Web Masters Episode #8: Scott Maslowe

Below is a transcription of  Web Masters Episode 8: Scott Maslowe. To learn more about Web Masters and subscribe, check out the Web Masters podcast page.



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Aaron Dinin:

Hey Web Masters listeners, Aaron here. Just a quick warning that this episode is going to be dealing with some adult themes. No bad language, no racy content, nothing like that. Just some themes. But still, if you happen to be, say, driving with younger children in your car, maybe save this episode for another time, unless of course you’re in the mood to answer some awkward questions. All right? Thanks for listening and enjoy the show. It’s a good one.

Scott Maslowe:

This was literally before Google. You couldn’t even buy keywords at this time. This was a year before Google really took off, and probably two or three years before AdWords. So if you wanted to buy traffic, you were buying from Infoseek. And it was so poorly targeted and the search engines of the day were so bad at searching that the traffic you received was terrible and it didn’t convert. But to sell people a video at $5.99 a minute, there had to be some type of distilling agent. We couldn’t really make anything else work, and email marketing worked. It really was fantastic. It was a fantastic medium.

Aaron Dinin:

You just heard web marketing pioneer Scott Maslowe singing the praises of email marketing. These days, email marketing is foundational to the marketing strategies of most businesses, but Scott wasn’t talking about email marketing today. He was talking about email marketing in 1997. And in 1997, email marketing was a different universe. In the early days of the consumer internet, mainstream companies wouldn’t touch email marketing. In some communities, it was even viewed as taboo. So it won’t surprise you to learn that Scott wasn’t operating a mainstream company.

He was in the adult industry, running a live-cams website where mostly men could log on to watch women and men doing, well, adult things. Back then, people paid an extraordinary $5.99 per minute to access those cams. And a Scott will tell us a bit later, the money was pretty darn good. But for Scott, the business wasn’t good. Disenchanted with the people and the exploitation he felt was rampant in the adult industry, he eventually left it, basically giving away his company in the process. But he took his knowledge of email marketing with him.

In so doing, he discovered that the secret to his success was never really the industry. It was the email marketing techniques he developed that were on their way to becoming mainstream. Whether he realized it at the time or not, he was one of the key players in helping popularize the kinds of email marketing strategies companies around the world use every day. In other words, if you’re sick and tired of marketing emails cluttering your inbox, I guess you can place some of that blame on Scott. Ready to hear his story? Great. Let’s get dialed in.

[INTRO]

Aaron Dinin:

Welcome to Web Masters, the podcast where we talk with the people who helped turn the internet into the thriving entrepreneurial ecosystem it is today. I’m Aaron Dinin, your host. I’m a serial entrepreneur. I’m a digital scholar, whatever that means. And I teach innovation and entrepreneurship at Duke University. I’m so excited about today’s guest, who’s going to give us an incredibly candid and thoughtful perspective on the early days of internet businesses and a key part of how internet marketing has evolved.

But before we get to his story, I got to make sure I thank Latona’s, the boutique mergers and acquisitions broker of cashflow positive digital assets. Latona’s has been an amazing partner in helping support this podcast, just like they could be an amazing partner to help you buy or sell an internet business. So if you’ve got a website, e-commerce shop, SaaS business, domain portfolio, whatever, if it’s got solid revenue numbers, Latona’s can help you sell it. Or if you’re looking to purchase an internet business, that’s already got strong traction, Latona’s is the place to find one. That’s latonas.com. If nothing else, head over to their site, join their mailing list, and not only will they let you know when a new podcast is released, you’ll get a firsthand look at the industry today’s guest Scott Maslowe helped pioneer.

Yep. I’m talking about email marketing. And even though today, most people think email marketing is as bland an advertising strategy as TV commercials and billboards, that wasn’t always the case. So we’re going to get a little risque on today’s episode, but if we want to have an honest conversation about the history of the internet, we have to. In fact, historically the entrepreneurs who first learned to leverage the marketing potential of just about every new mass media technology that’s ever existed were people operating on the fringes of what at the time would have been considered mainstream businesses.

