What's in a Name? Not Much for Failed Dot-Coms

While news of failed e-merchants trying to sell their customer databases has privacy advocates crying foul, the proposition raises an even more fundamental marketing question: How much is a customer file untested by outside merchants worth?

Boo.com, CraftShop.com and Toysmart.com folded this year and, according to reports, have sold or are attempting to sell their customer files to offset debts.

Considering what e-tailers pay for an average customer, it's no surprise that the failures are hawking their house files.

Internet-only retailers' average customer acquisition cost was $82 per customer in 1999, compared with the $11 per customer spent by multichannel retailers, according to The Boston Consulting Group's study, “The State of Online Retailing 3.0.” The findings were released in April by Shop.org, the trade association for online retailers.

However, while it's understandable from a pure numbers standpoint that a failed dot-com would put its house file up for sale, it's almost impossible to gauge what that database is worth.

In the traditional mailing list world, a defunct mailer usually sells its file to multiple companies for unlimited nonexclusive usage. Generally, files are sold for two or three times the base price per thousand. An average apparel list with a base price of $100/M could command $300/M when purchased, said several traditional list managers who did not wish to be named.

Base prices for e-mail lists that are available for rental can range from $200/M to as much as $500/M. But it's unclear what such a file would sell for.

“I don't know if they were even in business long enough to know if the names have any value or not,” said Chris Montana, a vice president at direct mail list management firm Mokrynski & Associates Inc., Hackensack, NJ. “If you haven't tested the list, you can't know what its value is.”

Then comes the original question of whether the dot-coms even have the right to sell their customer files.

All three sites' privacy statements asserted that customer information is not shared with third parties.

“There is a danger that, as [dot-com] companies try to remain afloat, they will sell off their assets, and the biggest asset for Internet companies these days is the valuable personal and private information that they hold,” said Dave Steer, spokesman at TrustE, San Jose, CA, a non-profit online privacy organization.

TrustE grants its seal of approval to Web sites with comprehensive, accessible and readable privacy agreements. Companies deemed worthy of the program must sign a contract with TrustE that ensures adherence to the approved privacy policy.

Toysmart was awarded the TrustE seal of approval prior to its demise. Upon hearing that Toysmart put its database up for sale, TrustE issued an advisory on the TrustE Web site and filed a brief in bankruptcy court attempting to block the sale of the database. TrustE has also alerted the Federal Trade Commission to the situation as an example of an unfair and deceptive business practice.

According to reports, Toysmart announced the availability of its customer information in June by placing classified ads in The Wall Street Journal. TrustE executives believe that Toysmart may be using their Chapter 11 filing status as justification to sell the list.

Similarly, CraftShop filed for Chapter 11 in May and is reportedly seeking a buyer for its customer file. It contends that since it is selling the site name with the database, the buyer cannot be viewed as a third party.

“The questions are whether they have a contract with the customer and whether the courts will allow them to do anything other than what was initially agreed to,” said Richard Hoffmann, president of Hanover Brands Inc., a division of Hanover Direct, Weehawken, NJ.

Traditional direct mail catalogers have been buying and selling customer files for years.

“On the traditional mailing list side, it's more acceptable because of the privacy language,” said Montana. The major difference from the dot-coms is that catalogers' privacy statements acknowledge that customer files are shared with third parties, he added.

Fashionmall.com, a fashion portal, purchased the Boo.com Web site and customer file in early June for an undisclosed sum. According to reports, it plans to keep the Boo.com site active and honor the original Boo.com privacy agreement for existing Boo.com customers. Fashionmall's privacy statement offers customers the chance to opt out of having their information shared with third parties. New Boo.com customers will fall under the Fashionmall policy.

Although Boo.com was a TrustE site, Steer was not familiar enough with the recent acquisition by Fashionmall to comment.

Hoffmann believes that as long as Fashionmall contacts the Boo.com customers as Boo.com, it is acceptable to use the Boo.com customer file to introduce consumers to Fashionmall and have them opt in to that site as well.

“Opt them in again,” said Montana, regarding e-mail databases. He echoed the sentiments of Hoffmann, saying that customers should not receive e-mails from the purchaser's company without being opted in again through the original point of contact.

“This is a watershed moment, not only for TrustE, but for the state of privacy and trust online,” said Steer. “What we are seeing is a privacy awakening that is being [started] by the Internet, but will be [shifted] quickly to the offline world.”

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