What happened to the e-mail companies?

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E-mail is a great business tool, but that doesn’t mean gathering and renting e-mail lists has turned into a great business. Like the rest of the Internet sector, e-mail marketers look nearly worthless in a bear market.

Digital Impact Inc. may be typical. The company ramped up for fast growth and lost $1.70 per share in its most recent fiscal year. It’s still hiring key executives, it’s growing revenues, and in its public statements it insists all the news is good. All the news may not be good, but Digital Impact isn’t about to admit it. My request for an interview for this column was turned down, indicating once again that success has many fathers but failure is an orphan.

The fact is financial fashions changed last year. Both public and private financing windows have closed on the dot-com industry and those who serve it. When I started writing this, MessageMedia Inc.’s stock was trading at just over 50 cents a share, down from a 52-week high of about $22. NetCreations Inc. was at $4 a share, down from $64, before being acquired for $7 a share by SEAT Pagine Gialle SpA. (SEAT publishes Italy’s Yellow Pages and is partly owned by Telecom Italia.)

Tom Kuegler, a columnist for and VP-ad sales with TargetFirst, a Santa Clara, Calif., e- marketing company, called what happened to these e-mail companies the "Titanic effect."

"The banner industry implodes because there is too much inventory and too few buyers, so everyone shifts to the other side of the boat. But as this happens, that side of the boat becomes overloaded," Kuegler said.

The result is good, if you’re looking to rent an e-mail list. The cost to rent or buy names is falling. "Marketers should play hardball and demand lower rates for e-mail advertisements," he said.

Kuegler suggested smart companies use the savings on list rental to build their own integrated marketing databases "so they may extract value from these people."

To e-mail list vendors, it means integration has moved from being a buzzword to being a necessity, said NetCreations President-CEO Rosalind Resnick. "We need to build a database that includes postal addresses as well," she said. E-marketing, in other words, has to become just marketing.

Resnick insisted that online companies like hers still have advantages over offline competitors. "We can collect data faster at lower cost," she said. E-mail companies such as NetCreations can get paper addresses faster than direct mailers like MetroMail can get e-mail addresses, she said.

But all list brokers must become direct competitors in any case, she added. "This is all about database marketing," she said. It’s moving toward that. Both sides of the direct marketing industry are coming together because it’s what marketers want. They want that flexibility."

In addition to flexibility of medium, marketers also want flexibility of location. That, and financial strength, were behind NetCreations’ decision to back off a merger with DoubleClick Inc. in favor of SEAT, Resnick said.

The trends Resnick depends on for survival should be simple common sense. You have one business. Your online sales are just sales, like those obtained in any other way.

E-mail lets you interact directly with customers and prospects, but these are the same customers and prospects you would have if e-mail and the Web

didn’t exist. When you integrate your databases, then contact customers and prospects on their terms, your results are bound to improve.

Still, don’t worry too much about the problems of the e-mail industry. You’ve got to survive, too.

Dana Blankenhorn is a free-lance journalist who specializes in Internet issues. He is publisher of the Web site

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