Sterne: Thank you very much.
Mike: It's a pleasure to have you with us today. For those who aren't familiar with your work, can you give them a brief background of how you got into this and what you're doing?
Sterne: Sure. I was doing marketing consulting in 1993 when I tripped over the internet, and the hairs on the back of my neck stood up. I started asking people, "How do you do this well?" And everybody kind of looked at their shoes and shrugged their shoulders. So I started writing articles, and then books, and have been doing consulting in this area ever since, focusing on how the company and the customer communicate online, whether it's the website or it's email or it's a frequently asked questions document. My focus now is measuring the impact -- how do you measure the success of your web efforts and your email efforts?
Mike: And the main focus of your site Targeting.com, is the web metrics right?
Sterne: Targeting.com is all the different kinds of consulting that I do, but focused very specifically on measurement right now, yeah.
Mike: And what are some of the books that you have authored that are available through traditional channels? People might want to check those out.
Sterne: "World Wide Web Marketing," "Customer Service on the Internet," and the latest one is "Web Metrics," but of particular interest is "Email Marketing and Advanced Email Marketing."
Mike: Okay, great. Let's talk about email marketing. What do you see as the big trends here in the next -- let's talk short term here -- three years? What do you see happening?
Sterne: Well, I can tell you what I'd like to see happen, and that is some sort of infrastructure, technical and maybe pay-per-use system that allows companies to exchange email as we would like without all the spam, and I think that's a top priority. Unfortunately, we're finding legislation is absolutely useless ...
Mike: You think so too?
Sterne: You know, I could have guessed that one. But I don't see an end to permission marketing. There are companies I want to hear from on a regular basis, and when I see them hit my email inbox I want to read it. When I see them hit my spam filter I'm very quick to snatch them out of there. The hard part is using email as a lead-generation tool and trying to reach out to people you don't know. I'm hoping that people are going to realize in the next few years that email not a good way to get attention in the first place, but it's a great way to build relationships.
Mike: Absolutely. It seems to me, at least, that realization is sinking into the industry that you can't use email for prospecting, just for relationship building. Do you think that's really catching on?
Sterne: Well, when you say "in the industry," it's catching on to the web-savvy, but every day a new web entrepreneur is born who doesn't know that it's a bad thing to do, so we're faced with an overabundance of, "Hey, wouldn't you like to buy (fill in the blank)?"
Mike: Right. I'd like to go back to something you mentioned in answering the previous question. You mentioned pay-per-use on the sending of emails. There are quite a few potential solutions floating around out there -- what's your favorite solution? Why do you think that will help clean up the spam pollution that now threatens the industry?
Sterne: Well there are a lot of different approaches. If I had to pick one right now, it would be let me buy a license. And my email would be tagged with some sort of definitive identifier that automatically verifies that I really am me, is spoof-proof, and I'm willing to pay for it on an annual basis. If you ask me to pay per email, you really destroy the value of how inexpensive it is to distribute information. If you ask me to pay $50 a month for access to cable television, that's one thing. If you ask me to pay per television show I watch, that's a different thing.
Mike: So, the buy-a-license approach is sort of like SSL certificates?
Sterne: Could be, and what we need then is to have some centralized verification organization, and we've seen that the post office talked about doing that 10 years ago, and Federal Express tried it for a few minutes. And of course Microsoft is always in the middle of it.
Mike: Sure. Okay, so suppose a company goes out and buys a license. I assume that license gets revoked if they get too many spam complaints? Is that the way it might work?
Sterne: Again, it's the early days. There are a lot of issues, there's a lot of technical issues at stake -- how do you do verification and who's allowed to do that verification, and how and when do you revoke a license, etc. I think we're going to find out that the technical solution is going to be pretty straightforward, but the social, cultural and political issues are going to be rather difficult.
Mike: Do you think the industry leaders -- Microsoft, AOL, Yahoo, MSN -- can all agree on a technical standard?
