Too Much of a Good Thing

Baldwin Louie — Mon, 19 Mar 2001 14:00:00 -0800

Peter Jensen is a marketer's dream: He's 30, single and well educated, he likes to purchase expensive toys online, and he checks his inbox constantly. Which is why he's inundated with spam.

The founder of a San Francisco startup, Jensen is savvy enough to supply fake e-mail addresses when he registers at Web sites and to use his e-mail software's filtering tools. But he still gets at least 10 unsolicited messages a day - irritating come-ons for everything from snore cure-alls to get-rich-quick schemes. "If these were brick-and-mortar stores," says Jensen, "my inbox would be the seediest strip mall in town."

Jensen is hardly unique. According to eMarketer, a New York-based market research firm, 22 percent of the e-mail an average user receives today is marketing-related. Roughly half of those messages are "opt in," meaning recipients gave vendors permission to send them. The rest are unsolicited. And it's only going to get worse: By 2003, eMarketer estimates, 29.7 percent of the e-mail you receive will be marketing of some sort, and three quarters of it will be unsolicited. Advertisers spent $179 million on e-mail advertising in the U.S. in 1999 and $496 million in 2000; by 2003, they're expected to spend $2.2 billion.

It's easy to see why marketers love e-mail. For starters, it's cheap: Jupiter Research estimates a modest snail-mail campaign costs $20,000; you can reach the same number of consumers by e-mail for $1,000. Also, results can be tracked instantly. And those results are impressive: While banner ads pull a measly 0.5 percent response rate, and a successful snail-mail campaign attracts 2 percent, e-mail marketers have touted response rates as high as 10 percent.

But those response rates are dropping. Over the past year, the average click-through rate on an e-mail ad has dropped by half, to around 5 percent, according to eMarketer analyst Jonathan Jackson. Says Donna Hoffman, professor and co-director of the eLab at Vanderbilt University (dossier), "E-mail marketing is going to go the way of banner ads."

No wonder: Users like Jensen are so inundated with marketing messages that they're throwing out the good with the bad. While e-mail marketing gurus take great pains to distinguish good, permission-based marketing - the kind that they say can still produce response rates of 10 percent or more - from plain old spam, that difference is not always clear to recipients. As Martha Rogers, founder of the Peppers and Rogers Group, a management consulting firm, puts it, "E-mail from somebody I don't know is still e-mail from somebody I don't know."

Part of the problem is list rental. Back when you felt all warm and fuzzy about your latest online purchase, you might have clicked the box that told the vendor, "Sure, I'd like to get news from you from time to time." Little did you know that online marketers trade e-mail addresses like third-graders trade Pokemon cards. E-retailers constantly rent and sell their customer lists to large-scale marketers, who then rent or sell the lists to others.

24/7 Media (TFSM), for example, has a database of 25 million e-mail addresses - all of whose owners agreed to receive messages from e-mail marketers at one time or another - which it rents to other vendors. As those precious addresses migrate from one marketer to another, the messages those vendors send out become less and less relevant to the consumer who originally asked to receive more information about, say, cell phones.

Correction:
A previous version of this story contained a reporting
error. According to eMarketer, 29.7 percent of the e-mail the average user receives in 2003 will be unsolicited marketing messages.

Appearing to give Napster (dossier) a last-minute reprieve, a federal judge has ordered the Net's most popular music service to remove unauthorized songs only after copyright holders have supplied information detailing which works are being pirated.

U.S. District Judge Marilyn Hall Patel of San Francisco issued her modified preliminary injunction Monday, in a closely watched case that began with a lawsuit filed against Napster by all five of the major record labels. Napster, which faced the threat of being shut down by a harsher ruling from Patel, appears to have dodged a bullet with Tuesday's decision, which adopted much of the wording Napster had pushed for during a court hearing Friday.

Patel's order gives Napster three days to remove unauthorized music from its system, but first requires music labels to provide Napster with the song title, artist name and file name associated with the copyright infringement on Napster's system. The record labels must also provide certification that they control the copyright to any given song.

The ruling appears to be good news for Napster, which has said that if the judge adopted remedies requested by the recording industry, it would effectively be shut down.

"As we receive notice from copyright holders as required by the court, we will take every step within the limits of our system to exclude their copyrighted material from being shared," Napster CEO Hank Barry said in a statement. He added that Napster will continue to press its legal fight against
the labels even as he tries to persuade them to join forces with Napster.

Hilary Rosen, president and CEO of the Recording Industry Association of America, said she was "gratified" by Tuesday's ruling and said EMI, Warner, Sony (SNE), Universal (dossier) and BMG - which all sued Napster in December 1999 - would respond swiftly.

"We intend to provide the notifications prescribed by the Court expeditiously, and look forward to the end of Napster's infringing activity," she said in a statement.

Though Napster had hoped that Patel would put the onus of identifying copyright infringements on the record labels, the ruling did not side entirely with Napster. The judge handed the labels a major carrot by allowing them to provide Napster with lists of songs not yet released and not yet being traded on the network.

That allows the labels to prevent as-yet-unreleased songs from becoming available on the service, which allows millions of users to download songs for free. Napster had argued Friday that such a requirement would be inconsistent with a ruling last month from a federal appeals court and would badly degrade the Napster network's performance. Patel recognized the hardship but said the damage done to the record labels by having unreleased music made available over the network outweighed any inconvenience to Napster.

