What is Happening to the Direct E-Mail Marketing Industry?

Washington, DC (January 26, 1999) – Two of the three major providers of direct e-mail marketing services recently went through significant corporate restructurings, leading to speculations about the stability and viability of this industry. On December 16, 1998, E-mail Publishing, Inc., one of the top three companies, merged with First Virtual Holdings, Inc. and Distributed Bits, L.L.C., forming MessageMedia, Inc. On Jan 21, 1999, the board of InfoBeat, Inc., another of the top three companies, fired the company's founder and chairman, John Funk, and the CEO, Raymond Van Wagener Jr. The company also announced the sale of the InfoBeat brand and of the InfoBeat newsletters to Sony Music Entertainment, continuing its other operations as Exactis.com, Inc. In this bulletin, the third and largest major provider, L-Soft international, Inc., is releasing previously confidential information in order to assuage the legitimate concerns arising from this sudden spell of reorganizations.

L-Soft is primarily known as a software vendor. Its flagship product, LISTSERV®, is the most widely used commercial mailing list management system. When combined with LSMTP®, L-Soft's high-performance Internet mail server, and a SQL database such as Oracle or SQL Server, LISTSERV turns into a Web-enabled system for the speedy delivery of large volumes of customized e-mail messages – up to 1 million hourly deliveries on a single deskside server.

But L-Soft also runs the largest e-mail list outsourcing service in the Internet (sold under the ListPlexSM brand name), with 8-10 million daily deliveries. For reference, InfoBeat delivers 4 million messages a day. L-Soft manages outsourced systems for companies like Adaptec, Continental Airlines, the Gartner Group, IBM, IDG, Mecklermedia, Microsoft and Ziff-Davis – essentially the same types of customers who work with InfoBeat or MessageMedia, and indeed some of them have gone back and forth among the three companies.

While direct e-mail marketing is a new industry and one where it is certainly possible to make mistakes and lose money, these are short-term growing pains. The industry is inherently sound – and profitable. Launched in 1995, L-Soft's outsourcing services have been consistently profitable since 1996, both as a whole and by category (hobby lists, discussion lists, newsletters, personalized e-mail). This in spite of the lack of publicity for the service.

"While the technical side of the house has always been very committed to the outsourcing service, until recently it was a kind of technological showcase with no marketing budget," says Gabriela Linares, L-Soft's VP of Marketing. "The service only amounted to a few percent of the company's revenues, and at best we could mention it briefly if we wrote a product flyer and said that LISTSERV and LSMTP have been tested in-house on servers delivering up to 10 million messages a day. Admittedly, our service kept growing at about the same rate as the competition anyway, so there was hardly any crisis."

But the proportion of revenues coming from outsourcing has now moved firmly into the two-digit range. Even the EASESM Home hobby list service, which accounts for about 10 percent of the delivery volume and is sold at budget rates, now brings in 6-figure revenues. "Everyone was surprised that ListPlex was growing even faster than the software division," says Linares. "Volume ramp-up is not the most important actually. The beauty of this industry is that, once a customer sees the benefits of the technology, you can start selling all sorts of additional services, and your per-delivery revenues increase. At the same time, you are helping the customer save money."

This growth rate has brought new focus (and a real marketing budget) to L-Soft's ListPlex services. But if things are so simple at L-Soft, why the restructurings elsewhere? "Perhaps things went smoothly for us precisely because we never tried to establish ourselves as the leading outsourcing provider," says Eric Thomas, L-Soft's founder and CEO. "This is a new industry, and one where it is very difficult to predict what will happen and how soon. Remember the first laptops? Everyone was supposed to have or at least want one within a year. The analysts got everything right, except the time frame. I think some companies were much too optimistic when they made their business plans, and revenues just did not come when called for. They need new funding, a new plan, maybe even a new team. Some may not make it, but there will be two new companies for every loss."

