Meru Maga Mania

Back to Contents of Issue: July 2000

by Gail Nakada

"Japanese like email," says Tom Sato. The man should know. He's used email magazines -- or meru maga, as they're called here -- to propel his US-based startup Bargain America to the fourth highest spot on Japan's top-etailers list. In this country, email is the strongest driver of Internet awareness -- across all demographic groups. What's more, the medium is perfectly situated for the mobile (cell phone) Net revolution. In other words, it's the perfect way to reach Japan's online consumers.

Why email is so big in this culture is anyone's guess, but plenty of theories abound. One goes something like this: Japan is a village. A rich, sophisticated village with a GNP second only to the US, but a village nevertheless. The people in this village want to feel physically and socially connected to each other. ("Rugged individual" types need not apply.) Whether they're 20-somethings in 10-inch platforms or flesh-pressing Netpreneurs at Bit Valley events, they want to belong to a group. Another one: the office spaces in Japan are very cramped. If you're using email, reading those tiny characters on the screen, it looks like you're doing work. You don't want to be surfing the Web looking for job info while your boss is walking around. And then of course there's the off-cited: Japan has the world's highest combined phone/Net access charges in the world. Email can be read offline, so it's the most economical online medium. There are more, but you get the idea.

Meru maga -- "opt-in" or "permission-based" email, where users "opt" to receive or "permit" companies to send -- has taken off at light speed. Kyoto-based startup MagMag kick-started the trend after setting up a free distribution system for mail magazines in September 1997. It works like this: publishers list on MagMag's homepage. MagMag oversees the entire distribution process, saving publishers the headache and cost of installing software and maintaining a complex database (keeping track of who's opting in, who's opting out, et cetera). In exchange, publishers agree to host five-line header and footer text ads with hyperlinks in their magazines (they receive a small percentage of the click-through fees -- around 10 percent, but this varies). Magclick, a joint venture between MagMag and ISP interQ, serves as the sole agent for placing advertisements.

Arranged in categories like Fanzines, Sports, and Computers, the newsletters are a mix of independent amateur efforts that come and go and businesses looking to leverage their presence online -- including a host of newsletters that are all ads and no content. MagMag also publishes its own newsletter, Weekly MagMag, that hosts a large number of ads, as well as news and information. Some 60 percent of MagMag customers choose to receive it, making it extremely popular with advertisers.

MagMag lists 14,860 meru maga on its portal site and has about 3.5 million unique visitors, with the average user subscribing to six or seven magazines. By volume, the company controls roughly 80 percent of the market for meru maga distribution.

As the first mover, MagMag created such a strong brand in so short a time that the company has never had to pay for user acquisition. "The cost of acquisition is zero right now," says Hiroyuki Nishiyama, executive president of Magclick. "MagMag has never advertised at its own cost. Marketing costs have also been zero. This year we are starting some advertising alliances with big portal sites -- Goo, So-net, Isize -- but we have not paid for advertising. The key point is so many publishers want to register into MagMag because we have such a big user base. Once the magazine enters our network, its easy for them to gather subscribers."

Quantity does not always equal quality, of course. "You have to have the right environment to capture the right audience," says Shane Murray, COO of BMC Media.com, a sales and ad rep company specializing in marketing solutions for website publishers and advertisers. "When we look at top sites in other regions and other countries, some of them grab a lot of attention, but successful ones for advertisers aren't necessarily the biggest. Numbers are very beguiling. Value propositions entail not just, 'What money can you get from that advertising?' but, 'What can that advertiser do for that user within this environment?'"

MagMag knows it can't be complacent. Over the past few years, many other free email magazine distributors have popped up. Trying to stay one click ahead, it's teamed up with interQ, and through Magclick it's added a performance-based model to its click-through one.

But while MagMag started out with a Hey guys, let's give this a try startup feel, its newer competitors are all business. "When I visited MagMag," says a source who wants to remain anonymous, "they were pulling in lots of money. It was four or five guys in a room that looked like a frat house. They had sleeping bags. They had food everywhere. But they had this big huge HP in the corner that was pumping out thousands of email an hour." That "frat house" has evolved into a business model.

Many of the competitors that have followed, however, are corporate-financed from the get-go. Examples include Macky (Fujitsu), Pubzine (Sony), and HiHo's fledgling Mail-Kan (Panasonic). Others are independent ventures, like Cyber Agent's Melma, which is ranked second in unique user volume. Add to the mix company-based email efforts, like those of electronics maker Llaox and Tsutaya (video and music sales and rental giant). And don't forget publishers like Nikkei and Impress, which also list a number of email publications independently on their own.

Popularity has had little to do with corporate funding; instead, corporations are approaching meru maga with a specific agenda -- boosting their proprietary databases, for example, or increasing the use of their ISP portal sites (Fujitsu's Niftyserve and Sony's So-net, for instance).

