One company is building a mechanism to deliver ads that it says users are grateful for.

by Alex Goldman ISP-Planet Managing Editor [January 14, 2008]

E-mail costs money to provide, but many ISPs feel they have to provide it because it keeps customers, reducing churn. Churn is an important metric in the ISP industry. It measures the number of customers who left the ISP during a specific period as a percentage of the ISP's total customers. In commoditized markets, churn can be a few percent each month, adding up to a third of all customers, or more, during a year.

Enter Rochester, N.Y.-based BlueTie, vendor of a hosted alternative to Microsoft Exchange and similar licensed software. "If you're an SMB," says David Koretz, BlueTie CEO, "the defacto standard is to spend $20,000 for Exchange. That's a huge capital expenditure for a business of 10 to 20 people. Instead, a hosted solution can cost $5 per user per month. As a result of these economics, we've taken on several hundred thousand SMB customers and are now one of the largest SAAS providers."

Although his bio includes being CEO of Network Marketing International, Koretz says he's an engineer, not a marketer. "We were the first to take lead data and extrapolate it and enable online search and downloading. We changed the way the business operated," he explains, showing that it was about technology, not marketing strategy.

A new paradigm
Now he wants to change advertising. "Ads are invasive. The customer, especially the business customer, will not tolerate that. Ads interrupt work flow, which is why we hate them. So we figured out how to do ads that don't interrupt, maybe because we knew nothing about ads when we did this."

Meet the featuretisment.

"We built a collection of the web's most useful services integrated into workflow, and won an AdTech award last year. We were up against Coca-Cola and IBM!"

So how does it work?

Consider the company's partnership with Orbitz. "We did a deal with Orbitz," says Koretz. "Let's say you get an e-mail from a customer who needs you in Chicago by Thursday. You type, natural, language, 'flights Rochester Chicago,' and BlueTie overlays the results on your calendar. Click on the flight you want, and it pulls up return flights. Buy two flights with one click, and it attaches an e-ticket in .pdf format."

Flying is a headache. "I've been an SMB and I hate booking travel. Flight delays make it worse. We took this headache and made it feel like a service. Featuretisements are supposed to feel like features. Our top concerns are the brand of the partner and the quality of integration. Revenue is our last concern. We're not getting paid based on cost per click (CPC) or cost per thousand banner ads (CPM). We only make money when someone books a transaction."

If the integration is sloppy, and potential customers drop out during the buying process, BlueTie gets nothing.

"Featuretisements align the interest of the publisher with that of the advertiser. When we first released this, we offered it only to our free customers and our paying customers were angry. It was perfect. Our customers said, 'that's not an ad; it's a feature.'"

In the coming year, Koretz says, BlueTie will roll out several more featuretisements each quarter—it's working on 23, but cannot work on all of them at once.

Asked whether ISPs implementing featuretisements have turned off banner ads, Koretz says that ISPs are now doing both, but that he expects them to turn off banners as CPM prices go down. A single Orbitz transaction, he notes, could be worth the same dollar amount as tens of thousands of banner ads.

Koretz won't disclose actual transaction prices, but says that the revenue share with the ISP is 50 percent of what BlueTie gets. In addition, BlueTie ensures that the commission comes out of the price of the ticket—products bought through featuretisements never cost more than purchasing direct through, say, Orbitz's website. Some advertisers will offer users of featuretisements a discount. This, we feel, could become industry best practice. Users should be compensated for the featuretisement contract arrangement even if they view it as a feature, not an ad.

Growth
BlueTie now has two separate development teams, one for featuretisements and one for traditional development.

Traditional development, to be announced in early 2008, covers bug elimination, a new calendar, autocomplete for e-mail addresses, and other features that e-mail users expect from client-based applications but are not yet accustomed to finding on hosted apps.

"In the past, users sacrificed features and speed to gain on price [when they moved from client-based to hosted applications]," says Koretz. "We are now matching and exceeding the function of desktop equivalents. For example, my BlueTie mailbox has 10 GB of data and I can still search it. I predict that web apps will add features and speed over the next 18 months. Nobody will choose a huge capital expenditure over spending a few dollars each month. If I was a desktop software company, I'd be scared."

—End