Introduction


Astronomical growth of e-commerce has turned the Internet into a domain of intense corporate activity. E-commerce has provided opportunities for companies, irrespective of their size , to compete globally. This has prompted traditional market-players to adapt e-commerce business strategies to remain competitive in this electronic marketplace . Along with other business functions, there has been a remarkable boost in online marketing activity, with companies attempting to develop new methodologies to more effectively market their wares online. According to the Interactive Advertising Bureau [1] , online ad spending in the U.S. totaled nearly $2.2 billion in the fourth quarter of 2003, up more than 38% from the same period in 2002, and increased 22% over the third quarter of 2003. For all of 2003, this number totaled just under $7.3 billion, up nearly 21% from the 2002 total of $6.0 billion. As the number of Internet users, estimated at 300 million as of May 2004 among 13 countries / regions [2] , continues to grow, this trend is expected to continue.

Internet technologies offer a number of options for pursuing online advertising. The majority of current advertising dollars are generated through banner advertising and content sponsorship over the Web [3] . However, according to e-Marketer, an online market research company, e-mail stands out as the 'killer-app' of the online advertising world. This is because e-mail can be precision- targeted , responded to instantly , and unbelievably cheap . Furthermore, it offers opportunities for private communication , and, when properly utilized, helps build consumer trust on a long- term basis. But since its inception, this mode of advertising has been plagued by a problem commonly termed as unsolicited commercial e-mailing (UCE), or spam.

The problem of UCE arises due to the peculiar cost structures inherent with e-mail advertising. Sellers can relatively easily obtain unprocessed lists of e-mail addresses, and the cost of sending e-mail solicitations to these lists is minimal. The task of tailoring the lists to target likely consumers is quite expensive, and often is not feasible due to unavailability of the necessary information to identify interested consumers. From a seller's perspective, it makes economic sense to simply flood the entire list with solicitations, as they become cost effective even at extremely low response rates. The incentives to do so are especially high for smaller establishments that can ill-afford the traditional and more expensive advertising channels and for establishments that care little about the negative public stigma associated with UCE. In fact, the majority of solicitations are for objectionable products and services, which are often illegal and fraudulent. Well-established and reputable firms have shied away from UCE as it has become synonymous with fraud.

Costs born by UCE senders are minimal. Software for extracting e-mail addresses from the Web and list servers are available at minimal costs. Using UCE makes perfect business sense to some sellers, even if only a tiny fraction of e-mail recipients become customers. While the effects from the negative publicity prevents established firms from utilizing UCE, it is a small cost to pay for some small firms who can ill afford traditional means of advertising to their potential customers. For example, e-mail address-extraction software, which costs as little as $500, may be able to collect as many as 50,000 to 250,000 addresses per hour . Since marginal cost of obtaining an address is close to zero, it can be used to extract as many e-mail addresses as desired. For example, with a profit margin of $1 per sale, UCE becomes cost effective at a response rate of as low as 0.5% if a message is sent to 100,000 addresses. The larger the address list, the greater the potential profit.

The true costs of such advertising campaigns shift to the consumers and ISPs (Internet Service Providers). The negative externalities borne by the e-mail users arise from the frequency, volume, and irrelevance of e-mail solicitations, the lack of control by recipients, and intrusions into personal privacy (Schlosberg, 2000). While not all unsolicited e- mails are necessarily unwanted, the vast majority are. Most e-mail users perceive no value in receiving these messages. According to a recent report (www.ferris.com), the worldwide cost of dealing with junk e-mail exceeded $13 billion in 2002. So pervasive is the problem that AOL Time Warner Internet unit blocks about 1 billion UCE [4] per day. Considering the seriousness of the problem, the FTC [5] has set up a special mailbox (uce@ftc.gov) to assess the emerging trends and developments. The FTC mailbox has received over 8.3 million pieces of e-mails from consumers. On average, consumers forward 15,000 pieces of UCE per day to this mailbox.

A number of consumer organizations [6] have rallied together to address this problem, from both technical and legislative avenues. A plethora of technical solutions based on schemes such as sender's address verification [4] , reverse filtering [7] , counterattacks and blacklisting of known UCE senders have been implemented. While not foolproof, as senders constantly revise and update the tactics they deploy, these techniques have helped lower the overall burden on consumers and ISPs. In addition, a whole industry has sprouted up to provide e-mail management solutions for organizations. For example, firms such as Mirapoint, IronWorks and Cisco Systems offer servers specifically optimized to handle heavy e-mail flows and many organizations are opting to totally outsource e-mail service to other companies such as Message Labs and Critical Path .

The fight on the legal front is also gaining momentum. Beginning with the state of Washington in 1998, a slew of states have enacted laws to provide legal protection to their constituents. A number of federal laws are also under active consideration [8] . It is widely believed that effective legislative efforts will begin to impose significant costs on the offenders and will thus serve as an important deterrent.

