eBags’ Cost-Cutting Move Lands New Revenue Source
Rocky Mountain News
October 08, 2001

Jon Nordmark chuckles as he relays the one-line lesson learned by many venture-backed startups during the wild dot-com ride. "Too much money makes you stupid," says the founder and chief executive officer of Greenwood Village-based eBags Inc.

During the boom, his company and others thought nothing of spending tens of thousands on e-mail marketing.

Now a cost like that would be out of the question, as investors clamber for their portfolio companies to show a profit. With lower overhead and new initiatives designed to increase its revenue and customer base, eBags broke even for the first time last month, Nordmark said.

In the process, it also managed to turn a cost-cutting measure into a potential new revenue source. The online luggage and handbag retailer had been paying about $30,000 per month to a company that provided outgoing e-mail marketing services to the company's rapidly growing customer base, Nordmark said.

Meanwhile, as sales grew, eBags employees were spending more and more time on e-mail communications on the business end, on things such as confirming orders and shipping dates, said Mike Frazzini, vice president for technology.

"As we built out those systems, we gained expertise in e-mail communications and html communications," Frazzini said. "As we gained more and more experience, we saw we had efficiencies of scale. Eventually we said, 'We should roll this out with the marketing team.'"

With that, the company not only cut a significant monthly cost but also increased its ability to improve the quality and customization of outgoing marketing e-mail, he said. It also inadvertently created a source of potential new business.

Currently, eBags sends out about 4 million marketing e-mails each month to customers in its database. The system is built to handle about 80 million. After it began doing the job in-house, eBags realized that other online retailers were facing the same issues. California-based Sparks.com, for example, shares at least one venture capital investment firm with eBags. So the two companies were familiar with each other, Nordmark said.

Before the economy turned, the online card and gift retailer spent tens of thousands of dollars on a monthly retainer, plus a per-e-mail fee, to an outside company that managed its database and handled its e-mail marketing, said founder and chairwoman Felicia Lindau.

"It was very expensive," she said. "We used them for almost two years, and the return on investment was always negative."

After the market turned, Sparks.com canceled its contract with the company, and for several months it suspended its e-mail marketing program. Now, in exchange for eBags getting to advertise on Sparks.com's outgoing e-mails, the company uses eBags' system. "The difference to me is kind of incredible," Lindau said. Instead of paying large creative and tech teams inside and outside the company, Lindau handles the content of the e-mails herself.

She can do that because Frazzini and his eBags team developed the system specifically for marketing types, not techies. Nordmark compares it to making your own Web page on America Online -- the technology is set up so the user merely plugs in the content.

That content can be customized based on customer profiles. EBags now sends six versions of its marketing letters, depending on such factors as customers' prior purchases. Frazzini and his team are working on tailoring those mailers even more, he said.

EBags plans to market the tool to other online retailers, either selling it directly to them or trading for advertising in a deal similar to the one with Sparks.com, Nordmark said.

By Janet Forgrieve, News Staff Writer