Sterne: Yes. But as happens with any standard, who's standard do you pick? It's sort of like the instant messaging wars -- it's going to be a problem for a while, and eventually they're all going to say, "Let's interoperate," and that's the best way to go.
Mike: Let's suppose then that some technical solution gets implemented, it works, spam drops by 98 percent or better overnight, which is what I'm hoping for as well.
Sterne: I'd be a happy camper.
Mike: Oh yeah. And then all of a sudden, people start looking at their email inboxes again, and start paying attention to email --- how big of a change would this have on permission marketing and bringing people back to websites?
Sterne: Well, it will make no difference at all to the people who are doing it correctly at the moment. If you're doing double opt-in and you're only sending out to your own in-house list, that's great. And then we'll really get to explore -- what happens if I promote my business partner's offering to my list? Do I lose subscribers, and if not, are people willing to accept my recommendations of other things they should buy from other people? That's a model that works -- I've built up my brand, you trust me, you trust my judgment, I recommend a book, you go buy the book, that's great. But if you find out that I get $3 every time somebody buys the book, you get to judge whether or not my recommendations carry the same amount of weight. And if you find out that the book is not really worth reading, then you'll never take my advice again, and you'll probably unsubscribe from my list, and that's called the free market. That's evolution.
Unfortunately, spam is gumming up the works so badly that I think the biggest difference will be we'll actually be able to determine how many receive our email for a change. Right now, I know how many I send, and I know how many were opened. But I don't know how many people even had the opportunity to open the email because of all the filters between me and the recipient. If spam is reduced dramatically or eliminated technically, then I don't need spam filters anymore, and I will see all of the newsletters I've ever signed up for.
Mike: All on the same morning, probably.
Sterne: I don't know -- if that happens, I think it will be the morning after because we're going to have some serious celebration.
Mike: Oh yeah, time to party. Now, let's talk about the email marketing professionals -- the people sending the emails. Today, a lot of those folks are engaged in what I call a "fire and forget" mentality, where they just send off the email to their list, and don't think anything else about it. But you help people take into account what happens after the customer or the prospect receives the email and then comes back to the website. I wanted to ask you, what particular things should email marketers be paying attention to after they send the email that they might not be paying attention to today?
Sterne: Well, this is where I prove that I am a consultant, because the answer is, it depends. Let's sit down with each of your readers individually and talk to them about their own needs for an hourly rate. The thing that I want everybody to do is to have goals in mind, and when I talk about web analytics and website measurement, it's the same thing as email -- why are you bothering to send out that email? Why are you bothering to put an additional page of content on your website? And if the answers are: Well, it will solidify our relationship with our customers. It will keep us top-of-mind in our prospect's head. It will build brand loyalty. Okay, that's fine; let's talk about measuring that. But I want to get even more specific -- what is the response you want from somebody when you send out an email? If you want them to sign up for a contest, if you want them to download a white paper -- now we have identified success. Let's measure how many people download that white paper. Now we know whether or not that particular email is working, whether or not those types of emails work, whether or not people unsubscribe or not. Let's find out if it's worthwhile. It's a wonderful laboratory -- let's evaluate the results.
Mike: Do you find that your clients are able to articulate what they're actually trying to accomplish, or are people still doing a lot of marketing just on autopilot, because that's the way it's been done?
Sterne: Well, it's autopilot not just because that's the way it's been done, but it's autopilot because, "I've been told to do this by the people upstairs." The decision makers decide on a strategy, hand it off to the worker bees, and the worker bees do it, and the decision makers don't bother to come back to see if it was a good idea or not. A lot of websites happen that way, or a lot of software development happens that way -- "Here, go put in this system, and here's our ROI calculation." Does anybody go back and look at whether or not there really was a return on their investment or not? No, they're busy doing the next development or sending out the next email, or building the next page.
Mike: Right. Let's suppose a medium-sized company comes to you. They're at Targeting.com and they want a website audit. That's one of the services you offer, right?
Mike: What can they expect to happen? What kind of process would they go through, and how can you help them do a better job of reaching their customers?