A significant point of debate in crafting the legislation relates to the legal definition of UCE. Consumer advocacy groups favor a more stringent version that entails 'opt-in.' The opt-in approach allows businesses to send e-mail solicitations only to individuals with whom they have prior business relationship in that they have received an explicit consent to send solicitations for product and services. Thus, any mode of advertising that involves making a 'first-contact' e-mail solicitation with potential prospects will be deemed illegal under this scheme. Some argue that this opt-in approach will have a 'throw-the-baby-out-with-the-bath-water' effect in that e-mail will cease to exist as a viable channel for any form of advertising that entails a first-contact with prospects (Godin, 1999). Opt-in can also significantly increase the search costs for consumers to obtain information about products and promotions, as they would have to initiate and bear the effort of contacting each potential seller. Further, individuals would have to provide similar personal information to each of those competing sellers in order to intelligently comparison-shop and select the optimal product or service. Interestingly, opt-in or permission marketing, though favored by few consumer groups, is also controversial . Permission marketing first proposed by Godin (1999), considered to be one of the effective tools to fight UCE, is also not free of problems and is a great managerial challenge (Krishnamurthy, 2000). Bellman, Johnson and Lohse (2001) argue that the right formatting and combination of privacy questions can influence a consumer's apparent agreement with privacy policies and thus, can be used by sellers to obtain consent of nearly every Web site visitor. In a recent article, Tezinde, Smith and Murphy (2002) explore relevant factors which affect permission marketing. For a comprehensive review of permission marketing, refer to Krishnamurthy (2001).

Other legislative efforts focus on passing laws that would require advertisers to clearly label their unsolicited e-mails as 'ADV.' DMA, Direct Marketing Association, who represents legitimate advertising agencies, argues that 'labeling legislation can quickly lead to a slippery slope,' because, they argue, if the government can force using 'ADV' for advertising, it would not be long before the government would enforce using other labels for other unsolicited messages, such as religion-, politics-, or charity- related messages. DMA supports an ' opt-out ' approach wherein businesses can make first contact with consumers but must honor a recipient's request to be removed from the e- mail list. Consumer advocacy groups strongly oppose the opt-out approach, as they believe that it will continue to legitimize UCE. It would provide every seller at least one free shot at each potential consumer, which can mean hundreds of opt-out requests per day for each e-mail user . The volume of e-mails, the majority of which consumers have no interest in, will continue to be large, and consumers will continue to face the burden of opting out from all e-mail lists that include their information.

Given the conflicting interests of the business and the consumer groups, the nature of the future legislation against UCE remains unclear. Regardless, the public outcry against the problem of UCE has led the majority of reputable companies to adopt an 'opt-in' approach. However, UCE continues to rise, creating grave problems for these serious e-mail marketers. Because of UCE, the e-mails from legitimate marketers are lost in the flurry of bogus offers resulting in loss of customers and revenues .

Many people have come to accept that some amount of spam will probably be with us no matter what, just like theft, drugs, and pornography are. However, there are small but legitimate establishments who resort to spam because they can ill-afford the costs of advertising otherwise . The products of these companies impose a huge search costs on their intended customers. These search costs include obtaining the knowledge about the existence of a product or service, contact information, information on pricing, features, and performance, and information regarding discounts and other special offers. Typically, well-established firms impose lower search costs on consumers than smaller establishments. In a recent work, Gopal, Tripathi and Walter (2002) analyzed these search costs and found that, in a monopolistic market, a firm with lower search cost doesn't have any incentives to send UCEs. However, sellers of less well-known products and services have a significantly higher incentive than more established firms to utilize UCE in order to lower the search costs and thereby increase sales. Current evidence clearly indicates that a significant portion of junk e-mail originates from such establishments.

Recently, a new type of advertising business model has emerged to level the playing field to some extent for these companies by enabling these companies to solicit prospects via e-mail under a reasonable cost without resorting to spam. Gopal et al. (2001) term this business model admediation . An admediary enables sellers to make first contact with potential consumers while operating within the 'opt-in' mode. The economic viability of this business model, and the ensuing nature of e-mail solicitations, are discussed next .

[1] Interactive Advertising Bureau. Found at: http://www.iab.net/resources/ad_revenue.asp

[2] Nielsen//NetRatings. Found at: http://www. clickz .com/stats/big_picture/geographics/article.php/3373021. The 13 countries/regions were Australia, Brazil, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

[3] e-Marketer. Found at: http://www.emarketer.com/estats/20000808_iab.html

[4] The Internetnews.com. Found at: http://www.internetnews.com/IAR/article.php/2091641

[5] The Federal Trade Commission. Found at: http://www.ftc.gov

[6] Such as The Coalition Against Unsolicited Commercial E-mail (CAUCE, www.cauce.org)

[4] The Internetnews.com. Found at: http://www.internetnews.com/IAR/article.php/2091641

[7] The E-Commercetimes.com. Found at: http://www.ecomercetimes.com/perl/story/18180.html

[8] www.spamlaws.com provides up-to-date legislative information on UCE.




Contemporary Research in E-marketing (Vol. 1)
Agility and Discipline Made Easy: Practices from OpenUP and RUP
ISBN: B004V9MS42
EAN: 2147483647
Year: 2003
Pages: 164

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