For example, some of the biggest purchases of ad space in the then-revolutionary penny presses of the early 1800s were actually healers selling their medicinal tonics back in the days when nobody really wanted to be a doctor when they grew up and medicines often consisted of cocaine and alcohol. So we’ve come a long way since then. And the same is true of the internet. Anyone who thinks the internet as we know it was built by a bunch of saints with altruistic purposes is going to quickly have that belief dispelled once they do the slightest bit of digging.

That’s okay. That’s how technologies evolve. And that’s what I love about Scott. He was there in the early days, and he’s got some great insights into what it was like to be creating some of the first successful email marketing campaigns in history. He wound up there because he was a guy with no formal education, but a strong desire to make a better life for himself.

Scott Maslowe:

I was an electrician and Freddie, my partner, was just getting out of Michigan State University with a finance degree and working at a traditional dating site to actually set people up in person. And we had a mutual friend. He owned an internet company that was an internet ISP and provided a dial-up service. And I had come to him and said, “Hey, listen, have you seen these online websites? They look very lucrative. It’s a great idea. I’ve got some money stashed away. I want to do this.” And he dismissed it. And Freddie and one of our other partners came to him and said the same thing. And then he got in his head we should put everyone together.

So that meeting, when everyone got together and started discussing it, we realized, amongst ourselves, we actually had some capital to work with. I did not want to be an electrician for the rest of my life. This is the beginning of the internet, and a lot of the technologies around today didn’t exist. And when you see something that raw, it’s easy to have all these ideas that you think will be really lucrative, and it’s also easy to put them into practice and whatnot. When I saw the internet, as silly as that sounds, it just seemed like a good place to go.

Aaron Dinin:

This is a huge part of why I love the internet. In contrast, how many times have you heard someone say, “I was an electrician, didn’t really want to be an electrician for the rest of my life, and I saw that people were making lots of money as lawyers, so I figured, hey, I think I’ll go become a lawyer”? That doesn’t happen. That’s not the way most industries work. But the internet is different. The internet doesn’t care where you went to school. It doesn’t care what degree you have. It doesn’t care what you look like or who your parents are or anything like that. If you’re good at figuring out how to get people to click on things, you can build a successful business. That’s led to one of the favorite sayings of internet marketers everywhere. “Content is king, but traffic is God.” If you know how to push traffic around the internet, you can accomplish amazing things.

Scott Maslowe:

My business partner and I, Freddie, with three other guys back in 1997, started an online adult video website, where we had studios and girls and guys doing $5.99-a-minute one-on-one video chat with people. And when we built the place, we were young guys in our early twenties and it occurred to us that this was a great way to make money. When we built it, we built it with a field-of-dreams thought process, like “If we build it, they’ll come.” And we realized very quickly that that was a completely inaccurate assumption.

So back then, in ’97, you could still log into your AOL account and buy one of those CDs that said, “Become an email marketer, and we’ll give you everything you need, the software, the email addresses, and we’ll turn you on to places to market.” And we did that. We bought a $59 piece of software and we were very successful with it. My business partner is fantastic at scaling and that’s always been our roles. I’ll invent something and refine it and get it to a production state, and Freddie will make the next 10 million of whatever it is. We had an office that had about 250 computers running the software that we had cloned. And you could just get yourself an enterprise license for $25,000 and really go crazy. And we did.

Aaron Dinin:

In a way, Scott’s story sounds a bit like a script for an early Seth Rogen movie. He and his partners sunk their life savings into an adult website they were sure was going to make them a fortune, but they couldn’t get enough traffic to it. Desperate to find some way of reaching potential customers, they stumbled almost by accident onto a magical $59 piece of email marketing software from America Online, AOL, and things exploded from there. All told, by the time, Scott and his partners left the business behind in 2002, they were running eight different studios across the United States with 240 models and nearly 100 support staff. That growth came primarily from email marketing, something that in 1997 was just sitting there being ignored by just about everyone else.

Scott Maslowe:

It was very easy to acquire software and lists and everything you needed for a turnkey business. And in those days it wasn’t a scam. You could actually spend very little money, a shockingly small amount of money, and put yourself into business. Now, that’s not all that it required. You obviously had to get IP addresses and domains, and you had to have some technical know-how and you had to put the right equipment together. The basic structure of email marketing of a list and some software and little construction was perfect.

