2001 Direct Marketer of the Year
AOL & The Genius of Jan Brandt
By Denny Hatch
In 1993, Internet access was essentially a three-horse race. The text-heavy CompuServe was owned by the tax accounting people H&R Block and had about a million members. So did the cartoon-oriented Prodigy, a joint venture among CBS, Sears and IBM. The longshot was America Online (AOL), with its elegant Graphical User Interface (GUI), chat rooms and exclusive community-building techniques, that had been taken public the prior year by founder Steve Case; he had just under 250,000 members and was doing about $40 million a year in revenue. One advantage Case had over the competition: The name, America Online, says what the service is; Prodigy and CompuServe could be just about anything.
Enter Jan Brandt, a direct marketing wizard with a solid grounding in continuity marketing who helped take AOL to more than 30 million members. This is the story of hundred-hour weeks, insomnia, between 2,000 and 3,000 marketing tests a year and a strategy so wildly successful that it enabled AOL to acquire the vast Time Warner as well as its early rival, CompuServe. Today, Jan Brandt is vice chair and chief marketing officer of America Online, and one of the most influential women in American business—right up there with Martha Stewart and Oprah—in just seven years.
Janice Brandt was born in Brooklyn, NY, and moved to New Jersey when she was eight. Upon graduating from Boston University's School of Public Communications, Brandt was hired by her first mentor, Kathy Howes, as a copywriter at Xerox Education Publications (XEP) in Middletown, CT, proprietors of the Weekly Reader school newspapers and children's book clubs. She was fortunate to acquire a second mentor, the great direct marketing practitioner and teacher Pierre Passavant, who took her under his wing and taught her the basics of the business. When she enrolled for night courses in marketing at the University of Connecticut, her professor asked for a brief resumé as well as reasons for going into marketing. She wrote that she was working as a copywriter, but discovered the work of someone named Bill Jayme that was so powerful she could never do as well, and so decided to switch to marketing.
After a brief tour of duty with Colonial Penn in Philadelphia, Brandt moved to California where she joined Education Today and reported to Tom Ryder (now chairman of Reader's Digest) and circulation guru John Klingel, both of whom became mentors. During her 10 years in California, she briefly worked for the liberal fund-raiser Richard Parker Associates and, for several years, ran her own consulting agency.
She returned to the East and spent three-and-a-half years with Newfield Publications, which had acquired Xerox Education Publications and published the Weekly Reader products, as well as crafts clubs and continuity series such as McCall's Cooking School.
The move to America Online
AOL went public in 1992. The following year, Steve Case hired Jan Brandt as vice president of marketing. AOL's headquarters were located on two rented floors of a dilapidated building in Tyson's Corner, VA; visitors would find the receptionist doubling as the mail sorter. At that time, the main source of members for the three competitors—AOL, Prodigy and CompuServe—was their partnership with computer manufacturers. Computers were loaded with Internet access software from one of the three and membership was commissionable.
The Evolution of the Offer
The other method of distribution by the two competitors was joint venture deals whereby the companies sold their books and software at retailers such as Borders, CompUSA and Barnes & Noble. At the time, all three were charging for the software as well as for per-hour usage.
In the early 1990s, the benchmark direct mail package was CompuServe's long-term control created by freelancer Sol Blumenfeld, a 6˝x9˝ four-color effort with a briefcase premium. The offer:
YES! I want access to CompuServe. Please enter my name as a Preferred Member and rush me a Membership kit. I understand that my one-time payment of $25.00* (plus $3.00 shipping and handling) gives me Lifetime Access to CompuServe while a member in good standing.
The letter states:
As your welcome to CompuServe, you will receive $25.00 in free usage. That amounts to several hours of online time—plenty of time to explore and try new things... CompuServe will charge you only for the use you make of its facilities plus a minimal monthly $1.50 support fee...
