1. Introduction
This paper studies the evolution of Internet Email as a product and assesses the opportunities and challenges that face such web-based service products. The goal of this study is to apply the generic product management concepts and critique their applicability to the world of internet. The product shall be evaluated in the backdrop of internet email provided by 3 major providers - Yahoo! mail, Gmail and Microsoft Live Hotmail.
As a communication medium, internet email today, is an indispensable part of daily routines of many a human. The penetration of email is nearly as high as the penetration of the internet - as it remains the most important and most commonly used application on the internet. Despite being a free product that is largely taken for granted by its users, it continues to evolve with more innovative features being made available through major providers. When email was first introduced in 1972, there were no customers demanding the functionality; it addressed a latent need to communicate. In subsequent years, the features were driven by a combination of "need" and "technology advances".
Email is now widely used for official and personal communications (some countries allow emails as evidence by law). One cannot imagine a business card without an email address! More importantly, it enables several innovative marketing strategies as it offers a cheap medium to "reach" existing and potential customers. On the darker side, it is riddled with issues like spam, viruses, phishing, privacy invasion and security.
2. Evolution of Internet Email
The earliest messaging system used in MIT since 1965 were MAILBOX and SNDMSG which were used to send user-to-user messages in the same box. Ray Tomlinson[1] is credited with inventing email in 1972, when he first used the symbol "@" to address communications to other computers - this is regarded widely the advent of emails. By 1974, there were hundreds of military users of email on ARPANET. The first significant leap was made when the SMTP (Simple Mail Transfer Protocol) came into being - it was a pretty naïve protocol with no mechanism to authenticate the sender; however, this is still being used with some modifications. Even today, some of the original issues continue to be exploited by spammers and virus writers.
In 1993, large network service providers America Online and Delphi started to connect their proprietary email systems to the Internet, beginning the large scale adoption of Internet email as a global standard[2]. As the World Wide Web gained momentum and the need to access emails from anywhere in the world arose, email began to be offered by web services providers like Yahoo! and Hotmail. While initial email systems charged users on a per minute basis on a dial-up connection; the advent of internet email almost simultaneously brought about free availability.
Hotmail, founded by Sabeer Bhatia and Jack Smith in 1996, was one of the earliest internet based email provider. By 1997, Hotmail had become so popular that companies like Yahoo, AOL and Microsoft were vying to buy it out. Yahoo! and AOL could not afford the valuation that Sabeer Bhatia demanded for selling. He also rejected $150 Million and $350 Million offers from Microsoft after finally settling for $400 Million in early 1998. Hotmail then became MSN Hotmail and now called Windows Live Hotmail. It had over 270 million users worldwide as of 2008[3].
Interestingly, Yahoo!, which was a web-based company and absolutely needed to be in the business of internet email, paid only $96 Million to acquire Rocketmail. It needed to act swiftly as Hotmail was adding thousands of users per week and gaining user-base quickly was critical. It went on to re-brand Rocketmail and launched it as Yahoo! Mail in late 1997. It included premium email services (Yahoo1 Mail Plus) which had increased storage limits on the server, enhanced security features, archiving of emails, freedom from ads, more attachments etc.
In 2004, Google entered the arena almost disruptively by providing a much larger email storage space, better User Interface and faster access. Google's entry prompted Yahoo! Mail and MSN Live Hotmail to jack up their offerings and match most of Gmail benefits. The string of innovations that followed Google's entry benefited the end-user a great deal - for example, all providers now provide very large email storage (virtually unlimited) for free. The following graph represents the latest market share of the 3 biggies in the internet email space in US. Google is however the fastest growing.
The key to long term potential of the product in terms of generating revenues is to gain market share - quickly. As people use the product more and more, they get "stuck" to the product. Though mail standards provide for compatibility between different email providers, to the extent that emails can be exchanged and deciphered, they do not allow for easy transfer of all old/archived emails to another provider. The bottom-line is that it is difficult to get users to migrate to a new provider unless there are clear benefits in the new provider or serious pain-points that it provably eliminates.
