From $1,000 to An IPO in Only Four Years
New York entrepreneur Rosalind Resnick finds riches in E-mail direct marketing
You get what you see with Rosalind Resnick. A New Yorker who has spent most of her professional life in Florida, she's at once take-charge and charmingly polite. It's this no-nonsense but earnest approach -- plus a little luck and more than a bit of business savvy -- that has enabled Resnick to pull off an unusual feat: create from scratch a profitable online company on a pay-as-you-grow basis -- with no outside backing.
A former business reporter for The Miami Herald, Resnick is CEO of NetCreations Inc., a four-year-old company started with $1,000 of her own savings. It has morphed from designing Web sites to selling software that registers Web sites with search engines to, for now, collecting and selling lists of E-mail addresses to direct marketers.
That places Resnick in a nice niche at just the right time -- when one of the hotter ideas in Web advertising and E-commerce is reaching customers via E-mail. Indeed, unlike such luminaries as Amazon.com, NetCreations is making money: It earned $600,000 in 1998 on revenues of $3.4 million. It has also just filed to do an initial public offering in the fall, in which it will seek $57.5 million from the public in return for an undisclosed percentage of the company.
SMALL-BUSINESS CLIENTS. NetCreations specializes in persuading individuals to sign up for "opt-in" E-mail lists, then brokering those lists -- for as little as 10 cents a name -- to anyone with something to sell. With a database of a few more than 3 million E-mail addresses, more than 170 Web-site partners that use NetCreations to help do their marketing, and about 2,000 direct-marketing customers, the company is helping sculpt the future of Net advertising.
It's also in the business of helping companies like itself: small ones. "We've made it possible for small businesses to do direct marketing on the Net for the first time," Resnick says, adding that more than 50% of the company's list renters are in that category. "We only require a minimum order of $400," she adds, compared with offline direct marketers who often charge a minimum of $2,500.
As Resnick sees it, she's also helping consumers. "Most consumers like me -- they don't have time to spend hours surfing the Web," she says over a spaghetti dinner at her favorite Italian restaurant in New York City's Soho district. "If it doesn't come to me, I won't see it." She believes that targeted marketing boosts online sales and attracts loyal customers. "E-mail is definitely the way to go," she asserts.
Indeed, online advertising agency execs have been biting their nails over the past year, as they watch the so-called click-through rate on Web banner ads fall. At the same time, they've taken note of the effectiveness and low cost of E-mail marketing.
POTENTIAL GOLD MINE. It's "outpacing telemarketing and traditional direct mail as the fastest-growing form of business-to-business marketing," declares a recent report from the Direct Marketing Assn., a trade group. Indeed, analysts estimate that 135 million people will use E-mail by 2001, and some 250 billion commercial messages will be sent by 2002.
All this would seem to indicate that Resnick has tapped a potential gold mine. The idea behind "opt-in" E-mail marketing is that individuals give permission to get promotions from companies they want to hear from. Through its service, PostMasterDirect.com, which can be reached via the company's Web site or one of its partner sites, NetCreations asks visitors to sign up for categories that interest them, then rents lists of these people by subject.
The response, in many cases, has been greater than expected, Resnick says, generating sales as high as $50,000 per list per day. "We may not have as many names [or E-mail addresses] as companies that send out non-specific mail, but we guarantee that every address in our database is there because its owner wants it to be there," Resnick says. "It's a matter of quality over quantity."
The payoff also extends to partner sites, such as the portals AltaVista and NetZero, whose own opt-in direct-marketing services are run by NetCreations. "Our partners own the lists generated from their sites, not us," said Resnick in an interview prior to her IPO filing. "Typically they earn $4 per name a year, which means that a site such as NetZero, which has 400,000 names, could bring in $1.6 million in additional revenue."
METAMORPHOSIS. Resnick wasn't always such a fan of what is also called "permission marketing" on the Web. When she started NetCreations in March, 1995, she was simply a divorced mother of two with good instincts. "I knew from covering the industry as a reporter that the future was online," she remembers, "but I didn't have the technological expertise to do something with my ideas." So she hooked up with a programmer -- Ryan Druckenmiller, NetCreations' chief technology officer and Resnick's business partner. They started a Web design company that did well. "What we discovered, though, was that no matter how good the site, it wasn't enough to just put it on the Web," Resnick says. "You had to advertise it, usually via the major portals, to get people to visit."