Sterne: Well, there's two sides to the audit, the external view and the internal view. External is the customer's experience when they show up. Is it easy to understand? Is it hard to figure out where the button is? Do they get error messages? And that's sort of the no-holds-barred, hands-on, I'll-rip-your-website-from-one-side-to-the-other-and-tell-you-where-it's-failing audit we can do.
Mike: I'm sure people appreciate that too, right?
Sterne: Well, you know, it's a forest and trees issue. I was once asked to review my own website in public, and I can't because I know what every sentence means. I know where every link goes, or is supposed to go. It takes somebody from the outside to say, "Jim, that sentence structure is bad," or, "That link is unclear, and I expect something else when I click on it." So, I think an outside person reviewing your website from that perspective is great. Reviewing it from the inside is a matter of corporate culture, politics -- what are we trying to accomplish, who has power of budget, who has clearly defined success goals in mind so that we can create the metrics and measure whether or not your website is serving the company, as well as just serving pages.
Mike: I think this is a fascinating trend your explanation alluded to there. Let's say, ten years ago, or even five years ago, much of the focus on marketing was on the technical side. Can you technically send the emails? Do you have enough bandwidth? Is your website form functioning correctly? But that has evolved -- most companies' sites, at least I hope, have moved beyond that to creating a relationship with the customers. In my view it's a quantum leap, but there's still quite a spread -- many companies still remain in the infancy of marketing. They're still trying to master the technical details. But my question to you is, what do you think is the next stage in the evolution of online marketing awareness?
Sterne: That's an awfully big question. You know, my clients range all the way from, "We have a 40-page website and we're about to redesign it. What should we worry about, given the fact that we have a budget of almost zero?" to "We're a Fortune 500 company and we're trying to come up with a standardized way of measuring return on investment," or "We're tasked with raising revenue, lowering costs, and improving customer satisfaction. How do we do it?" And that range of clients has a range of skills and a range of sophistication. I've talked to some companies that if it wants to add a page onto its website, there's a checklist: Why are you adding it? How are you going to measure the value? At what point in time are you going to do the measurement? Who's responsible for making sure it's a success? Who has authority to veto the project? At what time is the content considered old and it expires, and how is it going to be renewed or replaced? They're very conscious of the fact that if they make a little change, it can have a big impact on the bottom line.
Mike: Quite a detailed process there.
Sterne: I don't see that there is a whole new phase coming -- I just see companies moving further and further along the sophistication continuum. And down at the far end, and I hate to say this because they're the classic example, is Amazon. And they are brilliant. At my last E-metric Summit, the Director of Personalization got up and explained how Amazon is doing their testing, how they figure out what offers to make to which people, and it's just fascinating stuff that everybody can take advantage of if they can get the upper management to understand the potential. So that's why I'm out in the world, waving the flag, pounding the podium, and explaining how this stuff works and making the connection as to why watching the response to your email can clue you in to what message to send out in your television ad. Because email is so fast, you get an instant response. You can really get the heartbeat of the marketplace in about two days instead of doing long, involved surveys or publishing print ads that you then have to measure over months. You can compare and contrast a couple of different marketing messages literally within days through email.
Mike: You mention Amazon.com, and it seems like they have set the pace from the get-go on this, and they've never lost ground on it. They continue to pioneer personalization both on the email and on their website. But why aren't many other companies even covering the basics? There still seems to be a lack of implementation of just basic personalization, even among Fortune 500 companies.
Sterne: It always amazes me when every year somebody puts out a report that says, "We sent an email to the Fortune 500 websites and only 75 percent of them bothered to send us an email back. The majority of them took three days to respond." What are these people thinking? Well, the fact is it is a serious, difficult problem. If you are a Fortune 500 company, you are getting tens of thousands of e-mails a day, and managing that is difficult. Fair enough. Now, to be fair on that particular score, Amazon doesn't post a phone number. You have to fill out their web form and work with them that way, and so they're perfecting how to respond to people. Conversely, look at a website like Southwest Airlines that has a whole bunch of phone numbers and no email address. There are two paragraphs that explain why they don't think they should be answering email, and it's just mind-boggling.
