A Spam Law That Slams Small Business

New legislation in California won't hinder offshore operators and professional e-mail pests. What it will do is hobble startups and reputable marketers

By Christopher Kenton

Recently, California's legislature made headlines by creating the toughest antispam law in the country. The new measure, which takes affect in January, makes it a crime to send any unsolicited commercial e-mail from, or to, any e-mail account accessed from or billed to a California address. If you're like me, and you get 100 spam messages or more every day, that may be cause for a cheer. Finally, someone is sticking it to the spammers! Or so it seems.

When you scratch below the surface of California's new law, you see a lot of fodder for scoring points with annoyed voters (Look, we're doing something!), and some provisions to avoid ruffling the feathers of some of the biggest e-mail providers like Microsoft. What you don't see is any hope for stemming the flood of unsolicited e-mail. First of all, the law is so vaguely written that it will be tied up in the courts from the first moment it's applied. Second, spammers are increasingly benefiting from technology that makes it virtually impossible to uncover their tracks. Third, spammers also benefit from global reach, operating from countries that don't care about California law (see BW Online, 10/30/03, "Needed: A Beefier CAN-SPAM Bill").

SPAMMERS ARE LAUGHING.

  What's worse -- far worse -- is that this new law is a direct attack on the viability of small businesses to the benefit of big businesses. While the new law claims to be targeted at reducing the high cost of dealing with spam, the consequences will be a significant increase in the cost of doing business, with no reduction in spam. The legislators who created the law will say this is all nonsense. But when I broached this issue to state Sen. Kevin Murray (D-Los Angeles) his representation of how small businesses really work didn't inspire confidence, as you'll see in a moment.

As a marketing agency serving the high-tech industry, we frequently work with startups and small businesses. One of the most important services we provide to these companies is assistance with lead generation -- the process of identifying and attracting qualified buyers for the company's products.

Lead-generation programs are based on a simple business concept: spend the least amount of money to find the most likely potential buyers at the point they are ready to buy. Sounds easy enough. But with all of the options for reaching out to prospective buyers, including multiple channels of advertising, trade shows, public relations, co-marketing arrangements, seminars, and direct-response marketing, businesses have to make smart choices about how to spend limited funds to ensure results. For small businesses and startups, this is often a do-or-die proposition. But it's not a crap shoot.

PROFESSIONAL STANDARDS.

  There are some very specific criteria we use for selecting lead-generation options. They include, among other things, the degree to which a channel represents a specific community with known characteristics; the accuracy with which traffic coming through a channel can be measured; the average time it takes for a channel's participants to respond, along with the average number of responses; and of course the cost for reaching each prospect in a given channel.

To put this in context, consider one of our typical lead-generation engagements. Recently, we were hired by a venture-backed software startup that was under the gun to generate 15 new customers within six months. One of their critical backers was threatening to pull out if they couldn't meet performance targets. Unfortunately, their product was still in the middle of trials, their sales force was just being assembled, and the software carried a high price tag -- more than $100k for an initial sale.

Consider the outfit's dilemma. In order to sell an expensive product they need to reach a high-level executive with the power to make buying decisions, with a predictable set of problems that the product was designed to address, with the technological sophistication to understand the value of the product without seeing a long list of existing case studies, and with the vision to understand how an unproven product could provide a business advantage worthy of the investment.

DEEPLY MISGUIDED.

  How on earth could they generate leads that would reliably net a predictable number of paying customers in only six months? Advertising on TV or radio? How many TV or radio stations do you know that are specific to technology, and can target executives in specific jobs? Maybe public relations. But getting a good buzz out in the right journals takes months, and the response is not immediately predictable. Trade shows are a good option for many businesses, but a new company will spend too much time telling its general business story and competing with a circus of sights and sounds, without being able to quickly qualify prospects and tactfully turn away tire-kickers. Targeted magazine ads are a great option, but the frequency of publication, the response time and response rate from readers, and competition for attention from other content would likely guarantee only a trickle of leads over months. Web advertising is improving, but saturating a very narrowly defined segment with more than just a brand impression takes a lot of time and effort without a high rate of return.

There are of course, many other options. But the most effective option available to this company, and to thousands of other small businesses and startups like it, has just been outlawed in California, under the mistaken notion that all unsolicited e-mail is spam. It's not, and I'll demonstrate why.

