Research Firm Sees E-Mail Marketing Reaching $7 Billion by 2005

Research firm Jupiter Communications said that over the next five years, the commercial e-mail market will skyrocket from $164 million to more than $7 billion, an increase of 4,000 percent.

Jupiter also predicts e-mail marketing's growth during the same period to infringe on postal marketing messages and cannibalize the direct mail industry by 13 percent.

In a report released this week, Jupiter, New York, said e-mail's perceived benefits — swift time to market, cost-effectiveness and comparatively strong return on investment — would combine to spur businesses in the United States to spend $7.3 billion on e-mail marketing in 2005.

Businesses, said Jupiter, are increasingly viewing e-mail as a fast, low-cost and instantly measurable method of acquiring and retaining customers.

“As a result, the volume of opt-in commercial e-mails continues to rise at a furious pace,” said Michele Slack, a Jupiter senior analyst. This pace, however, can potentially offer as much trouble as opportunity. “Consumers will not have the resources or tolerance to maintain the high response rates that are driving businesses to e-mail in the first place. Businesses must focus on delivering value from the first e-mail contact because opt-out is just a click away.”

Jupiter predicts that the number of commercial e-mail messages delivered to the average online user will rise from 40 in 1999 to more than 1,600 in 2005. The growth in this form of e-mail will have to walk a fine line between timely, relevant information or offers and overbearing, lost-in-the-crowd advertisements, the report said. Slack used the word “backlash” hesitatingly.

“It's not necessarily a backlash, but I think what you're going to see is higher unsubscribe rates and lower click-through rates,” she said, comparing e-mail's likely arc to that of banner ads. “When banner ads first came out the click-through rates were much higher than they are today. As they became more prevalent, click-through rates declined. E-mails are probably going to see a similar story.”

Nevertheless, e-mail marketing is the winner in Jupiter's forecast while direct mail is the clear loser. Jupiter predicts the influx of marketing dollars to e-mail campaigns will come at the expense of direct mail budgets. Specifically, e-mail will cannibalize 13 percent of the dollars businesses spend on direct mail, the report stated.

According to Rob Leathern, an analyst in Jupiter's Data Research Group, these projections are based on a compilation of different sources, including interviews with marketing executives, a hypothesis that a certain percentage of marketing budget would shift to e-mail and the Direct Marketing Association's figures for the size of the direct mail industry.

“There are a lot of companies that are trying to aggressively move their communications with consumers away from direct mail and to e-mail,” Slack said, “and especially inhouse lists because it's much less expensive.”

One of the industry's pioneering e-mail marketers, New York-based NetCreations, said it has already seen this occur in the marketplace.

“Today, almost 60 percent of our business comes from list brokers and agencies, and when we talk to them, it's crystal clear that a lot of the business that they are bringing to us they are taking away from traditional postal direct mail,” said Rosalind Resnick, NetCreations' chairwoman/CEO. “So I do think that Jupiter's findings are very accurate.”

E-mail's forecasted rise means companies will seriously have to think about incorporating the practice into their other advertising and marketing efforts. The key, said Slack, is maintaining consistency of message across all media. Forty-nine percent of surveyed online customers said they were more likely to respond to an e-mail marketing message if they had recently seen an ad or commercial for that company.

Another e-mail veteran, Rip Gerber, vice president marketing and e-commerce for CommTouch and former founder of e-mail marketing firm @once, referred to this integration as a marketer's greatest challenge. Most important, he warned, was that the outreach efforts complement each other.

“If a customer walks in to a bank's local branch office and opens an account, that company better be sure that customer does not receive an e-mail the next day asking them to open an account,” said Gerber. “This tells the customer you don't really know them.”

Jupiter advised companies to feed back into their existing customer e-mail efforts as much consumer data as they can obtain, including response rates, purchasing behavior and demographic data.

“Marketers must integrate e-mail collection efforts into all points of contact with consumers aggressively online and offline,” the report stated.

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