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September 22, 1999
Converting E-Mail From Spam to Steak
By JOHN MARKOFF
an Francisco - Hans Peter Brondmo is building an Internet company squarely astride the most bitter cultural divide in the online world -- the war over privacy and e-mail spam.
There is possibly no more bitter issue for most Net-smart computer users and Web surfers than the tidal wave of digital junk mail -- known as spam -- that has accompanied the explosion of electronic commerce.
Thor Swift for The New York TimesHans Peter Brondmo, the founder of Post Communications, and Cheryl Vedoe, the chief executive, hope to make consumers happy to see e-mail.
When coupled with the tendency of every Web business to deploy data-mining software to chart each mouse click a visitor to a Web site makes, the Internet has increasingly become a battleground between digital-age marketeers and consumers.
The e-mail war and the ethical issues that commercial e-mail raises hinge on the issue of "opt in," the use of a check box or other device to permit a computer user to decide whether to receive electronic mail and on what subjects. For example, a customer may want to be alerted to new books and compact disks by favorite authors and musicians or may want timely customer service information on an electronic device that he or she has bought.
The new power and precision made possible by these Internet software technologies carry the potential for great abuses.
"The important thing is whether or not it is genuinely opt in," said Tara Lemmey, the president of the Electronic Frontier Foundation, a nonprofit foundation here that focuses on civil liberties in cyberspace. "Then companies can get around spam and other issues as well."
But it is just as easy to lose a potential customer when using commercial e-mail incorrectly, Internet marketing experts say.
"You can do great damage to your brand quite quickly," said Preston Dodd, an Internet analyst at Jupiter Communications, a market research company in New York, "because your customer can respond to you almost instantly with a message like, 'Stop sending me these e-mails you blankety-blank.' "
So Brondmo, who was born in Norway and graduated from the Massachusetts Institute of Technology's Media Laboratory, is carefully picking his way through a potential minefield with Post Communications, the business he established in 1996 in a converted brewery in San Francisco's multimedia gulch.
Today, Post provides clients with customized marketing programs based on software tools that blend traditional database marketing with e-mail focused on specific consumers.
Many Internet marketers are confident that e-mail will transform the traditional direct-mail world, which came of age in the era of mainframe computers. Today's paper-based direct mail is based on information drawn from customer lists and demographic data.
Moreover, he argued, in building a relationship with a customer a company creates a much more powerful and receptive market. Selling to a new customer is 5 to 10 times more expensive than selling to an existing one, he said. That is because the marketing costs incurred in attracting new customers are extremely high compared with the cost of simply notifying existing customers that a new version of a product or a peripheral add-in is available.
Brondmo contends that it is possible to stand the old $160 billion direct-mail marketing world on its head by honoring the Internet's cultural values of privacy and user control while using powerful server computers to identify specific customer preferences.
"I don't believe there is a single customer in the world who wants a marketing relationship with a company," he said. "Customers want a service relationship." That subtle shift is one that has not caught on yet among direct marketers, who still use costly "campaigns" that send unsolicited mailings to millions of people. The direct-mail world has traditionally counted on the statistical assurance that it will obtain a 1 percent or 2 percent return from each mailing campaign.
But in the digital world, where such campaigns are reviled as spam, there is an explosion of start-up companies creating a thriving industry variously known as digital direct marketing, online direct marketing or electronic direct marketing.
In addition to Post, there is a variety of service providers and software application companies, like Digital Impact, Messagemedia, Media Synergy, Flycast, Connectify, Kana Communications and others, all trying to help companies build electronic relationships with customers.
Many Internet commerce experts think that digital direct marketing is the future of electronic commerce on a much larger scale and that it will soon begin to displace other types of Internet advertising like banner advertisements.
"The pace at which this thing is moving is remarkably fast," said Marc Singer, the author of "Net Worth" (Harvard Business School Press) and a co-leader of McKinsey & Company's Continuous Relationship Marketing business here.
The reason, he said, is that electronic direct marketing is much more profitable than other online advertising strategies. He estimated that marketers who used banner ads spend as much as $1,500 a customer. In contrast, the per-customer cost of electronic mail marketing may be as low as $50 to $100.
For Post's first client, the Palm Computing unit of the 3Com Corporation, the makers of the Pilot hand-held computer, e-mail substantially changed the company's relationship with its customers by giving it more control.
"When I saw what Post was doing, I remember coming back and telling my colleagues, 'I've seen the future of direct marketing,' " said Andrea Butter, who was then the marketing director for Palm's consumer business. With Post, Palm Computing, based in Santa Clara, Calif., created an e-mail service program for its customers, asking whether they wished to receive occasional electronic messages about their Palm Pilots.
Customers instructed the company on its Web page about the kind of communications that they wanted and how frequently they wanted e-mail sent.
The program was an instant success. The company had already compiled a large database of e-mail addresses of its customers and 25 percent of them responded that they were interested in receiving e-mail tips and marketing information.
For Ms. Butter, the new program, which Palm named In-Sync, provided a clear way to save on staying in touch with her customers and to provide her with an avenue to advertise in a way in which the customers felt they were being served.
"It turns the world upside down," she said. "A normal ad in a magazine is completely self-serving. As a marketer you have to realize that unless you can add value, the customer is likely to ignore you."
Brondmo, who began his career as a software developer and has worked at Apple Computer and the video editing company Avid, among other enterprises, contends that the most important aspect of the new technology is that Post can transform a marketing relationship into a service relationship.
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Post's service can generate as many as 300,000 e-mail messages an hour for a client, with far more individualized content than is possible in the off-line world.
He says that if a company uses e-mail effectively, it will have the opposite effect of spam. "The best possible e-mail marketing campaign would be one where when the customer hasn't heard from you by midweek, he'll send you e-mail asking why," he said.
Post clients, like Music Boulevard and Harlequin Publishing, use the service to alert their customers to titles of interest. Wegmans, an East Coast supermarket chain and a Post client, is experimenting with shopping lists and recipes to build customer loyalty.
For Ms. Lemmey of the Electronic Frontier Foundation, the intimate relationship that Internet marketers dream of raises other potential concerns that have not been addressed.
While there has been much glowing talk about the ability to determine user preference, so much so that it has been established as the Holy Grail of Internet marketing, there may be an unforeseen dark side, she said.
"There is a fine line between targeting and redlining," she said. "What if an insurance company or an H.M.O. knows that you're reading about cancer or Alzheimer's disease online? They may decide not to issue you an insurance policy or provide health care."
She acknowledged that she did not know of such cases, but added that the discussion over the meaning of opt in was only beginning for the fledgling online direct marketing industry.
"Just because someone says it's O.K. to use my personal information to target me doesn't say for how long," she said.
Brondmo acknowledges that in the Internet world the values of the old direct-mail industry no longer apply. He says that if that new technology is to gain the confidence of the Internet generation, the companies will need to rethink their outlook.
"I tell them, 'Ask not what you want to know about your customer, but rather what your customer wants to know about you," he said.
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