Somewhere in the mailing—probably on the back of the brochure—were the per-hour charges. Any sales effort that forces the prospect to hunt for the price is not only confusing, but ipso facto, dishonest. I remember at the time I thought about joining one of the services, but did not want to pay by the hour. If I inadvertently left the computer on while I took a long client call, I would be wasting my money.
In Brandt's early days, AOL was charging $6 an hour during the peak usage evening hours and $2 an hour during the day. Prodigy announced it would be changing prices and Brandt was terrified that IBM and Sears—with their deep pockets—would severely undercut her. The announcement was scheduled to be made public at a precise time, and Brandt remembers sitting in the office of her colleague, Marshall Rens, intently watching his computer screen with a knot in her stomach. Suddenly the new prices came up and they were very complicated and confusing, giving the consumer a variety of choices. This violated direct marketing consultant Paul Goldberg's basic direct marketing rule:
"Confuse 'em, ya lose 'em."
She and Rens spent 15 minutes trying to figure out the offer, and recognizing the impossibility of consumers easily figuring it out, she screamed, "Thank You! Thank you! There is a God!"
In response to this offer, Brandt and Case changed AOL's pricing to $9.95 a month for five hours and $2.95 thereafter, no matter what time of day.
Silence of the Foxes
In 1993, AOL dipped its toe in the free software waters. "The reason I started sending live software out there was because it was very difficult to describe to someone who had not actually seen it," Brandt says. "Chat room? E-mail? Conversing on computers in real time? It's like trying to describe swimming to someone who has never seen water."
AOL began sending complimentary discs to people who requested them. Later in 1993, Brandt adapted an AOL self-mailer and included a diskette. The response was phenomenal. She sent out a series of confirming tests and finally rolled out with the free floppy mailings. The package generated an average 11-percent response, with some lists pulling as high as 16 percent to 18 percent. All lists were comprised of known computer owners.
"I started blasting out mailings as fast as I could," says Brandt. "We mailed so much I had to roll out based on two campaigns prior, which meant we were flying somewhat blind all along." At the same time, she lived in perpetual terror that she only had a limited window—that the others would do copycat mailings and flood the marketplace with diskettes. It turned out she had three years of being alone in the marketplace mailing floppies.
Why did the others not follow suit? For starters, where most marketing managers love to blab to the press how smart they are, Brandt maintained stony silence during those days. She made no speeches, took part in no industry panels and granted no interviews to the press. "I did not believe going public would benefit AOL in any way," she says. At the same time, the buzz at industry gatherings was that Brandt and AOL were nuts—totally off-the-wall—sending out hugely expensive mailings that broke all the rules of direct marketing. "Yes," she admitted to outsiders, "we really are stupid." Brandt, her marketing department and Steve Case remained mum and quietly continued to eat Prodigy's and CompuServe's lunch. In Brandt's immortal words: "It's not the cost, stupid!"
Brandt Crashes the Diskette Market
Brandt had no idea what floppy discs should cost. What's more, results were so fantastic, she did not pay much attention. One day on a hunch she called all the disc makers and said she felt she was being overcharged and they were taking advantage of the young staff who were placing the disc orders.
Brandt was spot on. At $1.19 per diskette, floppy makers had been reaping usurious profits and driving AOL's cost to mail up to a mind-blowing $1,750/M. By the time AOL switched to sending out CD-ROMS, she had pushed the cost of floppies down to 8 cents or 9 cents.
Around this time, Brandt battled with Steve Case over sending out floppies. Because the software had become so complex it required two floppies to accommodate all the features, Case wanted to switch entirely to CD-ROMs.
Brandt said no dice; too many potential members were still using diskettes and she flatly refused to send out two of them. "It would be too complicated," she recalls, adding, "Even if it wasn't too complicated, it would appear to be complicated." So for a short while, to Case's rising irritation, AOL's development was limited to how much programming would fit on a single floppy. During this period, Brandt was sending out mailings that contained both a floppy and a CD-ROM, eventually switching over entirely to the latter.
Case also came to the realization that a monthly fee for unlimited usage was the way to go. Coming out of the continuity world, Brandt understood the effect of strong upfront offers and the power of the word "FREE." For a while she offered one-month free, which was immediately aped by CompuServe.
