One way to (still) make money online
E-mail newsletters like Thrillist and DailyCandy are cashing in - even in tough times.
NEW YORK (Fortune) -- The junket last summer seemed like a throwback to another era: In June, a fledgling Web site packed 150 journalists, employees and contest winners onto a JetBlue plane, plied them with Skyy Vodka and Dos Equis Beer, and flew them to Las Vegas to spend the night at the Mirage. All expenses paid. The company plans to do a similar event again next year.
Recession? What recession?
Thrillist is among dozens of e-mail newsletters that are proving there are riches to be made in online niches. When Ben Lerer, 27, and cofounder Adam Rich, 28, were just launching their daily missives for men three years ago, Thrillist and other companies like it were dismissed as so Web 1.0.
After all, they didn't sport profiles or post blogs or let users upload pictures. It was the social media sites that were attracting all of the attention and high valuations. E-mail newsletters - in which subscribers opt in to receive one e-mail a day - were, well, boring.
In August, Comcast (CMCSA, Fortune 500) paid roughly $125 million for DailyCandy.com, a Thrillist-for-women with 2.5 million subscribers in 10 cities who opt-in to their product and entertainment recommendations. DailyCandy is expected to post $10 million in profits this year on $25 million in revenues, according to a source close to the business.
And Thrillist? With just $1 million in funding so far, company profits recently hit seven figures.
The online lad mag has followed a typical recipe: Subscribers need to visit the Web site once - to sign up. Five days a week they receive an e-mail with a pithy editorial quip, with Friday's mailing full of advertisements. Thrillist has sites for seven major cities including New York, Los Angeles, and Las Vegas, and has a national newsletter as well. It has built a subscriber base of 500,000.
What's more, the site identifies when people become disengaged by hitting the spam button on the newsletter and then automatically removes them from the list. This way, advertisers have some certainty that their pitches don't always end up in the junk folder.
Each day's entry has one recommendation - for a local bar or a Web site or a clothing brand. The voice is edgy. "For best results, you need a joke that is sophisticated and to have humor that is going to work for the post-college fratty guy, too," said Lerer.
A recent missive for a newly-opened boutique began: "A guy's first pad tends to get furnished only as his activities demand: toilet paper holders and end tables are for people with girlfriends, and as long as your TV's not sitting on the ground, you're looking good."
It's no surprise that this tone has attracted a readership of mostly young males, the most elusive group for advertisers to reach. Men aged 21-34 make up 73% of the audience, according to Lerer. Compare that to, say, Spike TV, the cable channel for men, which boasts on its Web site that 59% of its audience comprises men between 25-54.
But before you get out your laptop and mock up a newsletter of your own, keep in mind that the competitive landscape has become very crowded.
The newsletter pioneer is Flavorpill.com, which bills itself as "a city guide for those who like to go out." There's also UrbanDaddy.com, which promises to "keep you in the know." And IAC (IACI, Fortune 500) owns Veryshortlist.com, started by journalist Kurt Andersen, which offers a daily culture and entertainment fix.
What's more, e-mail newsletters haven't been spared from the chilly economy. There are rumors that IAC is trying to sell or close Veryshortlist.com, and Flavorpill laid off workers last month. But the overhead on these startups is often miniscule, and the subscriber base remains more constant than in other Web ad businesses where users come and go at will.
So how does a newsletter rise above the rest? It helps to be connected. Lerer is the son of former AOL executive and Huffington Post co-founder Ken Lerer, and the company's funding comes from Pilot Group, an investment outfit founded by fellow AOL veteran Bob Pittman. Pittman has a growing expertise in this business, having also funded DailyCandy and IdealBite.
Lerer has designs on expansion. He's launching Thrillist Invites, a list open only to current subscribers that touts free events. He's taking advantage of three years of content to build out a Web site. And he's talking with JetBlue and other sponsors about plans for next year's big trip.