Feb 1 2006

Has AOL Just Endorsed Paid Spam?

I’ve been deeply involved in the email business for the past decade through investments in companies like Postini, Return Path, Critical Path, MessageMedia, and Email Publishing and have been involved in the challenges of separating spam from legitimate email for a long time.  On Monday, AOL announced a set of changes that I think are a gigantic step backward for users of email.  While their announcement – that they are phasing out their IP-based Enhanced Whitelist and implementing Goodmail’s CertifiedEmail program – seems simple enough, I believe it is ultimately validation and support for “paid spam.”

As an investor in Return Path, which has been deeply involved in the issue surrounding email reputation (e.g. is this piece of email spam; is emailer-X a spammer), I’ve always thought that the “pay for delivery” approach is absurd.  While intellectually it might seem interesting (e.g. a mailer needs to pay a small fee for each email he sends), it results in horrible unintended side effects.  At Return Path, we’ve spent an enormous amount of time over the past few years discussing and exploring this approach and continually come to the conclusion that it’s fundamentally flawed, bad for legitimate emailers, and terrible for email end-users who simply “want the good stuff but not the bad stuff.”

Fred Wilson – my co-investor in Return Path – has written an excellent explanation of why this is a problem.  Matt Blumberg – the CEO of Return Path – has weighed in with a thoughtful, direct, and pragmatic reaction.  Jason Calacanis – the CEO of Weblogsinc and now part of AOL – asks straightforward questions to try to better understand the issue (and generates a great comment thread on what’s going on as people dig in and understand this better.)

Last night at dinner I had a long conversation about this with the CEO of a major email security provider (not the CEO of our investment – Postini) who wants to remain unnamed because he’s uncomfortable with “rattling AOL’s cage” about the issue, even though he thinks it’s an absurd approach.  Given AOL’s market power here, his reaction is typical – AOL obviously has the right to behave as aggressively as they want (e.g. “if you don’t agree with our approach, we aren’t going to let your mail through”).  Of course, any rational AOL end-user who cares about what shows up in his inbox also has the right to simply say “screw it – I’m already paying AOL to deliver my email and block spam (anyone seen an AOL commercial lately?) – they aren’t doing it, I’m switching to Yahoo / MSN / Gmail.)  Market power can be a dangerous thing – both directions – and I don’t think AOL has considered this carefully yet.

Following are two examples of the problem here.  Assume AOL does in fact phase out their IP-based Enhanced Whitelist as they state they are going to. 

eBay Example: eBay sends out an enormous number of transactional emails each day.  I’m an active eBay buyer and I rely on these emails when I’m bidding on something (each time someone outbids me, I get an email, which is what I respond to.)  In the “new AOL email model”, eBay is going to have to pay to get every one of those emails delivered.  I have no idea what the numbers are, but they are big ($10m / year, $100m / year?)  Either AOL is going to have to make an exception for eBay (which effectively guts the program) or they are going to have to get eBay to pay.  Given that eBay is already paying AOL a bunch of money to advertise on AOL, eBay is already paying the cost of sending the emails, why are they going to be willing to pay anything to AOL for the AOL users to receive the emails?  This isn’t going to happen and either (a) AOL is going to end up making an exception for eBay or (b) eBay is going to stop sending email to AOL users.  Hmmm – wonder what happens at that point?

Feld / FeedBlitz Example: I have a growing list of subscribers to my Feld Thoughts blog via email.  I’ve outsourced this to a service called FeedBlitz which is tightly integrated with my blog and my FeedBurner feed.  100% of my subscribers are opt-in – they have explicitly asked to get my content.  This is true across all of FeedBlitz’s users.  We (either FeedBlitz or Feld Thoughts) are now going to have to pay to have email delivered or AOL users aren’t going to get it.  I have no interest in playing this game – I’ll simply tell my AOL subscribers that they have lots of other free email services available to them that accept my email.

I don’t really care whether or not AOL implements Goodmail’s solution.  The fundamental problem is that AOL is phasing out their IP-based Enhanced Whitelist and forcing all mailers to either pay Goodmail (and correspondingly AOL since they get a big cut of the revenue) or no longer be considered legit email.  The simple solution is to continue supporting the IP-based Enhanced Whitelist (and other logical solutions that enhance the quality of the email they let through.)  Hopefully the service providers and end-users in this ecosystem that understand the issues will be brave enough to speak out clearly to AOL and AOL will be brave enough to look out for their end-users.  If not, AOL is effectively telling the spammers of the world “if you are willing to pay AOL, we’ll deliver your mail to our end-users.”  If I was an AOL end-user and I understood this, I wouldn’t be an AOL end-user for very much longer.