Aaron Dinin:

That doesn’t sound entirely different from how email marketing works now, right? You get a list, you get a piece of software and you start mailing. So how has email marketing changed since you began in 1997?

Scott Maslowe:

There were no laws in 1997. The only laws you were really subject to were laws that already existed having to do with online privacy, which were very little, and basically the existing brick-and-mortar law having to do with fraud and false advertising and whatnot. And even if you were subject to those laws, that you committed some transgression that was subject to those laws, that we did, and I mean that, even if you did, nobody knew how to prosecute it. Nobody knew, if it occurred, what state it occurred in, and nobody knew what was the event. Who actually perpetrated the crime? Was it the company responsible? Was the person? Was the person that sent the email? It was so confusing that there was no law you could administer to stop it.

Because of that for the first few years, literally anyone could do it, which is both good and bad, because it provided opportunity for people to acquire wealth that very well might have deserved it and worked hard and were contributing. However, it also created this opportunity for a lot of bad actors to come in, because it was so accessible and it was so lucrative and it was so turnkey, you had people that utilize the email for all kinds of disreputable sales. And because of that, for a long time, email had this stigma of being the black sheep of marketing, or almost a black-hat method.

And as far as how it changed, the laws came down in 2003 and not only did that make it easier to operate a legitimate email business, it legitimized email in general. So you started seeing companies that wouldn’t touch email start to not only develop their own internal email marketing departments, but they would reach out to us. So the offers went from being these fringe offers to all of a sudden the insurance companies got in, and just every brick-and-mortar and every Fortune 500 company got in and it exploded.

Aaron Dinin:

So laws come down, they legitimize email marketing, it explodes in popularity, and this turns out to be perfect timing for Scott and his business partner, because the amazing things they were accomplishing with email marketing from a business perspective weren’t quite so amazing from a personal perspective.

Scott Maslowe:

The reason I got into adult was that it seemed the easiest and most lucrative industry to get into online. I don’t have any education to speak of. I don’t have any formal education. Keep in mind, there was no Wikipedia. There wasn’t the available resources. You have people now that are so knowledgeable about something they’re almost experts in fields that are competitive to people that actually got a degree in those fields, and these things weren’t available. So I had limited options, and adult seemed like something I understood. I understood the motivation of sex. I was a young guy. And I understood that with the resources we put together that we could create this product. And we thought it would be very lucrative. We thought correctly.

However, that being said, we also thought it was harmless. And for a couple of years, we were growing the business and we were integrating with the rest of the online adult community. And then probably about 2000, you started getting companies that come in, like Fun Digital came in. We’d sat at dinner with Larry Flint and his brother. We were integrated into the adult community. We won awards at the AVN. We got invited to a lot of events. My partner Freddie stayed home. He was more of a homebody and he’s not as social. I would go to these events. And as I went to these events where it started as just some nerdy, industrious web masters that were just people trying to make some money, and we started integrating with more of the adult side that was the traditional adult side.

And we started integrating with more of the predatory adult side that had… Your max hardcore is one that immediately comes to mind. And these websites that have just such disgusting content. And I realized this is an opinion, but they have content that… To say that the adult side is just business is intellectually dishonest. And the reason I say that is when you’re producing content that’s taking someone and is completely degrading them and humiliating them at a time in their life when they’re incapable of making good decisions, one because they’re young. When you’re young, you make dumb decisions and you’re not very risk averse. Two, they don’t have the experience to realize how damaging it is psychologically. And three, at that time, people didn’t realize how permanent the internet was. It was still thought that you could do some things and it would remain private. And even though our girls and guys never engaged with actual people, we realized we were still the cyber pimps and that there was a continuum.

And on one side was us, where we thought we were harmless, but we were contributing and the progenitors of this industry that on the other side was extremely predatory, and it’s not exactly what Fred and I signed up for. And I came home after this disgusting interaction with… I’m not going to name the person or company, but it was an absolutely disgusting interaction in person with this individual. And I came home from a trade show and I said, “Freddie, man, we got to get out of this. It’s changed. It’s horrifying.” And we just got the hell out. To this day, I’m ashamed I got into that.

