From...

November 23, 1998
Web posted at: 11:30 AM EST

by Jacob Ward

(IDG) -- If you think it's frustrating sifting through envelopes disguised as paychecks and personal correspondence to get to that letter from your mother, just wait. A marketing tsunami is heading toward the Net, and it's going to swamp your in-box.

Last Tuesday, Intellipost, a maker of incentive programs that reward customers for reading advertisements on the Internet, teamed up with Experian.

You may be only dimly aware of Intellipost: It's one of many players in the emerging market for software that manages e-mail lists and incentive programs online. But you've probably heard of Experian, the direct-mail and credit-report colossus.

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Intellipost handed over a 19.9 percent stake to Experian, in exchange for its MotivationNet and MyPoints Web-marketing subsidiaries. The deal bought Experian a ringside seat in a business that could revolutionize direct marketing.

Experian's not alone. A host of direct-marketing giants – such as Acxiom, Database America and the American List Council – are experimenting with online direct marketing. It may take a while for these companies to figure out the new medium, but they're on the way.

In the world of snail-mail, consumers seem to have accepted unsolicited catalogs and offers, but Net users are tougher. Two types of direct marketing are currently used on the Web: "opt-out," in which Web sites give consumers the option of not receiving promotional messages (but they spam those who miss the fine print); and "opt-in," in which consumers tick a box and agree to receive promotional messages.

As Web marketers scramble for respectability, a newly formed booster group, the Internet Direct Marketing Bureau, has put its stamp of approval on the opt-in approach. Direct marketers are very sensitive about the word "spam," and many claim that no Net marketer will ever be able to make the leap into free-for-all mass e-mailing. "Opt-out is a dirty word in our business," says Steve Markowitz, CEO of Intellipost.

"There's no way you'll really ever be able to buy e-mail addresses," echoes Brian Sugar, new-media director for J.Crew.com. "If you offered to sell me 10 million e-mail addresses of people who've bought apparel in the last six months, I'd turn you down. The customer would hate us."

But opt-in e-mail marketing is a different story. The opt-in strategy is sort of a polite version of push. In a June survey of 60 Web marketers, conducted by catalog consultant W. A. Dean & Associates for direct marketing investment firm Gruppo, Levey & Co., 79 percent of respondents said they either currently collect or intend to collect demographic data from visitors to their Web sites. Forty percent of respondents, mostly consumer marketers, said they currently conduct e-mail marketing campaigns.

As experienced offline marketers weigh in, they can bring real-world marketing savvy about consumers to the technology.

"Traditional Web people are prepared to give out all kinds of info about pages served and so on," says Experian's chairman of marketing solutions, Tom Newkirk, who runs the direct-marketing portion of the business. "But they need to know 'net' new customers, how many times they've come back to the site – all the information direct-marketing people know how to collect."

Furthermore, click-through rates on ad banners have steadily declined over the past year. Advertisers are looking for new ways to reach their audiences, creating an added incentive for direct marketers to step in.

But companies accustomed to a high level of detailed consumer information from a conventional direct-marketing firm may be surprised at how basic direct marketing on the Web currently is. It takes time to build accurate lists of consumers – a process that has been going on for decades in the real world, but has barely begun for opt-in consumer lists online.

"A traditional marketer can be very specific – there are thousands of address lists out there," says Regina Brady, business unit leader for interactive services at Acxiom Direct Media, a division of the direct-marketing giant. "But electronic marketing only has 200 lists, or so, right now."

Another sign of the industry's immaturity is the pricing model for opt-in e-mail address lists. New players argue that lists should be priced differently from conventional direct-marketing fees. Many companies are keen to change the rules of the game in their favor, as the Web allows you to measure which names actually worked. Ed Ojdanna, president and CEO of ConsumerInfo.com, which buys and sells lists, says he's desperate for the industry to move away from the traditional cost-per-thousand model.

"We've done everything in our power to break that model," Ojdanna says. "It shifts the risk from us to them, and that's what we're interested in doing."

Anything that lowers costs helps. Marketing online may be much more efficient, but it still takes serious money. The cost per transaction of an e-mail direct-marketing campaign may be far lower than mailing a letter to individual consumers, but the infrastructure necessary to effectively distribute marketing literature and manage address lists requires significant investment.

Once the kinks are worked out, the potential for highly targeted offers to individual customers will reveal existing catalogs and direct mailings as the crude weapons they are. The day will come when, after you've bought a sweater from J. Crew, the company will send you e-mail, that week, suggesting slacks and scarves that match perfectly.

The Web gives marketers a sniper's rifle instead of a shotgun.

"Offline, you can only have so many segments to your customer base to be cost-effective," says J. Crew's Sugar. "But direct marketing on the Web will be more of a science."