Late Entrants Play Catch-up in E-Mail Marketing

What’s the hottest marketing medium that the industry’s biggest players are throwing money at? It’s the Internet’s original “killer app,” the most widely-used, but, until now somewhat overlooked, technology — email.

In the past few weeks, the industry has seen the two leaders in the advertising business — CMGI Inc. and DoubleClick — make big moves to stake claims in direct email marketing. CMGI (CMGI) recently acquired yesmail.com in a deal valued at around $500 million; and DoubleClick (DCLK) recently laid out plans for the launch of its direct email products, acquiring Opt-in Email.com in hopes of accelerating its entry into the market.

Suddenly email direct marketing is a “must-have” capability. Why now, when email has been around since before the web?

“E-mail marketing is a relatively new medium,” says Dave Tolmie, yesmail.com’s president and chief executive officer, “and I think it’s taken a relatively long time to gain traction because of concerns about spam.”

Advertising in email newsletters has been equally slow to catch on.

“Everybody I was talking to, of course, used email, but they were so in love with the Web that they didn’t recognize that email could be an advertising medium” said Tom Watson, co-founder of @NewYork.com, an internet.com publication that began as a newsletter in 1995.

But now, it appears, both email direct marketing and newsletter advertising is taking off. The concept of opt-in email is growing more widely accepted, and advertisers are beginning to recognize the value of highly-targeted email newsletters.

Tolmie refers to it as an “inflection point,” where an interesting new approach becomes a “must have.” The growth and consolidation is apparently a response to advertiser and marketer demand for one-stop shopping and coordinated campaigns. “As we build a relationship with the client,” says Tolmie, “they ask ‘can you do this other thing for me?'”

So the biggest players are rushing to add these capabilities to their arsenals, either acquiring other companies or building new products themselves. DoubleClick has taken this second approach, saying that building was more cost-effective than buying.

“We tried to build a system that anticipates the needs of the market two years out,” said Eli Chalfin, DoubleClick’s vice president and general manager of direct response. “We feel it’s very compelling one-stop shopping.”

Although Chalfin’s company has announced its strategy indicating it wants to be a player in this game, it won’t actually have products until next year. DART for Publishers, a solution that inserts ads and content into email newsletters, will have its beta launch in early January, and will officially be offered at some point in the first quarter. The second offering, DART for Advertisers, a direct-marketing product, won’t be ready until the second quarter. The acquisition of Opt-in E-mail.com was an attempt to jump-start the company’s entry into this second market, since DoubleClick is trying to quickly serve clients of another of its acquisitions, Abacus Direct.

What DoubleClick hopes to create with all of these moves is a full-service shop for advertisers, where they can come to buy ads across its networks, as well as in email newsletters. While they’re there, perhaps advertisers will also pick up a targeted list of email addresses, or do a campaign.

“What we felt was the compelling value proposition here,” said Chalfin, “was an integrated solution.”

Perhaps another reason for the email marketing medium’s rise to prominence is the technology infrastructure that has been developed recently. It allows for meaningful tracking, analysis of results, and, soon, possibly e-commerce within an email message.

DoubleClick’s DART for Publishers, for example, allows publishers to compose email newsletters on the fly. Much as database-driven Web pages have revolutionized the Web publishing business, allowing for easy customization, something like DART for Advertisers could do the same for email publishing. The technology allows for newsletters to be personalized based on a profile associated with an email address; both content and ads can be tailored to target the individual. However, they technology has yet to appear in even a beta release of a product..

But even the current technology has become more compelling for marketers, now that HTML email, and HTML-capable email software, has become almost universal. “That’s really put it on the radar screen of marketers,” said Bill Jacobson, vice president of eDispatch, Flycast Communications‘ email division.

Flycast (FCST) , like DoubleClick, is in the process of building a suite of services for email publishers, which includes the formation of a network based on the kind of Web network that both companies operate. The network is to have its commercial launch in January.

All in all, the conclusion is obvious email marketing is reaching a new level of maturity. What will this mean for the smaller, yet more-established players like Digital Impact, Message Media, Click Action, Exactis, NetCreations, and Bigfoot Interactive? Well, mergers and acquisitions are all but inevitable.

“There’s no question there will be more consolidation,” said yesmail.com’s Dave Tolmie.

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