Aaron Dinin:

Wow. What a story. For me, it points to one of the great truths of online marketing. It’s a double-edged sword. We absolutely need to acknowledge that if you’re good at driving traffic, you can use your powers for good, or you can use your powers for evil. And that’s not to say the adult industry is evil or good. It’s certainly part of the fabric of the internet and a type of internet business. But as you heard, it wasn’t the type of internet business Scott wanted to run. So he made the difficult decision to give up the wealth that came with it. Lucky for Scott, he and his business partner had developed a skill that was increasingly in demand from mainstream industries. So they put their years of experience to work by combining their knowledge of email marketing with something else they had learned to do well: build email lists.

Scott Maslowe:

There are very few businesses that you can come to and not have any of your own data and have a product and market it, and you can actually get viable traffic and valuable traffic. There’s a lot of email companies out there that facilitate email marketing or perform the email marketing, but they require your own data, your own list. There’s a lot of companies out there that will provide the data, but then the quality of the data is so terrible that no matter where you take it to, one, it’s not legitimately acquired and it’s not legal in most cases. You don’t have an industry best practice level of permission, which tends to supersede what the actual law requires. It’s very hard to find all those things in one place. We’re a soup-to-nuts organization and we’ve remained a soup-to-nuts organization, and I think a lot of that is because of our longevity.

Aaron Dinin:

So if I’m a company and I have a product I’m trying to sell, I can just come to you, no target customers, no email list and say, “Hey Scott, can you help me sell this product?” How do you do that? How can you reach people who would want to buy what I’m selling?

Scott Maslowe:

We have this massive database and we have a department that does nothing but produces these human interest sites. It was helped by hairloss.com that gets a lot of traffic or original poetry. We have a million of these sites, and they’re just little human interest sites or pet YouTube sites and whatnot. And we’ve been producing them for a long time, and they produce the volume of our data. And then we acquire data and we append our data. So we found that it’s much easier to get someone to participate their information if we’re just asking for very little information. And the more robust profile of them is already available online, and we can acquire that and we constantly append our database. So we’ve got this fantastic database with a very high level of permission. And we have the ability to put out a lot of email. And not arrogantly, like we’re just spray-and-prey emailing, but we’re known for being able to handle the volume campaign and send out millions of emails in a day, if required, to a particular campaign.

Aaron Dinin:

Since you’re able to build such huge lists, have you ever tried selling to them yourself? That seems like it would be lucrative too, right?

Scott Maslowe:

In the affiliate marketing ecosystem, you get this attenuation of good offers and it’s vicious cycle where there’s not a lot of good offers so the marketers consolidate on those offers, so even the good offers degrade in quality and conversion and the ability to deliver them. Probably about 12 or 13 years ago, we started an e-commerce site, Unique Net Products, and started selling these helicopters. Those little remote control helicopters. And we’d ordered shipping containers of them in from Beijing and had a warehouse and we’d sell them. And we sold those, little key chains that you put photographs on, all kinds of stuff, so that we had sustainable offers for when the industry was going through a cycle where good offers attenuated.

So we would go in and out of doing this, and we always kept a warehouse and we always kept the ability to process. And we would do the shipping, everything. This happened a few years ago. About five years ago, again, we noticed the offers were getting very lean and it was just slim pickings, what was out there. So we started selling dropship products and it was once again the same thing that happened with moving the traffic from adult to moving to dropship traffic, which confirmed something we already knew. We’re constantly getting ripped off. And the value of our traffic is… There’s a magnitude difference, not just a marginal difference in the value.

Aaron Dinin:

Now I hope it’s starting to make sense why having email lists is so valuable, even 20-plus years after Scott first started using them. They provide a direct access channel to consumers that you, the marketer, control, which allows you to monetize in multiple ways. And we have to remember that these days, direct access to consumers is increasingly hard to come by as companies like Google and Facebook and Amazon position themselves as the gatekeepers. In contrast, email marketing is in a way immune to that issue, because you control your own email list, which means it’s the one place where you control your own access. But as with so many other marketing strategies on the internet, if it’s effective, the bad actors start exploiting it and they ruined the party for everyone. In the case of email marketing, as more people discovered its power, email providers couldn’t just stand by idly and let companies spam everyone with an email address,