Mike: Really? What do those paragraphs say?
Sterne: They say that e-mail is too casual, it's inconsiderate, that it doesn't allow for the kind of effort and personal care that they feel their customers deserve. I'm sorry, but I can be very considerate and thorough when I reply to my clients via email. Why they can't, why they are only ones in the world who don't -- I don't understand. So, I think what we're getting down to is, a company can spend a lot of money building and maintaining a website, but the people who have their fingers on the budget -- how web-savvy are they? If my board of directors is made up of a bunch of white guys over the age of 70, chances are excellent that they think the telephone is the most wonderful invention of all time. So they're happy to have people on the phone and they don't understand why executives should have keyboards on their desks.
Mike: Because they'd have to fire the scribes.
Sterne: That's right. And we'd lose our stock in all those ink companies.
Mike: What a great example. But it also seems to me that a lot of email marketers still find themselves far behind. Even the ones who are taking on email marketing are still slow to implement even basic CAN-SPAM compliance. You may know that we did a study of CAN-SPAM compliance, and there's one statistic that I'd like you to comment on that I find fascinating -- 51 percent of the emails sent by more than 1,000 companies, including many Fortune 500 companies, had no working unsubscribe link. How do you account for something like that?
Sterne: The legal department is asleep at the wheel -- to be CAN-SPAM compliant is not difficult. It's not rocket science. It won't affect the brand. It doesn't bother anybody -- "Here's a little paragraph that we need you to tack onto the bottom of every e-mail you send" -- game over. So, the legal department is just not paying attention because nobody has sued them yet. I think that's the clearest explanation: The legal system works when there's a threat, so people suing you for not following a law that has no teeth? It's just not happening.
Mike: I always thought that just the number of customer complaints they receive would be enough to motivate them.
Sterne: But where do those customer complaints go? Do they go to the webmaster? Do they go to the marketing guy who's sending them out and says, "Oh look we've got another 100,000 of these -- who cares." Or do they go to the legal department? Of course then you deal with the fact that some legal departments overreact, and some are busy doing other things and are understaffed. A complaint about unwanted email just doesn't bubble to the top yet.
Mike: It also seems that the threat of being investigated or pressured by the FTC is extremely low unless you are a global spammer or a big-time spammer. Everybody else is pretty much ignored at the moment.
Sterne: Right. The pressing issues that we face are those folks who are maliciously spamming, and it's not that they're breaking the law, but that they are causing a problem. Again, you're a Fortune 500 company and you're getting hundreds of thousands of spam emails a day -- it's an infrastructure cost to manage that. So it's the guys who are sending out a billion emails a day that we want to go after first, instead of somebody in some division of some company who forgot to put their unsubscribe link on their email. They're not malicious. They just didn't pay attention.
Mike: If I could shift gears here for a minute, could we talk about permission marketing? The phrase gained a lot of popularity at first -- the whole theme and the idea of permission marketing, one-to-one customer relationships, but it hasn't really caught on in the real world in terms of the kind of emails that ordinary people receive from corporations. Do you see permission marketing as stalled out, or is it making progress?
Sterne: Well, one-to-one marketing and permission marketing are very different. Permission marketing says, "Yes, I would like to receive your newsletter," or "No, just leave me alone. If I don't actively say yes, then I don't have to hear from you." One-to-one marketing begins when you've got a database of my preferences and you're keeping track of the things I'm interested in. So when I do get a newsletter from you, it is very specific to the kinds of things that I want to read about. So if you're a huge company and you sell 15 different products, and I'm only interested in two of them, the newsletter I get only talks about those two products. That turns out to be a sophisticated problem requiring database work and really good operations to solve. The return on the investment is terrific, but it's a significant project. And in these economically uncertain times as a manager or an executive, do I want to spend money cutting costs, do I want to spend money training my people, or do I want to spend money on this database -- something that's not proven and that my competitors are not doing yet?
