Favemail began as a unique marketing
idea — the kind of never-before-seen
concept that made venture capitalists salivate.
Here was the pitch: consumers would send their friends e-mails that
contained a banner ad, which they had selected. In short, they were helping
to promote products with which they felt an affinity. It was supposed to be
sort of like an online bumper sticker, or the equivalent of wearing a Nike
hat. For doing this, users were rewarded with “points” that they could
exchange for cash, or other online currency products like Flooz.
It arrived on the Internet business scene last year when investors were
still willing to take huge risks in hopes of a grand-slam payoff. Spending
on online marketing was booming and there was no end in sight. But somewhere
along the way, things changed, dramatically.
This week, Favemail announced it had changed its name to its original
moniker — Expression
Engines, brought in new leadership and embarked on a
new direction.
The fate of Favemail illustrates what’s occurring with a host of start-up
companies, in a stock market environment that’s putting the squeeze on
marketing budgets. It’s also a cautionary tale of the twists and turns that
all start-ups face as they struggle to “find themselves” and find a
market — a process that requires strong leadership and turn-on-a-dime
flexibility.
Back in 1999, David Kent, a West Bloomfield, Mich.-based ear nose and throat
doctor, came up with a concept that combined the ubiquity of email, the
creativity of home page building, the viral marketing techniques pioneered
by Hotmail, the popular affiliate
marketing model, and the loyalty rewards
model used by MyPoints.com. He was the
brains behind the idea for
Respond.com, which had already received
$55 million in venture capital
funding, so when he came up with ideas, people listened.
The idea was powerful enough to convince New York’s Flatiron Partners, a
well-respected venture capital outfit, to back it with $2.5 million and
incubate it in-house — an unusual practice for the firm. Around the same
time, similar companies popped up across the country. Epidemic Marketing
emerged in Colorado, and SuperSig
debuted in California. As entrepreneurs
are so fond of saying, this “validated the model,” by proving that, if other
people had this idea and were getting funding, it must be a good one.
At the time, Michele Slack, senior analyst for Jupiter Communications‘
online advertising group, said, “I think the reason these companies are
coming to market is that everybody is trying to find a way to systematically
harness the power of viral marketing.”
But there were signs of trouble with the consumer model. It failed to gain
traction for the most basic of reasons. “I don’t think that the vast
majority of Americans want to make money off their friends,” said Slack, “or
will feel good about their friends making money off of them.”
Almost right out of the gate, SuperSig began to take more of a
business-to-business approach, deploying its solution on sites that were
already destinations. A Britney
Spears Web site, for example, would let you
add a “Sig” that featured pictures of the singer. SuperSig would be
compensated by, in this case, Britney Spears’ record company. Then, it began
developing a corporate product. In this scenario, corporations would pay
SuperSig to install its graphic e-mail “stationery” on a company-wide basis,
which would help them build their brand with every e-mail
that went out. So
far, SuperSig has managed to stick with that model, and stay afloat on only
$1.7 million.
Epidemic Marketing wasn’t so lucky. “The consumer proposition,” Kelly
Wanser, chief executive officer of the company, said back in April, “was
trickier than we expected.”
By then, Wanser had raised $2.5 million for the company in its first round,
was seeking $12 to $15 million in a second round, and shifting the company
to a business-to-business model. The funding apparently never came;
Epidemic.com has now folded.
Since the April market “correction,” getting that kind of dough has been
tough for ventures. The chilly funding conditions have hurt marketing
start-up companies like Favemail and Epidemic Marketing in two ways.
First, it’s hard to convince investors to sink more money into a company
that has yet to prove its revenue model or build a brand. And it’s certainly
not cheap to build a brand. Epidemic was, after all, one of the companies
that spent around $2 million for a splashy Super Bowl spot. Second,
potential advertisers may be likely to shy away from an unproven method,
when more tested options exist.
Favemail, meanwhile, was floundering. Rumors circulated that the CEO brought
in to incubate the company, PJ Stafford, was ousted at the behest of
investors participating in the second, $8 million, round of financing. The
search for a new chief executive dragged on for four months and new user
numbers weren’t growing as fast as the company hoped; marketing the site
came started to look like a very expensive proposition.
This week, Favemail, which has now returned to its original, more flexible,
name — Expression Engines, announced a new leader and embarked on a new
direction.
Fred Wilson, managing partner at investor Flatiron Partners, said the
backers were looking for leadership with a vision of what the company is
going to be.
The man chosen to take the helm, Al DiGuido, a former executive vice
president at Ziff-Davis, certainly has a different vision for the company
than the one originally conceived. With twelve employees shed along with the
old business model, the company is transforming itself into a one-stop-shop
e-mail marketing company, providing everything from strategic consulting, to
banner building, to e-mail distribution services and data analysis.
“They were in need of a re-thinking of how to position this technology and
how to bring it to market,” said DiGuido. “The endgame here is that we want
to be more than a tools provider.”
But there’s no shortage of competition in that space — everyone from
Digital Impact to Bigfoot Interactive to YesMail.com (and there are many
others) — is trying to capture e-mail marketing dollars. But that doesn’t
worry DiGuido, who said he’ll be tapping the high-tech business contacts he
gained at Ziff-Davis, and working to convert them into Expression Engines
customers.
“I’m familiar with the challenges that companies face in taking their
businesses online,” said DiGuido. “The market is so gigantic that we’re just
beginning to scratch the surface.”
So, too, is the nascent company only beginning to scratch the surface as it
begins again in the marketing business, trying to salvage the technology
from the company’s first iteration and use it as the foundation of its new
plan.
Still, it avoided Epidemic Marketing’s fate, by being willing to
dramatically change direction.
“It doesn’t come without bumps and bruises,” said DiGuido. “In the Internet
space, if you don’t make the changes, if you don’t look up, you’ll be a dead
company.”