Commenting on the threats that the outsourcing industry may have to face, Thomas notes: "By far the biggest threat is the potential for personalized e-mail delivery to become a commodity. Take Sony, for instance. If they were to call me tomorrow and ask if we can deliver 4 million personalized messages a day, at what cost and when, I would say yes, 30 percent less than whatever Exactis.com is charging you, and within 2 business days. We have the highest volume and lowest unit costs, so we would still make a profit, and a large part of ListPlex's success is that we can usually say yes to any offer within 48 hours, no matter how outrageous the volume may be. Of course, Sony's hands are probably tied – anything else would have been suicidal."

"But few clients are in this situation. In reality, the premium outsourcing services are all different. At L-Soft we have the highest volume, lowest costs, fastest delivery. We are a technology company, and this is where we excel. Perhaps our biggest advantage is that we are actually a software vendor, so if you later want to take everything in house, it can be done very smoothly and with no hard feelings on our part. InfoBeat used to have a frighteningly effective trump card (now in Sony's part of the company) – they could advertise your product or service to the 2-3 million people who subscribe to their InfoBeat news service. And E-mail Publishing has always been more of a total solution provider, appealing to customers who found L-Soft too technical. For many and perhaps most clients, there is a logical choice based on what they need from the provider. I think the e-mail outsourcing sector will evolve into a kind of specialized consulting industry, with perhaps a few players (first-tier ISPs and telecoms come to mind) choosing to specialize in massive volumes of plain, commodity-priced deliveries."

As a software provider, L-Soft is in the unusual position of having to work hand in hand with competitors – companies that have licensed L-Soft's products to implement an outsourcing service. While in most cases a gentlemen's agreement establishes that neither company will actively solicit the other's clients, on occasion customers have been transferred – in some extreme cases, key customers. "It always amazes me how smoothly such situations are resolved," says Ben Parker, Chief Corporate Consultant for L-Soft. "There's a kind of competitive cooperation in this industry that you don't find elsewhere. When a take-over is about to happen, the sales rep usually notifies the technical people, who have a chat with their technical contact on the other side, who in turn go explain to their sales team why it's better this way for the client and why it's so important to think globally, for the sake of the industry. Clients don't have a lot of other choices and it's better to keep them thinking positively about e-mail marketing."

"I wasn't at all surprised when I heard that Eric [Thomas] was helping E-mail Publishing defend a lawsuit. In another industry, you could get fired for less, but we're much more cooperative. There are of course a few companies who don't play along, but that usually backfires. For instance, we've delivered 500,000 messages for a competitor who found themselves in a last-minute pinch. We didn't even charge them and as they grew less able to handle the volume growth, eventually they just gave us that client. It would have been easy to let them fall on their face, but that particular client would probably have decided to give up e-mail and stick to the Web, except we didn't know that at the time. Because spammers and fly-by-night e-mail marketing firms have given the industry a bad rep, friendly competition does a lot more for us in the long term: it boosts the customer's confidence in the system."

About L-Soft

L-Soft international, Inc. is the premier provider of electronic mailing list and mail delivery solutions used on the Internet and intranets. With a growing demand for scalable e-mail communication solutions, L-Soft's innovative, Web-enabled technology offers an extensive portfolio of products and services for non-technical and expert users alike. Solutions range from high-performance software to custom list hosting services, providing large to small-scale alternatives for e-mail newsletters, discussion groups, or "mail merge" (targeted, customised messages prepared with the help of a database back-end). Launched in 1986, LISTSERV® delivers 30 million messages on an average weekday to the subscribers of over 120,000 LISTSERV lists worldwide.

Among L-Soft's clients are IBM, AOL, Intel, Microsoft, ZDNET, Compaq, AT&T, Netscape, MCI, Lucent Technologies, Charles Schwaab, CNET, Citicorp, Legg Mason, Dow Jones, NASA, United Nations, Sprint, Tribune Company, Wall Street Journal, Washington Post, The New York Times, IDG, CNN, USA Today, National Geographic, Lifetime Television, Disney Publishing, Time Warner, Women's Wire, Mecklermedia, MCA Records, Universal Studios, the majority of U.S. government departments and international universities.

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