To ensure that our client met their financial targets, we developed a direct response e-mail campaign. We carefully profiled our prospective customer and identified 10 trade journals that focus content on that customer profile. We worked with representatives of each magazine to draw a small sample of qualified names from their subscription database, to whom we sent our first e-mail test campaign. The response to that test allowed us to refine our message and narrow our field of journals to four.

CRUCIAL DISTINCTION.

  Next we spoke to the editors of those four magazines in order to understand the current issues facing their readers, and how those issues are addressed in the magazine's editorial. We developed a white paper to match the value proposition of our client's product to our prospect's needs, along with a short demo highlighting the product's functionality. Then we set to work on the full campaign, delivering staggered sets of e-mail in order to continually test and refine our program and improve results. In our final stage, we made a package purchase from the best performing journals, coordinating an e-mail campaign with newsletter, Web, and magazine ads to bolster the company's brand presence. The result? We generated a flood of qualified leads, the requisite number of customers, and not a single accusation of peddling spam. Every recipient of our campaign received only a single e-mail, with a respectful message of direct relevance to their professional responsibilities, and clear contact information for addressing questions and complaints or requesting removal from the list. This is a critical point of distinction. In order for this type of campaign to work, the company has to target a very small, well-defined segment where word of mouth is a powerful force. If a company sends a message that is irrelevant or offensive, it will kill their own potential faster than they can win a customer.

Compare this to the methods used by spammers. They're selling commodity products to commodity customers. They don't care about offending thousands of customers, because a million more are right behind them. Their favorite methods include the use of software to "harvest" e-mail addresses posted on the Internet, algorithms to generate every conceivable permutation of e-mail addresses for a known domain, and applications that allow them to hide their identity and prevent you from tracking them down. The goal is to eliminate any human labor or thought while generating the largest number of e-mail hits. The result is a constant flood of duplicate, offensive, and irrelevant e-mail, providing you no recourse to stop the tide.

WRONG TARGET.

  The bill that has just been signed into law in California, and the legislator who sponsored it, makes no distinction between these practices or their outcome. Any unsolicited e-mail is considered spam, and the sender can be hauled into court and fined $1000 for each one sent. While that's a joke to offshore spammers who send millions of offensive e-mails a day with impunity, it's a very scary prospect for a small business, even when their campaigns include only a few thousand e-mails.

When I asked Sen. Murray, the bill's sponsor, about this lack of distinction, and how it might hurt small businesses trying to generate leads, his response was astonishing. "The only legitimate presales process is to have a business relationship with the recipient or to have had them request information." He is also quoted in a recent New York Times article as saying, "If you go out and rent a list of e-mail addresses, by definition you are not a legitimate business."

I guess startups -- which by definition have no previous business relationship with customers -- are less legitimate than, say, banks, that have thousands of previous business relationships. Tell that to all of the successful technology businesses in Silicon Valley that built themselves up by using targeted, effective marketing -- without resorting to the kinds of tactics that have offended the public. In the interest of stemming a very serious, and very public problem, our legislators are responding with ham-fisted laws that do nothing to solve the problem and hurt small businesses in the process. So what can we expect as a result?

RIGHTEOUS IGNORANCE.

  Small businesses will pull back from e-mail marketing, eliminating perhaps the one respectful, relevant e-mail out of every 1,000 pornographic or offensive e-mails you receive. Their marketing costs will go up dramatically, as they have to pursue more expensive and less responsive marketing channels. Large businesses will benefit, because their large customer base conveniently falls into a category that allows them to send unsolicited e-mails -- that of the existing business relationship. These large businesses will also benefit as their business partners pay them to send unsolicited e-mails to their customers on their behalf. Meanwhile, you'll still be getting more spam tomorrow than you're getting today.

What makes this situation so astounding is that this legislation is appearing in a state with the worst financial crisis in history. The future of our state depends on the same economic engine that generated the last boom -- small, fast-growing businesses. But the speed with which small businesses grow depends on their ability to identify and reach prospective customers as effectively and cheaply as possible. California has just taken one of the most effective tools away from small businesses, while doing nothing to solve the problem of spam. Of course, they can still claim a political victory since so few voters will understand the difference. What kills me is that they don't seem to understand the difference either.

Christopher Kenton is president of the marketing agency Cymbic and a director of Touchpoint Metrics. He can be reached at ckenton@cymbic.com

Before it's here, it's on the Bloomberg Terminal. LEARN MORE