"To order otherwise would allow Napster users a free ride for the length of time it would take plaintiffs to identify a specific infringing file and Napster to screen the work," Patel wrote.

On Sunday night, Napster began blocking a select number of songs from being indexed on its service. The most noticeably affected artists were the heavy metal band Metallica and the rap star Dr. Dre, which have sued Napster for copyright infringement. Files containing songs by Jimi Hendrix and the Beatles also were affected.

Napster says it blocked songs whose copyright holders provided the type of identifying information it had asked for at Friday's hearing. Within 24 hours of the new filter's implementation, however, most of those songs were once again available on the system, with new file names that included minor typos and misspellings - for instance the Beatles' "Let it Bee" - that enabled people to work around the new limitations.

In her ruling Monday, Patel acknowledged the cat-and-mouse nature of efforts to remove unauthorized songs from Napster's index. "If it is reasonable to believe that a file available on the Napster system is a variation of a particular work or file identified by plaintiffs, all parties have an obligation to ascertain the actual identity (title and artist name) of the work and to take appropriate action," Patel wrote.

The judge also noted that other technical limitations would make it hard for Napster to police its system. "It would be difficult for plaintiffs to identify all infringing files on the Napster system, given the transitory nature of its operation," Patel wrote. "This difficulty, however, does not relieve Napster of its duty."

Monday's ruling will apparently allow Napster to remain open while it tries to reach a deal with the record labels. In October it forged a groundbreaking pact with BMG parent Bertelsmann, and it has been working feverishly to get other major labels to sign on. So far these other labels have rebuffed Napster's efforts, though Vivendi Universal Chairman Jean-Marie Messier told reporters he was warming to the idea of licensing Universal's catalogue to the song-swapping service. Napster also faces the possibility of having to pay billions of dollars in damages if its lawsuit with the record labels goes to trial.

Activist groups are fighting back. The Mail Abuse Prevention System compiles lists of companies accused of sending spam. It offers that list - called the Realtime Blackhole List - to ISPs, many of which use it to protect customers from incoming spam. Some companies, including 24/7 Media, protest their inclusion on the list, claiming to be good-faith, permissions-based marketers rather than spammers. 24/7 sued to get its servers off the list, but so far has been unsuccessful.

Users are getting smarter about avoiding spam. Net vets like Jensen configure their e-mail clients to shunt anything that's not personal mail into a separate mailbox. Some e-mail providers, including MSN Hotmail and Yahoo (YHOO), automatically route messages that appear to be spam directly into an easily ignored "bulk mail" inbox. According to John Horrigan, senior research specialist with the Pew Internet Project, 37 percent of experienced Internet travelers (those online for at least three years and who go online daily) say they use fake e-mail addresses when registering at Web sites, presumably to avoid spam.

But e-mail advocates are fighting back, looking for ways to stand out from the blizzard of junk. For starters, says e-mail guru Seth Godin, who co-authored Permission Marketing in 1999, it's crucial to keep your list to yourself. "The best way to make your list worthless is to sell it," he says. "The future is, 'The list is mine and it's a secret.'"

That's not to say you can't expand your universe of e-mail prospects. If your customers trust you, you can urge them to tell their friends - the much-touted viral marketing. "Consumers actively resist marketing," says Godin. "The idea is to create an environment where consumers market to each other." He uses software from a company called Qbiquity to track the ways existing customers recommend him to others. "The stats are spectacular," Godin says. People who forwarded his messages told an average of four friends, and half of those referees went to his site for more information.

Other secrets to effective e-mail marketing: Keep things personal, and tone down the sales pitch. Last year, for example, Ticketmaster.com sent out a series of mailings about an upcoming Bruce Springsteen concert to customers in New Jersey. The twist: The company sent the messages only to Boss fans that it knew had already bought tickets. Instead of pitching them, the message offered tips on planning for the show, such as directions to the arena. After the show, Ticketmaster sent out another mailing offering a set list and a link through which recipients could buy CDs and other merchandise. According to Ticketmaster, the campaign registered a click-through rate approaching 90 percent, as well as a 25 percent sales-conversion rate. The sales were nice, but the program was more about keeping customers loyal.

To get around services like Hotmail that preemptively filter spam for their users, a recent report by Jupiter Research analyst Christopher Todd predicts that marketers will one day pay ISPs to have their ads delivered to your inbox instead of a spam bucket. Todd says such pay-for-access could be a good thing: It could decrease the volume of spam in users' inboxes, but could also signal that those messages that get through are worth looking at - the assumption being that the fee will filter out the bottom-feeders.

But such programs are still a ways off. In the meantime, no matter how well marketers protect their lists and tailor their campaigns, says Jensen, "established companies are doing violence to their brands" by appearing in inboxes alongside unwanted spam. As users like Jensen get smarter about keeping spam out, marketers will have to get smarter about avoiding that taint.

Jodi Mardesich is a freelance writer in New York.

Correction:
A previous version of this story contained a reporting
error. According to eMarketer, 29.7 percent of the e-mail the average user receives in 2003 will be unsolicited marketing messages.

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Too Much of a Good Thing