Advertisers discover opt-in e-mail

Forget spam. The hottest advertising medium right now is opt-in e-mail. "Almost everything related to e-mail is soaring in popularity," says John Audette, chairman of AudetteMedia, an e-mail publisher. Audette is so confident of prospects of e-mail marketing that he sold his interactive ad agency, MMG, to concentrate on e-mail publications.

The excitement is driven by success, says Michele Slack, a senior analyst at Jupiter Communications. Some lists get click-through and conversion rates of 5 percent to 15 percent, against banner click-through rates of 0.5 percent, she says.

While banner ads may have goals such as sales and brand awareness, it's getting recipients to join their own lists that most excites e-mail advertisers. These "house lists" draw the highest click-throughs of all, Slack says. "So many companies are trying to grow house lists as a result."

Rates for advertising in e-mail newsletters and digests, however, "are still all over the board," Audette says. While established publishers like IDG and Ziff Davis Media are getting rates as high as $90 per thousand subscribers, individuals are selling the same space for $9 to $10 per thousand.

The entry of the two leaders in ad serving -- DoubleClick and Engage Technologies -- into the space should only make the market hotter, says Ariel Poler, chief executive of Topica.

San Francisco-based Topica both hosts and owns newsletters and runs a directory of all letters. Poler says she signed an alliance with DoubleClick because "they're leading-edge media buyers" who have credibility with all types of advertisers.

Even hotter than the e-zines and digests are lists of people who have opted in to receive ads on subjects important to them. Advertisers pay an average of $200 per thousand names to rent such lists, says Eli Chalfin, vice president and general manager at DoubleClick's new DARTmail product.

"This is higher than in the offline world," Chalfin says, where lists of direct mail addresses go for $60 per thousand. "There's an oversupply of names in the offline world, where there aren't enough names in the online world. There's a shortage of opt-in names but enormous demand."

DoubleClick's e-mail list product, DARTmail Prospect, uses Topica's lists. Other players include ChooseYourMail.com, Digital Impact NetCreations and Yesmail.com.

In hosting and representing lists, leaders include List-Universe.com, PennMedia.com and Topica, but the market is very dispersed, Slack says.

Engage has entered the market with Flycast eDispatch, which is building an advertising network of e-mail newsletters, says Lyn Chitow Oakes, executive vice president and general manager at Engage.

Oakes says that $12 per thousand is her current price for run-of-network ads, despite the fact that e-mail click-throughs are higher than for banners. The rates can be much higher for targeted ads.

"There isn't that much inventory. It's just like the early days of banners," Oakes says. "As you get more newsletters you'll see click-throughs decline. Will it drop to the same level? Probably not."

To prevent that from happening, Chalfin says ad networks are working to bring all the advertising tools of the Web to e-mail. Instead of buying an ad that runs in HyperText Markup Language e-mail, for instance, DoubleClick delivers banners each time the message is opened "based on data elements in the publishers' database and on DART [Dynamic Advertising Reporting and Targeting] criteria."

This doesn't just work for publishers like IDG, but for house lists as well, Oakes says. "They monetize something they were using to increase customer loyalty."

While banner rates fall as inventory increases and click-throughs decline, e-mail inventory may remain tight, notes Kevin Lee, president of e-mail publisher Briefme.com. Publishers must "spend and promote" to keep circulation, and assure high-quality content, which also costs money. These costs should keep the cost-per-thousand rates high, he predicts.

List brokers must also beware of "subscriber exhaustion," says Geoffrey Ramsey, statsmaster at research firm eMarketer. "More equals less when it comes to e-mail. Volume is going way up, which means effectiveness goes down."

Ramsey's research indicates that "heavy e-mail users" who get more than 60 messages per day become choosy about the lists they will join. Still, "Spending is going up for e-mail advertising," he notes.

That will continue, says Rick Bruner, vice president at consulting firm IMT Strategies. Bruner's recent survey of e-mail recipients and marketers concluded that even at present prices for list rental, it will cost $20 to gain a customer through an opt-in list, vs. $100 for Web banners and $50 for direct paper mail.

"The cost economics of e-mail will be sustainable for the long term," Bruner says. Advertisers can also cut those costs by using the lists of their marketing partners, he adds.

These kinds of innovations should keep the e-mail market growing, Ramsey concludes. "We predict e-mail will be 11 percent of ad dollars in 2003, up from 2 percent. That's $751 million this year growing to $2.3 billion in 2003."