Yahoo and Windows Live Hotmail, both being the early-birds in this arena, gained the first-mover advantage that still yields benefits. Both of these earn a significant portion of their revenues from paid memberships for their premium email products (as indicated in the table above). The premise of this business model was to squeeze the storage quota for free users and force them to upgrade to premium when storage limit is reached. Google, on the other hand, re-wrote the ground rules. It is generating its revenues through scanning the email content and pushing highly targeted ads to the user based on content analytics. Google's strength comes from its search capability and intellectual property that includes patents pertaining to serving targeted ads based on contents (Adsense). As of today, GMail's revenue generation appears stronger than that of Yahoo! mail and Windows Live Mail. Google is able to overcome (as indicated by the growth of GMail's user base) its late mover disadvantage by providing innovative slick features and better ads targeting. However, Yahoo mail and Hotmail continue to have the advantage of much larger active user base and are "technically" in a better position than Gmail to exploit the business model adopted by Gmail - as a larger user-base would mean more responses to ads. This is a space to watch out for - we believe both these companies have the wherewithal to adopt the content based targeting model and give Gmail a run for their money. Until recently, they were using demographics of users (age, country, hobbies... etc. that the user specified at the time of creating the account) to display ads and this method results in inappropriate targeting leading to poor click-through rates.
An accepted fact in the trade is that while users are the source of revenue, they normally treat advertisements around their email as annoyance. The internet email company thus needs to strike a balance between displaying annoying advertisements and providing a good user-experience. Gmail leads the pack in this respect - their advertisements on email are very subtle text messages that produce lease annoyance to the users. Ymail and Hotmail have banner ads and the screen space is cluttered leading to less than optimal user-experience. However, through better content analysis, Gmail is able to show more relevant ads to the end-users and thus maintain the revenue potential. The flip side of better targeting is breach of privacy and users who are concerned about this shy away from Gmail.
Mail monetization in future is destined to go the "ads" way; reason - market shares will eventually stabilize when there are no more new users and the feature disparity has minimized. From thereon, the more relevant the ads, the more the revenue potential! Advertising will become common place and innovation will be required to do better than the competition. Companies may adopt a revenue-sharing model with users to make ads more and more personalized - for example, when a user sends a message to another user, an advertisement "item" may be embedded in the message in such a way that it is personally relevant to the recipient. Then if the recipient clicks on the embedded advertisement, the sender gets to share a portion of the ad-revenue for that click. Innovation in this field is bound to open many pathways and the cumulative grey-matter assets in the big-three will continue to find interesting mechanisms to generate revenues through free-web-mail products.
5. Key Features
This section first lists some webmail specific peculiarities which highlight the product's intrinsic characteristics and help understand the nature and context of the study. Then we list some of the most important features that providers offer in their product and then comment on how these features have contributed to the overall success.
5.1. Peculiarities of Internet Email
This section studies some of the unique characteristics of internet email as a product that either restrain or propel its growth and adoption.
Standards and Scale induced inertia: The most basic email communication format between servers is the SMTP - which is simple and elegant, but not easily extendible. Any drastic changes to the protocol would mean that all different email systems in the world will have to update their code/product - this is virtually impossible given the penetration of email. If due attention is not given to this problem and a change to the core is attempted, thousands of servers will start rejecting requests and stir up the entire user community. This problem has limited the evolution of some of the core standards as a result of which certain security issues exist - e.g. emails can easily be faked, spam invasion is pervasive as the original protocol does not support sender authentication etc. In future too, it is unlikely that the core standards will be altered to fix the problem. Thus, it is the responsibility of the product to bring in more innovation to solve the aforesaid problems within the constraints imposed by the scale of installations and usage.
Network Effect: If a user's calendar is on Yahoo mail and email is on Gmail, then the difficulty of managing the two separately generates a gravitational pull that will cause the user to move to only one provider for both the needs. Also, since it is easier to collaborate with friends using a common product, if most of my friends are on Gmail, I will have to create a Gmail account. This is the reason why quickly building up scale was very important to all players.
Privacy concerns: Google has been criticized for parsing user-personal data even if it is only for ad-targeting the same user. Several privacy proponents believe that Google knows too much about their personal life. Google counters such claim on the argument that the personal data is not associated with a user ID when targeting and that the information collected is anonymized before it is used. They also claim that the scan is automated, data is consumed in real-time (not stored anywhere or passed to the external world) and that the emails are not seen by any human. Despite privacy concerns Gmail is rapidly gaining market share. Due to the nature of its business, Yahoo! does not have the same leverage as Google in this aspect. Since Yahoo! is essentially a portal that serves varied needs of its users (including chats, news, weather, real estate, sports, blogs, pictures, financials etc.), the privacy concerns from Yahoo! adopting Gmails email scanning technology verbatim are expected to be much higher. Yahoo! servers store lot more personal data of users than do Google's server. Perhaps for this reason, Yahoo! does not yet scan emails for targeting. (Note that all email service provider scan emails for viruses and other mal-ware - this is not the same as scanning for ad-targeting).