Scott Maslowe:

This explosive growth and email, and pretty much the destruction of the inbox, contributed to this reactive growth in filtering email and denying service to email. And what’s interesting is that it produced this industry that’s only similar to the firearms industry or to the tobacco industry or to the alcohol industry, which is there’s very few industries that have an equally large industry trying to stop them from doing business that makes it really difficult to do business. And it filters the business environment so that you have to operate in ways that you don’t always want to operate. As much as the law allows you to have to hide and you have to obfuscate your identity. You have to leave it available so that if they want to take legal action, it’s obvious who you are. But obfuscate it to the point you’re not getting listed by every anti-spam agency in the world. And it creates this weird environment. And that again allows for that bad-actor mentality.

So email’s always been plagued by this proliferation of bad actors. I think around 2010 or 12, you had this reformation in email marketing where it got so difficult to deliver that only companies that knew what they were doing, they were professional, they had sufficient staff, they had the infrastructure, they treated it like a real business, survived.

Aaron Dinin:

So as email marketing is becoming increasingly hard to do, why should businesses keep trying to do it, and will they keep using email? Where’s email marketing going in the future?

Scott Maslowe:

Email marketing is unique in that you can actually tell your whole story and they can just open the email. You can build all the momentum, and all the excitement and everything that compels someone to purchase or act or hire a service, you can do that in the email. And that’s unique, because one, it allows you to have greater access. A lot of times in professional settings, people can’t access, they can’t link out. The other thing is it provides more ability to actually deposit information, not just send someone someplace, but to leave a repository of something that you want, whether it’s an opinion or a knowledge or something on someone’s computer. So it is unique in that you’re delivering this little digital package. I think it will always be here. And it definitely doesn’t have the reach it used to. It’s much harder to do, for reasons we discussed. But I think it’s got durability beyond a lot of methods. I think that almost everything that’s around right now will be around.

Aaron Dinin:

Well, according to Scott, email marketing isn’t going away any time soon. And to be fair, I guess we shouldn’t have expected him to believe otherwise. After all, he might be a teensy bit biased. But regardless of what happens with email, there’s so much we can learn from Scott beyond whether or not we should all start spinning up new email campaigns for our businesses. For me, hearing Scott’s story has been an important reminder that money is only part of the value we derive from our businesses, so we have to be thoughtful about those other types of values too. Are you proud of what you’re doing? And just as importantly, are you proud of who you’re doing it with?

Scott Maslowe:

I think the most important thing that I can tell anyone is you need to be as discriminating with who you deal with in business is you are in your love life or your inner circle of friends. And the reason I say that is not only are bad relationships terrible and can divest your resources and hurt your business and cause loss, but the good relationships are enormously beneficial. And I just think that people are very fast and loose with who they’ll deal with. There’s people for everyone, and you need to be very selective over who you deal with. Much more selective, I think, than people tend to be.

Aaron Dinin:

Powerful thoughts from someone who’s clearly done a lot of self-reflection and introspection over the course of what I’m sure has been a strange and interesting journey. I hope you enjoyed hearing from Scott as much as I did. I’ll tell you one thing. Let’s call this a bit of a teaser for future episodes. The history of the web is full of people, just like Scott, complex, passionate, brilliant, emotional opinionated, creative, and sometimes humble. And that’s why this podcast exists to hear more of their stories.

So don’t miss out. Make sure you subscribe to Web Masters wherever you get your podcasts. And while you’re there, give us a great review so other people can find us too. For now, I’d like to thank Scott Maslowe and Rick Latona for taking time to speak with me, and a huge thanks to our audio producer Ryan Higgs.

You can also find us on Twitter. We’re @WebMasterspod. I’m personally on Twitter too @AaronDinin. That’s A-A-R-O-N D-I-N-I-N. And I write lots of articles about business and entrepreneurship over on medium.com. Just search for my name, Aaron Dinin. There you’ll find a treasure trove of what I believe is textual brilliance. You might disagree, and that’s okay. We can all have different opinions and still get along. But maybe all that content will tide you over until we meet again for the next episode of Web Masters. Until then, I guess it’s time for me to sign off.