With Gmail Overhaul, Not All Mail Is Equal; Google Funnels Offers Into ‘Promotions’ Folder, Tops Them With Its Own Ads; Kate Spade, Groupon and Gap Want Out

August 15, 2013, 7:24 p.m. ET

With Gmail Overhaul, Not All Mail Is Equal

Google Funnels Offers Into ‘Promotions’ Folder, Tops Them With Its Own Ads; Kate Spade, Groupon and Gap Want Out

DREW FITZGERALD

For some retailers that rely on emailed promotions, Google Inc. GOOG -1.17% is adding insult to injury. When the search giant overhauled its free email service three months ago, it set up algorithms to automatically siphon the flow of airfare offers and spa deals away from users’ main inboxes and into an easily bypassed “Promotions” folder. But there is another wrinkle: For Gmail users that do visit those Promotions folders, the first items they see will often be ads sold by Google. The ads are different from those that already appear inside users’ opened messages. Instead, they look like emails sitting in an inbox but are shaded yellow and feature informational “i” icons explaining their purpose. Marketers still complain that the ads threaten to draw attention away from the coupons and pitch emails they want their targets to read first.Special Delivery

Unique visitors to top U.S. email services in June (desktop and mobile)

Google Gmail: 100 million

Yahoo Mail: 88.8 million

Outlook.com: 32.5 million

AOL Email: 20.4 million

Source: comScore Inc. *Figures exclude corporate and government domain names, non-Web email ‘clients’ such as Outlook for Microsoft Windows and Mail for Apple iOS.

“People are not very amused by those,” said Tom Monaghan, product manager for the email service at marketing service HubSpot Inc.

Google shows no more than two inbox ads per user, spokeswoman Andrea Freund said. Some users’ inboxes showed no ads after Google tightened its “quality thresholds” for targeting the messages.

“Our goal was to put them someplace that was more relevant, and we thought that was the promotions tab,” she said. “When you’re looking at promotions, you’re looking for deals,” she added. “We do try to clearly label them as ads.”

If past software updates are any indication, Google will likely tread carefully as it introduces the new inbox ads, according to Ben Chestnut, chief executive of email marketing service MailChimp. Too many ads could alienate users, he said.

The ads are compounding the concern over the changes to Gmail, which has more than 425 million active users worldwide. Though Gmail users can’t see the changes when accessing their messages on iPhones, Google’s Web mail application is widely used on desktops. Ms. Freund said more than half of all users have the updated Gmail layout, which the company has been gradually rolling out since May.

Prolific emailers like Delta Air Lines Inc., Gap Inc., GPS -1.63% Gilt Groupe Inc. andGroupon Inc. GRPN -4.21% have sent step-by-step instructions to their mailing lists on how to move messages out of the Promotions tab and back to Gmail’s “Primary” folder.

Marketers fear the new system could spread and put an unwanted kink in a tried-and-true method of driving sales, not to mention business models that rely on emailed coupons.

“We think other email providers will be adopting this as well,” LivingSocial Chief Marketing Officer Barry Judge said of the new categorization system. “We don’t know when and we don’t know who, but we think they will.”

The reason for the instructions is simple, Mr. Judge said: “We clearly just want users to see our emails.”

“Let’s stay together,” apparel retailer Kate Spade Saturday pleaded in an email to its newsletter subscribers. Gmail’s “new inbox settings may have started filing away your Saturday.com emails into the depths of something called a ‘Promotions’ tab.”

“Ack,” it added.

Google redesigned its service to help users manage email overload, Ms. Freund said. Users can reroute emails they want to land in their regular inbox with a simple drag-and-drop, or by going back to the old layout altogether.

The shift appears to have made a noticeable but small impact on the rate at which recipients open marketers’ pitches. MailChimp last month found the percentage of emails that were opened by its 3 million customers fell by about 1 percentage point for Gmail, to between 12% and 13%.

Analysis from HubSpot showed the percentage of Gmail users who opened clients’ emails slid slightly over the summer, though activity spiked during the weekends. Open rates have declined at the same slow rate since April, suggesting user engagement is suffering from too many emails rather than Gmail.

“There’s a little bit of Chicken Little happening right now over this,” Mr. Monaghan said.

Gilt, an online service that alerts members to deals on luxury goods, said it hasn’t had any problems with Gmail’s new layout. “Having said that, we think the best thing to do is to educate our members,” said Elizabeth Francis, the company’s chief marketing officer.

Groupon Chief Executive Eric Lefkofsky last week said the changes had no “material” impact on his business, because the daily-deals service has shifted away from emailed pitches to offering deals on its website. But just in case, the company sent a batch of emails to subscribers later that week explaining how to move its messages from “promotions” to “primary.”

Gap and Banana Republic sent emails about the new inbox because customers “value personalized and relevant emails,” spokeswoman Edie Kissko said.