It occurred to her that offering 50 hours free sounded stronger. She upped that to 500 hours free and even 700 hours free—which is the same thing as one month free, but sounds better (just as "Buy one, get one free" sounds like a better offer than "50 percent off" or "half price," even though they are all the same thing).
When asked what made AOL different from its competitors, Brandt unhesitatingly replies, "Prodigy and CompuServe thought they were selling software; we sold a service."
The Fulfillment Problem
Matt Korn, AOL's director of operations, whom Brandt calls one of the unsung heroes of the drama, had serious problems. New members were coming online so fast that the system had trouble servicing them. Once in frustration, Korn and a cohort locked Brandt in a safe and screamed through the door, "We'll let you out only if you agree to stop sending out those free floppies!"
AOL's peak times were at night. If 3,000 members were online at the same time—which was a common occurrence—the system was taxed to the limit.
Marketing reports could not be run until 3 a.m., because until that hour all hardware was employed servicing members. Brandt used to go home, walk the dog, eat dinner and fall asleep in front of the TV. Her wake-up alarm was the theme music from reruns of "Law & Order" at 3 a.m. She would groggily boot up her computer to look at the most up-to-date membership report—the flash counts of members, revenue in and cancellations. Every night for three years she lived in fear of the entire house of floppies collapsing. But the members inexorably kept rolling in. Since Brandt worked all day and Korn worked all night, their basic communications were via instant messaging during the wee hours of the morning. Her life was sheer madness.
The Secret of AOL's Success: Testing
In my 40 years of direct marketing experience, I have never heard the philosophy of testing put so succinctly as Jan Brandt articulates it. "We ratcheted up the number of free hours and tested insatiably—2,000 and 3,000 tests a year," she says. "Hundreds of tests on price, offer, format, copy and design. What's more, I never put a limit on the amount of testing to be done and never put testing into a separate budget line. And I asked all the various channel managers to incorporate testing."
She explains, "I did not want a pile of money that was for 'something called tests' and then have to argue for it. If you have a line item on the budget for testing, this is the first thing that is whacked in budget cuts. Instead, I built testing into the fiber of marketing. It was an active decision, because I did not want anyone to think they could not test because the money was not there. If cuts were mandated, they would be across the marketing spectrum—not just testing."
It was freelance copywriter Malcolm Decker who wrote:
There are two rules of direct marketing and two rules only.
Rule #1: Test everything. Rule #2: See Rule #1.
The late direct marketer Ed Mayer—who claimed that successful direct mail was dependent on the ratio of 40 percent lists, 40 percent offer and 20 percent everything else—had a corollary to Decker's rule:
Don't test whispers.
As Brandt says, "The big swings in results come from list, price and offer tests. Format tests and creative less so. Sometimes I would nix a test idea because it would only bring incremental improvement, but not often."
Now AOL is up to 1,000 hours free within 45 days, confirming direct marketing guru Axel Andersson's rule:
If you want a dramatic increase in response, you must dramatically improve your offer.
When Brandt arrived at AOL, the main source of new business was manufacturers who would build the software into their computers. Brandt felt this was a dangerous place for a business to be and immediately set out to acquire a more diverse base of marketing channels. In her second year at AOL, Brandt went to direct mail. The next year, she moved AOL into space advertising, packaging floppies on the outside of magazines and generating incredible responses.
The following year was devoted to opening up so-called "alternate media." For example, in those insane years of working days and then waking at 3 a.m. to go online for a couple of hours, she was left numb by Friday afternoon. She would stop by Blockbuster Video and rent eight movies for the weekend and, except for riding her bicycle, would veg out in front of the TV.
One Friday she discovered Blockbuster was offering a box of goodies to anyone who rented three movies—discount coupons, samples, etc. She checked out her regular eight movies and took two of the sample boxes—one for herself and one for the office. Monday morning she handed the box to her manager of alternate media and suggested a free AOL floppy be included. It was. It worked.
