We San Franciscans think New York isn't quite as Web savvy are we are. No offense to my BusinessWeek overlords and Silicon Alley pals, but we're convinced that the smartest, most innovative ideas for using the Internet emanate from this coast, not yours. Heard of Google (GOOG), anyone?
Here's the shocker. As the ad recession deepens, it's a handful of Silicon Alley Web companies that are getting one thing right that many Bay Area companies abandoned years ago: the e-mail newsletter. That's right. The East Coast is leading the way in showing how to make money from those electronic digests of a site's content, delivered regularly to your already cluttered in-box.
Daily Candy's Toothsome Morsel The most noted success story is DailyCandy.com, purchased by Comcast (CMCSA) just before all hell broke loose in the economy last fall. Reportedly, it fetched $125 million. Not exactly a home run in Web terms, but a big win nonetheless.
DailyCandy.com has done well enough that its investors at Pilot Group Ventures in Boston have backed several companies that also use e-mail newsletters, among them the newsletter-for-dudes-who-read-newsletters Thrillist, which is launching in its 10th city, Philadelphia, this month. The company says it is profitable on annual sales of $5 million to $10 million. That's saying a lot in this economy.
Wake up and smell the CPMs, Silicon Valley. Of course, we're all waiting on companies like YouTube, Facebook, Slide,, and Twitter to come up with the next great Google-esque plan to make money from social media. Meantime, why not reap some low-hanging fruit with a newsletter? No, it's not likely to make your company a billion-dollar Web powerhouse. But it just might help you eke a few more months—if not quarters—from your dwindling venture capital dollars.
Dogster Takes the Lead Ted Rheingold, founder and chief executive officer of Dogster, is one Bay Area denizen who's gotten the newsletter religion. But Rheingold's attempts to spread its gospel don't make much headway in Silicon Valley. Rheingold is particularly critical of the increasingly popular tendency for Web 2.0 companies to let ad network middlemen handle advertising sales.
In 2003, when his social network for dog lovers become more business than pet—I couldn't resist—project, Rheingold weighed all the options for generating revenue, from placing ads on his site through Google's AdSense program to working with an ad network, from building his own sales force to distributing a newsletter. He discovered that AdSense would yield about 28¢ per 1,000 times the ad is seen (for a CPM of 28¢, in industry parlance). Glam Media, one of the highest-paying ad networks, would deliver a floor CPM of $2. But that was still leaving a good amount of revenue on the table, especially considering an ad network takes half the gross.
In addition to letting Federated Media sell some inventory, Dogster built its own Web sales force, setting CPMs at $8 to $20. But even that pales compared to what he charges advertisers per 1,000 views of an ad on his e-mail newsletter: a whopping $20 to $40.
Tangible Engagement Slowly, the logic is catching on. Just last month, Yelp, another company that opted to build its own sales staff instead of hiring an ad network, landed its first national ad campaign for its "Weekly Yelp" newsletter. This year, newsletters are going to be a bigger focus. Yelp Chief Executive Jeremy Stoppelman won't disclose figures. He coyly told me, "It's a good rate, but not highway robbery."
It may sound odd that space on a low-tech newsletter could be so desirable in an age of mass-market blogs, when young people increasingly rely on instant messaging, texts, and such sites as Twitter and Facebook instead of e-mail. But remember that signing up for and opening an e-mail newsletter is a much bigger commitment than passively clicking on a link that takes you to a blog post. Publishers can see how many people open an e-mail, how long they read it, and how many friends they forward it to. Advertisers eat up that kind of engagement, because it's different, tangible, and more likely to result in an action such as making a purchase.
Dany Levy started DailyCandy as an e-mail newsletter in 2000 and has resisted the allure of blogging ever since. A longtime print journalist, she was just doing what she knew—and that was media, not tech. "People have a paper delivered to their door every morning," she says. "The push model just made a lot of sense to me. You didn't have to remember to go anywhere; it was just in your in-box." Daily Candy expanded to more than 2.5 million subscriptions while spending little on marketing. Most of the growth came from readers simply forwarding the newsletter to friends. The company has been profitable since the third quarter of 2001, Levy says.
Don't Abuse the In-Box Of course, that meant the content had to be just right, akin to light, tasty 150-word morsels, as the newsletter's name implies. "You can't just take the simple rules of journalism and apply them to e-mail; it's a different animal," Levy says. "It sounds corny but whenever I hire a new editor I tell them, 'It's a privilege to be in someone's e-mail box.'"
Not respecting that privilege is exactly why e-mail newsletters lost favor in the Internet bubble of the late 1990s. Nearly every e-commerce company automatically signed up shoppers to receive e-mail newsletters bursting with promotions and specials. This quickly got spammy and annoying and users en masse removed their names from newsletter lists. The aim in those early newsletters was selling people something, not entertaining them. A high percentage of recipients open their DailyCandy newsletter, Levy says, because getting it compares to the difference between getting "a bill and a letter."
Web companies considering newsletters also need to respect the difference between a telemarketer call and a treat. Give the user something of value, like news of local events, restaurant openings, and highlighted reviews, as in the case of The Weekly Yelp. And don't send it too often, either. As a result, recipients will open the e-mail, forward it, and maybe even make a purchase. The advertising will take care of itself.
In other words, Silicon Valley Web companies looking for some near-term revenues might do well to act more like New York media companies for a change. That's a statement that may send shivers down the spines of engineering-centric startups, but isn't it better than closing up shop?