In general privacy concerns also depend on geography - customers in Europe for example are lot more concerned about breach of privacy than US customers. In a survey done in UK it was found that 40% British believe that free email compromises their privacy[6] and another 40% were unaware that their emails are being scanned. On the other side of the spectrum, a majority of people in India are unmindful. For the product to successfully monetize user personal data in future, on a sustainable basis, due attention to privacy must be given so as not to breach the invisible line of user alienation. This threshold is positioned differently for each competitor - generating a source of sustainable competitive advantage (in this case, for Google).
Free: The product can no longer be envisioned without free availability to end-users. Providing the service for free allows the providers to slack on any stringent terms of service requirements. For example, no provider gives the guarantee that when a user deletes an email, the actual data content of that email will be deleted for ever - it is thus possible for "someone (may be government agencies)", to obtain data that the user thinks has been deleted.
Some providers continue to charge for premium accounts; however, studies show this is a declining trend. For small to medium business customers however, a premium can continued to be charged for providing better service, security and customized experience.
Terms and Conditions: A very important aspect of free services is that their terms and conditions do not specify anything that holds them responsible for protecting user data. The service is based on "best attempt to recover" and "as-is and as-available" philosophy. Most readers do not read such lengthy terms and conditions and signup by clicking the "Accept" button when prompted. They do not realize that the place where they store so much of their personal and important information is not fool-proof - when things go wrong, the providers shall have no liability. In fact, it is not uncommon for emails to not reach there destination; a web-mail user sometimes finds this out the hard way but can do nothing about it.
Security: Most users are not aware that the information they send on email, by default, is not encrypted and can be sniffed during transit. Gmail provides a simple mechanism to encrypt all email messages during transit - however, only the most sophisticated users are aware of this service. In terms of other security measures, virus scanning and filtering for spam is commonplace. Spam continues to be an annoyance to users and providers - it seems like everyone has learnt to live with spam.
Also, webmail providers have not been able to contain phishing (the practice of fooling users into clicking a link and directing them to duplicate sites of banks etc., in order to obtain their passwords). Moreover, new viruses that exploit unknown vulnerabilities, ride on HTML and JavaScript and other advanced technologies to infect end-user computers. There has been only limited success in averting such dangers.
Data-migration: No provider gives its users the facility to migrate all emails and other contents (like calendar) to any other provider. The intention is for the data to be sticky. People do not notice this subtle mechanism to retain users. However, this hardly restricts a user from creating an account with a competitor - just that the user uses both accounts simultaneously.
5.2. Features that drive adoption and success
In this section we concentrate on some features that have had the most influence on success of a webmail product.
Languages Supported: Given the geographical spread and reach of the internet, it is imperative that providers support local languages and all the webmail providers have support for multiple languages.
Security and protection: Spam filtering, virus scanning, password protection etc. are services that every provider gives. In addition, Google disables ".exe" files (executables) from being sent as attachments.
Integrated experience for users: Users look for one-stop shop for meeting all their online needs - in this respect webmail providers are keen on providing services like search, chat, photo-sharing, connections, contacts, calendar etc. from a single entry point. Users are also keen on reading their emails from mobile devices and other access mechanisms. To retain user-affiliations thus, webmail providers look for various ways to integrate there services and provide consistent interface.
Unlimited free storage: Most users do not use more than a few hundred Megabytes of storage over several years of using email. However, this feature has become a "hit" among webmail providers from a marketing perspective.
Browser compatibility: Most webmail features are designed to work with internet explorer as it is the most widely used browser that comes by default with Windows Operating System. However, many users prefer using other browsers (FireFox, Opera, Safari etc.) on Linux and Mac systems. Webmail features thus have to be compatible with all of these browsers - often this becomes an imposing challenge.
Low-bandwidth version: To enable dial-up connection users and mobile users to access emails through their slow connections, webmail providers need to provide an alternative low-bandwidth interface that is devoid of fancy features.
Spell-check, Dictionary, Folder/Label based mail organization abilities, auto-forwarding etc. are other common features across the board.