This realization led to a metamorphosis of the company into a services firm that listed Web site addresses with search engines. The software Druckenmiller created, called PostMasterDirect, automated the registration process for site owners. More than 15,000 Webmasters soon started using it. As they did, they were asked to I.D. topics that interested them. "At the time, most people on the Web were technical types looking for free information and software," Resnick says. "We provided a community where they could find what they were looking for."
In November, 1996, Resnick got a request from a circulation manager at technology publisher Ziff-Davis to rent the Webmaster list. "Suddenly I saw that the business wasn't with the ISPs but with the $50 million [yearly] direct-marketing industry," Resnick says. "Other people were already starting to copy our technology. This seemed like the next logical step."
Resnick rented her lists for a dime per name, and then started selling management services -- both to list renters and to sites that wanted to create their own opt-in E-mail marketing service. In early 1997, NetCreations was reincarnated as an online direct marketer, built around what is now called PostMasterDirect.com.
KEY TO SUCCESS. NetCreations' client list includes Dell, Compaq, and IBM, plus E-commerce sites J.Crew, Gap, AT&T, and Sprint. The company fills 30 to 40 orders a day at an average of 5,000 names per list. Most E-mail ads promote sales or offer discounts and feature a hyperlink to a company's Web site. Others serve as a type of newsletter or bulletin, disseminating information about a company, industry trends, or product development. List renters simply indicate the number of addresses and the categories they want to send messages to, and NetCreations does the rest.
The key to success, Resnick says, is to ensure that messages are sent only to people who asked for them and pertain only to the subjects on which they want information. NetCreations uses a "double opt-in" process: Once a user has signed up, NetCreations sends a confirmation E-mail. Only recipients who affirm stay on the list. Moreover, advertisers never know the specific E-mail accounts that are being contacted on their behalf, Resnick says, and they never have access to personal information.
Given this approach, "the biggest problem hasn't been getting clients," Resnick says. "It has been getting the names." Part of this problem is solved by partnering with high-traffic sites that generate hundreds of thousands of names. Once Resnick gets a name, it's money in the bank. "With banner ads, a 1% click-through rate is considered good," she says. "Our mailings get a 5%-to-15% click-through rate."
Clothing cataloger J.Crew first used NetCreations' services for two E-mailings in the fall of 1997. "We liked the software so much, we asked them to duplicate it for us [to use in-house]," says Brian Sugar, J.Crew's new-media director. "Today, E-mail is always part of our marketing mix and holds one of the top spots in terms of generating sales." J.Crew sends out E-mail solicitations weekly and now has millions of names.
SLOW BUT SURE. True to its philsophy, NetCreations relies as little as possible on ads for revenue. List renters pay it a dime to 30 cents per name per mailing -- and its partners get a 50% take per mailing for any names sold from their lists.
To be sure, Resnick isn't the only one doing marketing via E-mail. Among a dozen or so competitors, her opt-in competitors include Yesmail.com, a company in Vernon Hills, Ill., that says it also plans to go public later this year.; Connectify, an electronic direct-marketing startup in San Mateo, Calif.; and IDG List Services, a division of trade book publisher International Data Group.
Online ad services managers may also soon be among Resnick's biggest competitors. 24/7 Media acquired its direct-marketing division, formerly called Sift, last March, and DoubleClick merged with direct marketer Abacus last June in a $1 billion stock swap. A year ago Yahoo! bought the online direct-marketing firm Yoyodyne. And Excite boasts of its direct-mail subsidiary, MatchLogic.
If the face of such challenges, Resnick's strategy going forward is similar to the slow-but-sure one she has followed until now. "Our focus is to sign up more high-traffic [partner] sites here and abroad and develop the depth of the database so we can know who's actually buying." She adds: "I?m convinced that E-mail will take the lion's share of the direct-marketing industry by the year 2000. And we plan to be sitting at the table."
By Stefani Eads in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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