Cyber Agent is MagMag's strongest challenger. Creative director Kenichi Kishi (sitting in a high-backed leather chair, hair zigzagged to modish perfection), is all confidence. "I think this year we can overtake MagMag as the leader in email magazines," he says. Kishi oversees Cyber Agent's email-based business -- as well as panoramic views of the Tokyo skyline from the company's sleek offices in the new Mark City Shibuya see "Real Estate Boom 2.0". It's hard at first to see where Kishi's confidence comes from: Cyber Agent's email distributor Melma has only a 10 percent share of the market at this point.

"We have a very different profile than MagMag," says Kishi. "Though we list fewer magazines, look at our number of unique users: we have over 2 million, and that's increasing rapidly. We also have a large number of professional publishers, in contrast to MagMag. From the first we believed email magazines were a business and had to make a profit, long term. We look for magazines that are attractive to advertisers and to readers -- you've got to have a good match for value."

Another long-term difference between the two is how user data is handled. MagMag is big on protecting readers. It won't allow any publisher direct access to its subscribers' email -- no exceptions. This has caused some rifts with publishers. "Some publishers decide they don't like that system and leave," says Nishiyama. "That's their choice."

Kishi isn't quite so firm. "Although we only ask for users' email addresses at the moment, we are planning to move aggressively into gathering more information -- age, gender, occupation, residence, et cetera."

A few blocks away, in a different part of Shibuya, sitting at a conference table in his socks (shoes off, please), Hiroshi Shiiba says that the next step in the maturing meru maga business is straightforward permission marketing from real-world companies. Director of business development at Net incubator NetAge, Shiiba pitches a site called Vmail: "We're a pure B2C play. MagMag is a mix of C2C and B2C. Vmail is free to users who sign into whatever genre categories they are curious about: travel, hobbies, shopping, whatever. Once inside, they are asked questions about specific interests. In Travel, for example, they are asked 'domestic or international? The US, Europe, or Asia?' Airfares, train travel, whatever. We then present that data -- users identities are protected, of course -- to clients like Tokyu Department Store, Shiseido, Sony, Hibiya Kadan, et cetera. Clients can then finesse their email content very specifically to the consumers." NetAge charges advertisers a fee of 30 for text or 50 for HTML per mailing to the targeted users. Profits come from the volume of the mailings.

While players like MagMag, Cyber Agent, and Vmail hash out the business models and carve out slices of the market pie, the broader issue is how effective meru maga marketing is to begin with. Richard Chen, CEO of permission-based email marketer OptoMail, encounters it frequently: "Companies used to working in traditional media -- TV, magazines -- have said, 'Email is not really that interesting to us -- it's text, it's hard to make things interesting on it, and it's not glamorous.' What we tell them is that relevancy is far more interesting than something fancy looking. It's not about the visuals; it's about the relationships you establish with your customer base. The point is securing a repeat customer and an increase in the share of that person's wallet. Email marketing, particularly through newsletters to repeat customers, is a far more efficient way of generating revenue and earning cash than trying to go out and reach a new customer every time."

Meru maga marketing also compares favorably to banner ads: in a poll by Nikkei Market Access, email ads were considered twice as effective as banner ads by shop managers -- and second only to TV and magazines. The click-through rates for average meru maga ad placements is around 1 percent, but that 1 percent, marketers say, provides a higher quality return than banners. NetAge's Shiiba says the click-through rate for Vmail averages a healthy 5 or 6 percent. "I think the reason for this is we are dealing with a different kind of user," he says. "These people have already expressed interest in receiving targeted newsletters from our clients in specific categories -- you're working from an increased point of interest."

Asia-Net, a job-placement portal targeting bilingual professionals in the Asia Pacific Rim, budgets a large part of its marketing toward meru maga ads. "We've found email as a promotional tool to be very effective," says CEO Michael Nishi. "Mail news sources actually are our best partners. We put ads and sometimes content about Asia-Net in their professional mailing list newsletters. We target those with content about business in general, technology, et cetera. Those partners know we're looking for people between 25 to 40 with an international mindset, and they help us select publications. It's around a 1.5 percent click-through response rate for qualified applicants."

As for the ad rates in meru maga, the variations are infinite. Here are a few examples: in July, a full header in the weekly MagMag (circulation 2,357,075) would cost you 2.7 million, a footer 1.35 million. In one of their listed meru maga, the base fee is 300,000 for a header with a guaranteed distribution number of 200,000, which works out to a unit price of 1.5. That decreases to 0.8 in a guaranteed distribution number of 3 million for a fee of 2,400,000.

Keeping things in perspective, email marketing's share of online ad spending in 1999 came out to less than 10 percent, according to both Magclick's Nishiyama and NetAge's Shiiba. And while premier ad agency Dentsu estimates that online ad spending in Japan grew to 24.1 billion in 1999, a rise of 211.4 percent, that in itself isn't even 1 percent of the total revenue of traditional ad media (0.4 percent, according to Dentsu). Nishiyama foresees email marketing's share of online ad spending "hitting anywhere from 18 to 25 percent by 2003."