6. Competition and Differentiation
While innovation is the key driver to create differentiation, unless there is a sustainable competitive advantage in the backend technology, it is not possible to maintain a sustainable lead over competitors. The reason is simple - all visible features can be easily copied. Thus, the source of competitive advantage has to lie in intellectual property (patents) and research background that others cannot replicate without infringing. Competitive advantage in the web services domain can have a multiplier effect as well. Google's lead in core search and AdSense technology provides it with a head-start in many of its other products, including Gmail. For example, Google pays OEMs (Original Equipment Manufacturers) like Dell and HP lots of money to make Google Search and Gmail as the default applications that come bundled with hardware. Now, this is a competitive advantage that Yahoo and Microsoft will find hard to beat. Because of anti-trust regulations, Microsoft, despite virtually owning the entire Operating Systems market, cannot bundle its technologies with the Windows Operating System.
Google perhaps lost some of its technology advantage (of content based targeting) when they launched Gmail Beta in 2004, by restricting new user account creation through the means of introduction only. This impeded Gmail's adoption rate and also gave an opportunity for its rivals to take a peek at its product which in turn enabled a quick response aimed at achieving feature parity. Google could have rolled out Gmail with the objective of on-boarding 50-100 Million users in the first 6 months[7], thus taking Ymail and Hotmail by surprise. However, this might have been a well-thought-out strategy by Google. As discussed earlier, building a large user-base quickly is critical in the long run to succeed. Google made a buzz in the market place and was quick to jump on to marketing Gmail with an offer of 1GB storage space, unheard of at that point in time. Riding on the success of its search technology and aided by its financial strength, it started building on publicity while continuing to test the backend and fixing the scalability problem in the background.
Yahoo! was quick in responding to the Gmail threat - they quickly acquired Oddpost[8] and using their technology, launched a fairly successful desktop-like interface on the Yahoo! mail web interface. Both these competitors also responded to large storage space provided by Google - Yahoo! now provides unlimited storage on its free accounts and Hotmail provides 5 GB, pretty much matching and surpassing Google's offer.
Hotmail includes some additional services that are not offered by the other webmail services. It contains Audio Player where you can play the audio clips and voicemails. However, this hasn't really resulted in any significant buzz in the market. The reason is because the synergies between a mail product and audio software really are not cool enough to get users excited. The lesson here is that innovation cannot be allowed to run wild in this domain - to create something that is different from the competitors and gains universal acceptability is a non-trivial challenge that product managers need to have high on their agenda.
Another interesting aspect of Google's strategy has been to symbolically signal the culture of continued innovation in their product by displaying a prominent "Beta!" image right at the top. The message is that there is more to come and so users are excited always about what next! This strategy is also found in Google maps!
Gmail offers a desktop client that uses the email system to allow users to store files in Gmail servers but makes them appear on user desktops as a drive-mapped device. So when a user stores a file in this drive, the client sends an email automatically with this document as an attachment. However, this client did not take off a great deal - not everything that Google does have to be a great success after all!
Gmail also differentiates form others by presenting a unique conversation view - as opposed to other competitors who display each message as a separate entity. This enables users to follow a conversation in a logical manner without having to search or organize mails on the same topic. This differentiation was one of the main success points of Google, though some users continue to prefer the older model.
Gmail offers POP3 access for free - while other charge for it! - a consequence of Gmail strategy of accepting losses on email while continuing to gain market share.
Yahoo also differentiates its product from others by offering a unique desktop like view for its emails. Users can move their email by dragging and dropping them into folders. Many users simply love this view, but it hasn't resulted in a big tide going Yahoo's way, given that Gmail has the reputation of better search and faster access.
7. Marketing Strategies
Viral Marketing
The challenge of marketing a web-based product is centered on grabbing a share in the spectrum of people's attention. Since everyone who has access to internet can be a publisher, it becomes very difficult to stand out in the crowd, when everyone is keen on making noise and getting noticed. In this environment Hotmail's "Viral Marketing" approach helped it gain subscribers at an astonishing pace - in the first 1.5 years, it signed up over 12 Million subscribers. To achieve this growth, all it spent on marketing was $500, 000. Hotmail added a message "Get your free email at Hotmail" with every message sent by an existing user. This message served as an advertisement and indicated a subtle endorsement from the sender. The receiver signed up on reading the "free email" offer and automatically became a sales agent for Hotmail's subsequent subscriptions.
New domain
As user IDs are rapidly taken away by an ever-increasing user-base, it becomes difficult for users to find unique IDs that they would want to associate with their names. People soon find that any combination of name that they try is already taken up by someone else. Users ideally prefer to obtain an ID that is as close as possible to their real name and simple to remember. Yahoo recently introduced new domain names to counter this problem - ymail.com and rocketmail.com - this is a very forward looking strategy to gain even more users for its email service.
