we were topic number one on the NetAbuse newsgroup one day.

We realized that it's not enough to let people opt in and opt out, we needed to require them to confirm their subscriptions. That's what we call our "double opt-in" process. Today, if you sign up for a Postmaster Direct list, we're not just going to put your name in our database. We're going to send you an automated confirmation request, and, unless you click on the link, come back to our site and confirm, you're not going to be in our database. As a result, we lose about 25-30% of the people who sign up, but that's a decision we made. We realized when we made it that our database would grow more slowly, but we also realized that no one could accuse us of being spammers because we would have a record of everybody who signed up.

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.

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Follow The Market

We have a manifesto on our site (, 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.

The fact is, when we were starting out in the Internet business, four-and-half years ago, nobody knew what this industry was going to be. If we had taken venture capital back when, I honestly don't know whether our VCs would have been patient enough to wait before email marketing hit the mainstream.

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.


the audience & guests: questions, answers & case studies

Mr. Arnowitz: Thanks, Rosalind. We're now going to open it up for questions. I'd like to begin by asking Rosalind, how can these folks get started? Are there easy steps you would suggest?

Ms. Resnick: It's really very easy and very cheap. First of all, there is a wide range of options when it comes to email marketing. At the most basic level, if you are using an email program like Eudora or Pegasus or Microsoft Outlook Express, you can begin creating your own house file or customer list of email addresses pretty much for free. If you have a Web site, you can do something as simple as putting up a "mailto" HTML tag which people can click on: something like " Then you can manually take those addresses, put them into an email program and you've got your own little list. That's the most basic level. Another thing can you do is to offer an opportunity to enter a contest or sign up for a newsletter. If you surf the Web all the time like I do, you know it's almost impossible to find a major site these days that doesn't offer one. They're doing this because they want to capture your name. They want to put you in their house file so they can email you over and over again with special offers and promotions. You don't need to spend a lot of money on technology or software or a service bureau to build your own email list. It's enough to put a form on your site inviting people to join your newsletter or enter your contest. Within a few days, you'll probably have a couple of hundred people signed up.

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Now, if you want to go beyond a small house file of a few hundred or a thousand people, that's the point at which you should consider some kind of software or service bureau. You may have heard of companies like Message Media (, Digital Impact ( or ( All of these are companies that we call "email letter shops." If you're doing a large volume of mailing for your newsletter or special promotions, that's the point where it really doesn't pay to do it yourself. The problem with email is that sending one message is easy, sending 100,000 messages is another story. There are technical challenges involved. Traditional SendMail programs queue messages one at a time, so it takes forever to send out a lot of messages. Companies like the ones I just mentioned offer large, scalable email delivery systems and usually have fast T1 or T3 lines that can send out 100,000 email messages in an hour.

Speed is one reason why you might want to outsource your email delivery; the other is that, as I mentioned before, when you're building your own house file you need to give people the chance to opt out. Unless you want to hire a few people to manually process all those opt-out and unsubscribe requests, it's much better to outsource it to a service bureau that has the technology to handle it automatically, as well as to deal with the "bounces"—the invalid email addresses that can't be delivered to. You need to take them out of your file and do list hygiene. For all those reasons, I would say that if you have a house file of over 1,000 email addresses and you're sending at least once a week, you should probably consider outsourcing. The good news about outsourcing is that it's pretty cheap. For between five cents and a tenth of a cent per message, depending on volume, you can outsource your email delivery to one of these companies and not have to worry about it. There are also software solutions you can buy, but then the problem is that you need to install it on your server, so you need a system administrator or technical person to set it up and administer it. My view is, if you're marketers or E-commerce companies, not technology companies, you should consider using the service bureau as opposed to installing your own software.

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Mr. Odio: I'm Daniel Odio with ( 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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