AOL still has a great partnership with Blockbuster, as well as Omaha Steaks, various airlines that include a floppy (now a CD-ROM) with dinner snacks, Wal-Mart and Circuit City, among other retailers. The newest venue: a computer game and 700 hours free packaged on boxes of Cinnamon Toast Crunch cereal by General Mills. This is the strategy of "total ubiquity" in the grand direct marketing tradition of Oreck vacuum cleaners and Bose radios.
The Ultimate Online Business Model
Amid the dot-com crash, America Online thrived. Two reasons: Brandt was thoroughly grounded in the old rules of direct marketing, which she applied to the new medium. And AOL itself is unique. Its revenue comes from automatically hitting 30 million credit cards for $23.90 a month, or $8.6 billion a year. Although AOL receives 47 percent of all advertising on the Web, it's the huge subscription revenue engine that drives it.
The proverbial cash cow is a cash elephant.
The Shopping Spree
In 1996 AOL launched Buddy List instant messaging for its members and the equivalent AIM service for Internet users. It can be argued that this is the next quantum leap in human communication following the telephone and the printing press.
As Brandt says:
Instant messaging is more than a phone. More spontaneous. In the old days, kids would come home from school and get on the phone and tie the thing up for hours. Now they make contact via instant messaging—a group of them can chat online in real time.
In business it has liberated informal communications. No more trying to reach an executive by trying to get through the secretary via phone. No more long phone calls. No more meetings in offices. Just pop on instant messaging and get the job done. Why, Steve Case once gave me a performance review and raise via instant messaging.
In 1998, with a certain amount of satisfaction, the AOL cat ate the CompuServe canary by acquiring the service and its 2 million members. A more important acquisition that same year was the acquisition of ICQ, the pioneer international instant messaging service. Suddenly AOL was delivering more instant messages and e-mail than the U.S. Postal Service was delivering snail mail. One year later, ICQ membership had tripled to 40 million and AOL acquired Netscape, famous as the first big Internet IPO that set the stage for the modern South Sea Bubble known as the Internet boom.
Then, in 2001, AOL acquired the venerable Time Warner empire and leapfrogged into the front ranks of American mega-business. For Brandt, watching the huge cultural changes has been fascinating as the totally decentralized, 70-year-old Time Warner has had to mesh with upstart AOL and its more centralized organization. "It's totally gratifying to assemble the staggering amount of talent, assets, willingness—downright eagerness—that exists across all divisions and companies and work together on cross-company initiative," Brandt says.
An example of the cross-company initiative is that AOL is putting on close to 100,000 paid subscribers a month to Time publications. What's more, the orders are a circulation manager's nirvana—"til forbid" or automatic renewal—a dramatic change from the traditional subscription model where once a year the publisher is forced to beg the reader to renew.
Jan Brandt Today
For Brandt, gone are the endless years of working all day and half the night, crashing exhausted in front of the TV all weekend and hoping the batteries will be recharged by Monday morning. Operating out of a sunny corner office in the AOL campus in Dulles, VA, Brandt has now assumed the role of a multinational executive, traveling frequently to New York for corporate meetings, overseeing the expansion of AOL around the world and, yes, getting some time off to travel—Africa, France, Spain—giving her a far more civilized way of recharging her batteries. She is also remodeling a house and, not surprisingly, in constant communication with her contractor via instant messaging.
Brandt's seven-year journey from jockey of a struggling No. 3 horse to crossing the finish line like Secretariat in the Belmont Stakes some 37 lengths ahead of the competition—and not only owning the stable but the race track as well—is one of the most inspiring business stories of our time. Indeed, for all time.
Denny Hatch, consultant, freelance copywriter, founder of Who's Mailing What! (now Inside Direct Mail) and former editor of Target Marketing, is the author of "Method Marketing" and "2,239 Tested Secrets for Direct Marketing Success." He can be reached at firstname.lastname@example.org or www.methodmarketing.com.