Email Marketing Continues to Bode Well for Online Retailers

Yesterday, I finished reading through The State of Retailing Online 2007 report issued by and Forrester. The report has a lot of interesting and compelling insights for email marketing.
Here are a few highlights:

  • “Paid search is the most effective marketing tactic for customer acquisition … email marketing continued to the most effective for customer retention.”
  • Email marketing to house lists the most popular and effective. 91% of online retailers do this. Email marketing to prospecting lists is less common with only 27% of retailers doing this. Makes sense.
  • “… retailers find that emails about new products are much more effective than simple transactional or sale messages.”

Great points. I found that the third point to be particularly insightful. At the most recent conference, I led an email marketing panel with two of our customers — Trek Bikes and Hancock’s of Panducah.

Both customers explained that their most effective campaigns entailed introducing new bikes or the latest fabrics, respectively. I like to refer to these as “inside the castle” campaigns. They are often very successful because they build trust with the audience by giving them the inside scoop to what’s going on. This success ultimately translates into higher number of conversions with larger orders.


Constant Contact for your 401k

Should you invest in Constant Contact? The stock is still hanging strong at $29 per share. But, as explained in the recent Motley Fool article “Constant Contact’s IPO Blast”, the laws of financial reality don’t play well into its favor.

Constant Contact spends more than 60% of revenue on sales and marketing. But there’s more. After all, the company shells out 23% of revenue on R&D. So it’s no surprise that Constant Contact has been posting losses. For example, there was a net loss of $6 million for the first half of 2007.

Still, Constant Contact is trading at a much higher revenue multiple than is, which is a premier on-demand operator. So while I think Constant Contact has built a solid company, the valuation is too rich for my blood and looks out-of-whack for its sector — where valuations are already frothy. For Foolish investors, having no contact is probably the best policy.

Agreed. The valuation is very rich. At even half the price, they are still riding a valuation that is at a premium to what the rest of the market is seeing.

Message to Exact Target: file your S-1 while bubble-nomics still reign!


Constant Contact Today … Exact Target Tomorrow

The valuations of email marketing companies have come a long way. Bronto was founded in 2002, in the midst of the dot com bust, when the valuations on technology companies were not much more than the values of the computers in their offices. We were immune to fluctuations in the market since we grew organically and were very shrewd with very little cash. This discipline let us grow while others were stumbling.
Fast forward a few years and the world has changed. EmailLabs, one of our competitors, was purchased in late-2005 on a 2x multiple — $20mm for roughly $10mm/year in revenue. Last year, VCs told me that they valued email marketing companies like Bronto at multiples of 2 to 4x revenue. More recently, the multiples have been closer to 4 to 6x. Email marketing / software-as-service companies are definitely en vogue and the Constant Contact furthers their popularity even more.

Constant Contact went public with a valuation of 9x revenue and now is sitting somewhere closer to 20x. In undoubtedly, they are valued at a premium because of their dominance and story with the small business market, but that’s a big premium. Of course, sometimes the market as a whole gets a little wacky, but their success, assuming it sustains, will certainly swing up the valuations for everyone in the space.

Will it last … probably not. Bubble-nomics never do. But, I am sure a number of companies will try to strike the iron while the iron is hot. Exact Target is my top guess for a number of reasons:

  • Significantly VC funded for a while so there’s pressure to sell;
  • Email marketing / software-as-a-service provider which can be easily comp-ed against Constant Contact;
  • Roughly $40mm in revenue just like Constant Contact so the comp plays well for the investment bankers here too.

I have to imagine that Exact Target is finalizing their S-1 right now — they would be crazy not to.


Constant Contact’s Bubblicious IPO

Constant Contact had a great IPO debut today — 73% increase in one day. Wow!
Constant Contact is an email marketing provider targeting small businesses. They have been at it for a number of years and have developed a strong base of over 130,000 small business customers. With that large of a customer base, we could not have helped but compete with them at Bronto. We compete with them less now that we’ve moved more upmarket but still show up fairly often with our small business customers.

So, what are they going to do with their new found $100mm in cash? The obvious and stated play for them is to extend their strength in email marketing with small businesses into other avenues — online surveys are natural choice, which they added in June. I would expect them to use some of their new found cash to acquire someone with a stronger position in that space — Zoomerrang or SurveyMonkey. If it happens, you heard it here first. I can also see acquisitions of other companies with like products geared toward small businesses. I don’t see them purchasing other small business focused email marketing companies. Acquiring companies with complementary products is definitely the way to go.

The strong showing is exciting and validating for Bronto, but I cannot help but find this IPO reminiscent on ones from the tech bubble six years back. 73% one day rise for a company with about $40mm in revenue this year, unprofitable and high customer acquisition costs. There’s something positive there but I would suspect their stock has a bit of a roller coaster ride in front of it.

As they say, “rising tides raises all boats” so congratulations Constant Contact with a strong IPO. We look forward to seeing what you do.