Mike: So you think it will be slow to kind of permeate the mindset of Fortune 500 companies?
Sterne: Yes. The people who are doing it well are reaping the rewards and loving it; the people who aren't doing it don't know what they're missing. Eventually everybody will, but it's just going to take time.
Mike: Amazon, once again, is an example of someone who's doing this right. Can you think of some others?
Sterne: Well I think about, for instance, Hewlett Packard, which has somebody who's called a Director of Customer Knowledge Management. He's responsible for a database that, as I recall, is something like 15 terabytes of information about their customers. If as a marketer I want to send out an email to prospective customers about a new printer they can buy, there is a very complex set of rules that rank how often people in that database can receive email. If they already own a printer, then they get ranked a little higher. If they've never inquired about printers before, they get ranked lower. All of these marketing messages go into the queue, and go out carefully and slowly. If they didn't have this type of thing, it would be very easy for me to get 10 different emails from HP every day, because they have so many products. Who else is doing this kind of personalization? Well, anybody who's doing serious e-commerce.
Federal Express gets the first tip of the hat because they did package tracking. I don't know if you've done any online shipping these days, but even the post office is saying, "Give us your credit card, we'll print out the label with postage on your own printer." Anybody who knows how to make it as easy to possible for customers to get their work done or accomplish what they are trying to accomplish, even if it's buying movie tickets, they're engaging in personalized marketing, making it easier for people. Who's tailoring their results to my needs? People like Dell, who let me configure my own computer online, and hit the buy button. People who help me get my job done. I think business-to-business is doing it bigger than anybody else, because they've got a smaller number of individuals to tackle. B2B shops know what their customers are after and can set up individual extranets for each one.
Mike: Good point.
Sterne: Let me give you my favorite example: National Semiconductor said, "What are our customers trying to do? They're trying to use our chips to build stuff. Let's help them build stuff." So, I go to the National Semiconductor website and I say I want to build a power supply for a telephone system. Then I can pick and choose out of their catalog the different components that I want to put onto the PC card. National Semiconductor also has licensed software that I can use for free because I'm an engineer, and it will lay out the PC card for me and simulate the heat pattern of that card just as if I were actually to wire and solder all those things together on that card, and turn on the power. It tells me how things would change if I put a fan over here or a larger fan over there. It kicks out the schematics for me, it kicks out the documentation for me, and after I've used it a few times, I start promising my customers that I can turn around a design in half the time. Now I'm addicted and I can't do my job without their service, because they make it so easy for their customers to get the job done. To me, that's a delight. That's the right way to do it.
Mike: What a great realization -- they're not just in the business of selling components.
Sterne: Right. Exactly.
Mike: If I could ask you one last question here, Jim -- Google's email service, Gmail, is getting a lot of headlines these days. Is it really going to change the way email marketing is conducted, or is it just overrated?
Sterne: Well, I think it's a grand experiment, but we have no idea what the impact will be by the time we get to the end game. It's getting a lot of attention because Google is doing it, and because Google hasn't done it before. It's also getting a lot of attention because they're up against Microsoft and Yahoo. I just know that when it comes to doing business on the internet; when I see the email coming from Gmail or Yahoo, to me it says this is someone who does not have their own identity. It's like if everybody actually had caller ID, and every time you got a call from a public telephone you see a generic number. You have a different response than if there's the name of a company there. If I get an email from Hotmail or Yahoo or Gmail, I'm wondering, "Don't they have a real computer? Don't they have a real company?" So, we'll see. If Google is good at creating email services, then it gets interesting.
Mike: Thank you very much for your thoughts, Jim. Today we've been speaking with Jim Sterne of Target Marketing of Santa Barbara, that's Targeting.com. Thank you very much for joining us.
Sterne: My pleasure. Thanks for asking.
Mike: And, any last words for our readers?
Sterne: Whether you're doing email or a website, make it about the customer instead of about the company.
Mike: Well said. Have a great day, Jim.
Sterne: Thanks very much.