8. Product Management Challenges for Next-Gen Internet Email
Challenge 1: Creating Product Synergies across the product portfolio.
Internet emails as a standalone product are destined for failure. Users prefer that they go to a single website where they can navigate through all that they would want access to - their emails, chat window, documents, calendar, contacts, news etc. One product needs to feed into customer acquisition strategy for another product such that both help gain on user engagement. This is good for the service providers as well because they can gather more relevant behavioral targeting data if all activities of a user happen through a single entry point. Yahoo!, which is essentially a web portal for all user engagement, has the competitive edge in this regard. By integrating their chat client (gtalk) with Gmail, Google attempted to increase the time a user spends at Gmail and thus gain the ability to show more ads - both in relevance and numbers. Yahoo! recently followed the same strategy by integrating messenger with Ymail!
Challenge 2: Should ad-targeting be made voluntary?
We suggest that it can be a combination of voluntary as well as non-voluntary. In addition to offering paid or premium accounts, email providers can provide better user experience and extra space if someone volunteers for the ad. This way, the targeting can be better and it can generate more revenues for the providers. From the user perspective, by allowing ads, she is getting better services and probably better deals in terms of ads.
Challenge 3: How to serve most relevant and most unobtrusive ads? How to handle Ad Blindness
As discussed above, ads always need not be unobtrusive, if there is consent from the users. Email providers should work on models where there is consent for the ads. Notwithstanding this, better trust with customers to have more relevant data and probably by having a separate menu for ads with proper categorization within email accounts would be helpful. Here the basic premise is that customers do need information and with increasing internet penetration, online information has become more important. If information is provided in a proper way, in the "pull" format, rather than "push" format, it may be better targeted and beneficial for all the stakeholders; consumer, providers and advertisers.
Challenge 4: Emails can be a liability - managing them is becoming increasingly more complex as business critical decisions and discussions are captured and archived. Managing such huge accumulation of data is becoming increasingly complex and costly: This is now a given requirement. If there is no reliability in the service, it could be catastrophic for the provider. In fact by highlighting the business continuity capability, email providers can generate more confidence in the customers. This continuity can be in terms of availability, getting archived data on demand.
Challenge 5: To provide or not to provide Email backup/archiving service: This is debatable as by providing this service, one of the switching barriers would be removed. People can shift from one provider to another much easily. Of-course like mobile number, email address is also very personal and would still remain as main switching barrier.
Challenge 6: Survival in the world of twitter and other messaging mechanisms?
We believe that such servicers are not substitutes but rather complementary services. Email providers should evaluate how to integrate with such mechanisms to provide synergies to users. The main idea should be to increase traffic and subscribers to its service.
Challenge 7: 10% of all emails is spam: We believe that it is part and parcel of the technology and the cost of remedy would be much detrimental to the growth of email than to keep it unaddressed. It is like noise in any communication and with time, users would be able to automatically filter them out. Of course, the current spam detection mechanisms can be improved to reduce this so called "menace" rather than trying to eliminate it totally.
Challenge 8: A vision beyond email?
The product manager needs to repetitively ask the fundamental question -
"Email is only a tool to solve an intrinsic need of the users. What is the real problem? What is the real need?"
A re-look at the real problem from a new perspective might end up throwing totally different perspective. The real problem is probably that the users need to communicate, to collaborate with other users in the system. And communication itself is not the end goal - there are different types of reasons to need a communication. For example, a communication could be to pass on an urgent message that needs immediate action; or a communication could be to start a lengthy discussion on a particular topic that needs to be recorded as well; or a communication could just be a casual update or a rant; a communication could be intended for a single user - private and secure; or a communication could be intended for broadcast. The question to ask is - does email in its current form solve all of these problems? Does it make sense to build separate products that solve different problems - or does it make sense to build an integrated product that attempts to solve most problems from a single interface?
Google is attempting to answer some of the above questions through its new Beta product called Google wave (announced as recently as in May 2009)! It integrates several user needs - chat, email, collaboration, games, documents, dictionary etc. It is much more than an email product - it is meant to be a collaboration tool, much more than what an email offers! Also it is real-time - if you update a document at your desk, your friend will be able to see it in real-time from a remote location. It also allows for users to roll back in time and get a play-back of sequences of events. These features are very different from anything that is available on the web and we believe Google and the industry is on another inflexion point with Google Wave.