3 Rules for Naming Companies

"What’s in a name? That which we call a rose
By any other word would smell as sweet."
–From Romeo and Juliet (II, ii, 1-2)

Shakespeare was obviously not a technology marketer. I would argue that names do matter and that the name sets the tone for a company and its products. Would Apple be Apple if it were named "American Personal Computer Corporation" — No. The company might have been larger (boring company name exhibit A — IBM) or more profitable (boring company name exhibit B — Microsoft) but not have the same spunk and creativity that we have come to enjoy and expect from them

So, thinking of naming a company? Here are some simple rules:

  1. Give it a personality.
    The great challenge in marketing technology is putting a personality on what you do. Some how "Distributed Computing of Large Scale Crawling Projects" or DCLSCP wouldn’t be nearly as compelling as the name Google, although the name probably more accurately describes the founders’ original intentions. Bronto Software is named after a distinguishable thing, which helps us immensely in establishing a brand around a set of web services. Red Hat, named after a lacrosse’s cap of one of its founders, followed similar thinking and out branded their competitors with faceless names like Caldera, TurboLinux and Suse.
  2. Avoid initials
    Too often I see companies that decide to name themselves after the initials of their founders. This tends to more common in small consulting services. Avoid this temptation. Although self-flattering and cool for about 30 seconds, you’ll be wasting a perfect branding opportunity — refer to rule #1.
  3. Include what you do
    Insert the company’s function into the name, especially when you are just launching the business. I know that the rave in the Internet space is to think of something clever like Yahoo or Google but, in general, I prefer company names that spell out the function a little more clearly. Is this contradictory to #1 and #2? Doesn’t have to be. For example, Bronto Software started off BrontoMail. Only later did we switch it to have broader scope. Earlier on, it is easier to land sales and market with a self-descriptor in the name. Plus, if the business takes off, then you can name it whatever you like and not worry about naming suggestions in blogs such as these.

The rules and thoughts about naming may vary but one truth remains — naming matters.


Marketers of the World — Segment!

Next month I am going to the Inbox Marketing Conference in California and participating on a panel titled “Bull’s eye! Improving your Email Aim with Segmentation”.
In preparation for this, the other panelists and I had a conference
call this afternoon to discuss ideas and the best format for the panel.
As our conversation began, it became very obvious that we all plenty of
thoughts on the topic.

Here were a couple key takeaways:

  • Segmentation and personalization are all about making your email
    marketing messages more relevant to the end recipient. The more
    relevant they are then the more effective they will be in driving whatever you
    want (e.g., clickthrough rates, conversions, …)
  • Everyone knows segmentation improves results but very few
    marketers do it. Too many marketing teams, even the ones that rest in what you think would be sophisticated companies, still rely on batch + blast —
    send the same message to your entire audience.

Why do marketers do what everyone knows is less effective? The
reason for this is the same reason for just about everything in life.
It’s easier. Why do I eat out for lunch every day? It’s easier. So, my call to marketers of the world is to resist the low road and segment. The results are well worth it. Plus, I realize that email marketing products are not as intuitive as they need to be in this area. Be patient — we’re working on it!

There were many more interesting points on segments, like my theory
on the four dimensions of segmentation, but, since I had vague notions
of exercising tomorrow morning, I’ll have to cover that on a different


Put the marketing into email marketing

Email marketing is very effective when done right. The problem is that too often it is done wrong and people end getting frustrated with their service versus identifying the real issue — sending emails is one thing. Doing effective marketing is entirely different.

Email marketing services like Bronto are fairly easy to use and very powerful for communicating with large audiences. However, easy and powerful doesn’t necessarily make it effective — that’s where good ole’ fashion marketing principles come in:

1. Know your audience

2. Personalize and tailor your message

3. Target accurately

4. Test, iterate, and test again

These things determine whether email marketing works or not — much more than high delivery rates to AOL or the latest viral marketing widget in the message’s footer. Perhaps not as cool but effective nevertheless.

Bronto provides incredible rocket fuel in the form of great delivery rates, reporting tools and list management. But, at the end of day, if the rocket is pointed the wrong direction, the results are not going to be here. Insightful support and account management teams can help some but, ultimately, they can only do so much when they are not sitting in the driving seat.

What to do? The onus is on email marketing companies to innovate their offerings by deeply interjecting “best practices” and weaving marketing wisdoms into their products. This goes beyond providing comprehensive documentation and tutorials but rather making it very easy for customers to do the right thing and clearly identify when they are veering off track. I haven’t seen any email marketing vendors that do that well. Why? It’s hard. Ask any computer science professor the challenges in coding an artificial intelligence program that comes across somewhat intelligent — not easy to do. More often than not, the computer program mimics a psychopath that jumps from one non sequitor to another.

So, the challenge rests with us and were working on it. Pass on any suggestions that you have on how to do this well — we’re listening! In the meanwhile, get cozy with this article on basic email marketing best practices from Forrester Research. It should tie you over until we innovate something brillant.