An absolutely fabulous idea

Graham Goodkind used to be the managing director of Lynne Franks, the PR company that was sold last year for pounds 5m. Lynne Franks PR had been in the business for 27 years, with an impressive list of clients and good staff, and, thanks to the BBC sitcom Absolutely Fabulous, had become the epitome of PR luvviedom. Goodkind's new company, Funmail, which has been up and running for less than six months, hasn't spent a penny on advertising and was recently valued at pounds 31.25m.

Welcome to the bizarre world of Internet business valuations. The UK has finally gone the way of the United States; any businesses that are dot.com, or in this case dot.co.uk related, are big news and are attracting the big money.

Perhaps the most irritating thing about Goodkind's highly valued business is that Funmail is based around such a simple idea, the kind that makes you wonder, "why didn't I think of that?". Funmail brings individuality to the world of e-mail by allowing you to choose your own e-mail address from a list of more than 3,000 that the service provides. You no longer have to be saddled with some obscure sequence of numbers and letters allocated by your ISP.

For example, the favouriteFunmail address at the moment rides on the success of Austin Powers: The Spy Who Shagged Me - yourname @evil.co.uk. If you're the boastful type you could go for Fred bloggs @dropdeadgorgeous.co.uk, while Cartman fans could choose Tracey@ilovesouthpark.co.uk. The next big film is going to be the new James Bond release, The World Is Not Enough, and Goodkind has already got in there and bagged the best Bond domain names.

Next comes the really smart bit: the guys at Funmail sit back and let their 100,000 members do the advertising for them. Every message sent from a Funmail address includes a signature file promoting the Funmail service. It's what Goodkind calls a "viral" marketing effect. "You could argue that if you're going to be blah@ freeserve.co.uk, then Freeserve should be paying you," says Goodkind. "It's beautiful marketing. Every e-mail you're sending is advertising Freeserve."

And so, in exactly the same way as this, every e-mail that you send from Funmail promotes Funmail.

Funmail was launched in May and was set up by Goodkind, Steve Bowbrick and Jeremy Kerner. Bowbrick is an old hand at this Internet business; he founded the web design agency Webmedia in 1994. Kerner has a background in finance and now runs Designercity, a web design shop. Between the three of them they've got the finance, marketing and PR pretty much covered.

After a mere three months in business Funmail planned to raise cash by floating on the Alternative Investment Market. A few days before the flotation, the investment company Eden Capital weighed in with an offer to buy 20 per cent of Funmail for pounds 6.25m. This cash injection put the value of Funmail at more than pounds 30m. The pounds 6m will be spent on staff, technology and marketing. The master plan is to get a million members signed up to the service within a year.

So, as MD of Funmail, does Goodkind sit at home planning how he's going to spend his share of the pounds 31m? He's flattered by the valuation but refuses to get carried away. "Here we are, a company that's been going for five minutes, and it's worth over pounds 30m," he says. "But if you look at the other valuations in the Internet market we were pretty cheap. And your valuation doesn't pay the mortgage or put food on the table."

Goodkind remains focused on the business; the crucial task is to drive up the user figures. "Users are the currency," he explains. "Once we're at a million we become a very serious player in the market."

Fortunately for Goodkind, Funmail is not the kind of business that competitors find it easy to get into. The way domain names are registered means that there is a barrier to entry; you have to get in there quickly to grab the best names. "You have to get inside popular culture to pick the right names," Goodkind says. "For example, I reckon that we've got more e-mail addresses for the millennium than anybody else in the world."

Funmail is a member of the .co.uk domain-name registration service Nominet and it buys the addresses at cost price; a price that has just dropped to pounds 5 per name. Goodkind thinks that with this recent domain-name price reduction they will see rival services hitting the market. "We know of copycat services in the pipeline," he says, "but all the great domain names have gone and what they won't have is the technology to run the service."

Funmail has made a considerable investment in technology to back the service and it has poached the former technology director of BBC Online to help them. The service has to be reliable; you can't afford to let people go without their e-mail, and it has to be salable if Funmail's plan to pull in over 900,000 new members over the next year is to work.

Marketing the Funmail service doesn't seem to have proved too tricky; after all, Goodkind should know how to get that PR machine rolling. "We've had a lot of coverage in the consumer press. We thought 12-to-24-year- olds would be most likely to buy into the Funmail concept as they're the early adopters and we've concentrated on talking to the media that targets them."

A recent deal with BSkyB's Skynow ISP has also brought a whole batch of new users to the service. A clutch of similar deals with ISPs should have those Funmail membership figures rising in leaps and bounds. And, of course, every new film and TV show gives the Funmail guys a perfect opportunity to send out another press release with a batch of new topical names that ride on the back of somebody else's marketing spend. It's PR heaven.

Once the service hits 1 million users, the opportunities to make some serious cash are there. At the moment, Funmail makes its money from banner advertising and sponsorship of areas of its site. Goodkind explains the current strategy: "The service is quite sticky; people spend a bit of time on the site managing and writing e-mails and that means our page impression figures are good."

Then there are the electronic commerce opportunities. Funmail has already done a deal with WH Smith to offer books, CDs and video games for sale on the site in return for a cut of the sales generated. What Goodkind calls "context relevant" business could also be a big earner. He goes on to explain the theory: "Say you've chosen the e-mail address happyanniversary.co.uk, what you'll see once you've sent your e-mail could be a context-relevant message from Interflora saying `You've said it with words; now say it with flowers'."

A long-term lucrative revenue stream will be something called permission marketing. "If you can get that right then that's the Holy Grail of Internet marketing," Goodkind enthuses. When members join the service they give permission for Funmail to send messages to their inboxes. Funmail won't let advertisers mail direct to a member's inbox.

However, Funmail will work with advertisers to come up with special offers relevant to its members' interests. "For this kind of marketing, you can charge a much higher cost per thousand [page impressions] because it's much more targeted and you have permission," he says. "However, we need a lot of users to make this work."

And much as I might hate to admit it, this business model seems to make sense and the three Funmail founders will probably, in the best Ab Fab tradition, be breaking out the Bolly very soon.