Also, distributors like MagMag could suffer if advertisers perceive its publications as too amateurish to generate qualified leads. Pay-for-performance models will force culling and more sophisticated data gathering, and ad budgets for these models will certainly increase.

Still, notes Bargain America's Sato, "The fact that Cyber Agent went public on the strength of its email business (its Mothers IPO surpassed 22 billion) shows that investors believe there's something to the future of email magazines in Japan."

The future of meru maga may belong to the cell phone. Publishers, media reps in tow, have begun a lemming-like stampede to iMode and other Net phone providers. There are already hundreds of meru maga squeezed into the small screen. MagMag is available through the iMode service, and the company is expanding its presence, developing an ad server specifically for i-mode, as well as the WAP and J-Skyweb system.

ValueClick, which pioneered the click-through ad model in this country, has abandoned traditional meru maga click-throughs altogether and is focusing much of its new performance-based efforts on mobile communications. Nishiyama believes the type of advertisers for cell phone email will be slightly different from the those on the Web. "I think we'll see more bricks-and-mortar shop owners rather than pure plays or those trying to draw customers to a Web shop," he says. "For example, HMV records wants customers for a short-term promotion. The mobile system can identify where users are and, if they're close, send a message to come to the Shibuya store for a special discount or event. It's time-critical sales -- that sort of advertising is immediate and perfect for the mobile network."

Businesses are still not sure how the whole e-commerce thing is going to work out in Japan, but they do sense that meru maga, cleverly used, can drive traffic (foot or digital) to where they want it to go -- which is, after all, the whole point of marketing.

CONTINUING EDUCATION
Course: Mail Mag 101
Professor: Tom Sato

Tom Sato, CEO of US-based online retailer Bargain America, is a pioneer in Japan's email newsletter business. He gives seminars on both sides of the Pacific focusing on email marketing to the Japanese.

What makes a successful email magazine?
Good content, definitely. If the content is strong, they'll read it. If the content is poor, it's going straight into the dustbin. Typically, if you want to have a good email magazine, you need original content. Even newspapers often find recycling from paper media isn't quite right -- the audience is different, the medium is different. You can't just cut and paste.

Japanese want it text-based. Americans are getting graphical, HTML-based [email magazines], but Japanese don't want graphics -- they want an interesting story to read. Even if it's an opt-in subscriber-based system, if the magazine is just "Buy this" people will opt out. They're looking for information, plus you want repeat business.

Good email magazines are hard to come by because they're difficult to do. You have to create an email magazine every week -- or however often you publish. You need original content, and you need an editor or editorial team to create the content. Then you have to market it either by placing five-line ads in your magazine or by using the magazine for promoting your own product lines, which is what I do at Bargain America.

Looking at people coming into the email magazine market today and how much they're spending, you can see that the Japanese are definitely putting more money into email magazines. But you can spend money on things that aren't necessary. They buy lists. Never buy a name. That's the worst possible way to create a magazine. The churn rate is huge and the amount of support you have to do because of complaints by telephone, by email, by your access provider is just massive. People complain even when they have opted in! Buying lists is cheap, but it doesn't work. That's the biggest mistake, and it's going to create a bad image. p>Subscriber acquisition costs really vary. It costs $1 to $2 to get a subscriber -- that's on the low side. You can spend around $10 per subscriber if you're not careful. It's easy to overspend on marketing. Buying lists seems like an easy way out, but it doesn't work. If you're a business or retail site, you can place banner ads online and ads within other email magazines. Running a competition is a good way to get started for a subscriber drive or campaign. You don't have to immediately ship the magazine once you get your initial list of subscribers. You can start three months after the subscriber drive while building up your editorial team, whereas if you start the editorial first, you're losing a lot of money on content that's not being read, and content can become very cost intensive if you're not writing it yourself. What you need is rapid initial sign-up for your magazine, and there are only a few companies that can take care of those needs.

Free mail mag distribution services mix up amateur and professional magazines, and you're just one among 10,000 other amateurs. You may not get the right audience because it's a random selection of chance people. They have a high churn rate, so the quality of the subscribers can be lower than a more professional site or working through a proprietary list. It's better to have 10,000 qualified subscribers interested in what you have to offer than 100,000 who couldn't care less.

There are returns even on small numbers. Let's say your conversion rate is 1 percent -- just 1 percent -- for your mail magazine you issue once a week over a one-year period. One percent every week you can add 52 percent -- though obviously there's overlap. You can build up on small returns with a weekly magazine, and if the contents are good, they'll keep on reading it. Japanese don't have as much experience with spamming. People are far more willing to read email. Keep improving your email magazine content and layout: that will keep the audience interested. It's a push medium and it works well.

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