A message from Yahoo:

If you received this column via email, we’d like to take this opportunity to thank you for subscribing and to let you know we’ll be sending you additional columns via email every week. We know that when you signed up to receive this column via email, you were asked if you wanted to receive other columns via email, and you declined to receive other columns via email, but we’re so sure you’ll enjoy the additional columns that we’re going to start sending them to you anyway. Oh, and we’re also going to send you email from our third-party partners. And invite them to call you on the phone, and send snail mail to your home and office. After all, we know where you live and work. By the way, we’re doing this to serve you better. If you don’t want these emails, phone calls, postcards, and letters, just go to the subscriptions page and unsubscribe from the emails we just subscribed you to receive.

If this column were published by Yahoo, you might have gotten a message very much like this one last week. Because this is exactly what Yahoo is doing to users of its free email.

I love Yahoo I use its free email and My Yahoo I have a team in one of its Fantasy Baseball leagues. I have a good friend who works at Yahoo When my father-in-law got his first computer last year, the first thing I did was set his home page to Yahoo It’s usually the first site I see in the morning and the last site I check before I go to bed. On April 3, I received an email from Yahoo with the following subject line, “Message from Yahoo about changes to our Privacy Policy and your marketing preferences.” I thought only I could change my marketing preferences…

My interest was piqued enough to open the email. As I read, I thought my eyes deceived me. The email read, “We have reset your marketing preferences and, unless you decide to change these preferences, you may begin receiving marketing messages from Yahoo about ways to enhance your Yahoo experience, including special offers and new features.” Was this an April Fool’s joke? Reset my marketing preferences? Begin receiving marketing messages?

I went to the marketing preferences page to learn my Yahoo experience had been enhanced by subscriptions to receive emails in no less than 13 interest categories, ranging from “Meeting Someone Special” to “Finding a Job” (my bosses at MarketSmart will be happy to hear that). If that weren’t enough, I’ll soon receive marketing communications at my house through postal mail and telephone calls (never mind I already subscribe to the State of Florida’s do-not-call list). The category picks were not based on observed data (i.e., what users do) or self-reported data (i.e., what users say). They were based on fabricated data that holds no value to Yahoo or its advertisers.

I realize Yahoo is a business and needs to make money. I realize that I’ve been gravy-training its free email service and that by taking some liberties with my marketing preferences, it stands to make some badly needed incremental revenue to assist it in realizing its projection of about $900 million in revenue this year. But how much money will advertisers pay to purchase my name when Yahoo associates me with interest categories in which I have no interest? If Yahoo sells my name 104 times in the coming year (twice per week), earning $0.02 each time ($20 CPM), it will make a whopping $2.08. Does really want to pay $0.02 to market its service to a happily married man with a first child? There must be a better way.

Sanji Gunawardena, an associate at Howe Strategic in Atlanta, has a plan he believes is that better way. It’s relatively simple and more directly matches Yahoo’s long-term goal of reducing dependence on advertising and selling more services directly to users. Gunawardena’s wants to ask Yahoo email users to pay a nominal annual fee. He’s not talking anything major here, certainly not the $263 per year millions of people pay AOL for Internet service. Users would be asked to pay $1.00 to $3.00 per year for Yahoo email. I can hear the campaign now, “You can’t get anything for $1.00.” “No, you can get an entire year of Yahoo email for $1.00.” That’s pretty catchy (note to self, copyright this ASAP).

Run the numbers. Yahoo has about 86.5 million email users. At $1.00 per year, Gunawardena projects 75 percent would convert, generating nearly $65 million in incremental annual revenue. That’s 7 percent of the revenue Yahoo projects will be generated this year. At $3.00 per year, Gunawardena projects 50 percent conversion, generating nearly $130 million in incremental revenue. That’s more than 14 percent of the 2002 annual revenue projection.

Gunawardena makes interesting points on the impact of losing users unwilling to pay a fee:

  • Yahoo is a market leader. When Yahoo moves, others follow. Gunawardena says there’s a better than even chance if Yahoo implemented an annual email fee, other free email services would follow suit. He likens this to what took place in the airline industry when Delta eliminated travel agent commission. Every airline followed suit, recognizing a revenue opportunity. If all free email service providers charged a nominal fee, a monetary incentive for Yahoo’s users to change providers would be eliminated. Thus, a higher percentage would convert to paying users.

  • If competitive email providers don’t begin charging a fee and some Yahoo users switch, remaining Yahoo users are more valuable to advertisers. Gunawardena reasons users who switch would do so out of severe price sensitivity. If they don’t have $1.00 to spend on email, they’re likely to be just as tight with their wallets when it comes to buying other products and services. Severely price-sensitive consumers are less attractive to advertisers. Yahoo’s ad inventory will become more valuable when a fee is implemented. Consumers who see the ads are less price sensitive and therefore more likely to pay for advertisers’ goods.

As a Yahoo email user, I’d certainly pay up to $3.00 per year to use the service. That’s the same amount I paid to use an ATM in New Orleans recently. I get more value out of Yahoo email than I did out of that one-time use of an ATM. I’d be even more willing to pay if Yahoo guaranteed it would not change my marketing preferences or send marketing communications without my express permission.

Would you pay a nominal fee for email if the provider guaranteed it wouldn’t send marketing messages without your prior consent? What do you think of Gunawardena’s plan? Let me know. I’m eager to hear the points of debate.

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