May.13.08

Lead Provider Assets

Posted by Jamie McDonald @ 10:31 am

At Sparkroom, we spend a lot of time working with our lead provider partners. At the end of last month, we spent a few days visiting with some of the lead providers in Los Angeles and the Bay Area. After the series of meetings, we started trying to recognize the patterns that differentiate the lead providers. On the buy side, lead provider differentiation is driven by a pretty simple equation. Lead provider value = volume x quality x consistency x price. But this got us to thinking, what assets are important to be a great lead provider. How do they create value? What are the core assets of a lead provider?

Lead provider core skills = customer acquisition + monetization

Customer acquisition is pretty simple. How does a lead provider generate leads? An incomplete list of lead gen methods would include search engine optimization, search engine marketing (PPC), brand (see LendingTree), domain names (www.mortages.com), online display ads, affiliate marketing, and email lists.

Monetization is also pretty simple. For the small guys, they can monetize through an exchange like Leadpoint. This is a good news/bad news story. The good news is that you don’t have the cost of developing a sales force. The bad news is that you give up some of your economics in exchange for not having a sales force. For everyone but the small guys, there is the cost of a direct sales force and an account team. But monetization is about more than having a customer list, it is also about lead distribution. You want your leads to go to buyers who will convert them. Why? Those buyers will pay more for your leads. So what you see is that the top providers have reasonably complex algorithms that deliver the leads to the buyer based on volume needed, price per lead and ability to convert.

This boils the lead provider business down to pretty simple terms. Why isn’t everyone doing it? Mostly because doing it well and doing it at scale is very difficult. And it requires a deep expertise in technology. LendingTree is the only provider that successfully scaled without great technology; they did it with brand and a differentiated lead. LowerMyBills, NexTag, QuinStreet, and Adchemy all have technology expertise at the core of their business.

Why does Sparkroom care? No, we don’t want to be a lead provider. But we do think it is really important to understand the business of your partners.

Comments

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billrice

Carrying the theme of quoting smart people. I asked this specific question of Sandy Kory (Media Venture Partners)--"What makes a lead generation company valuable?" He was very specific and it foots well to your analysis, Jamie and Paul:

1. A sticky value proposition to their revenue production--your lead consistently convert and I become hooked on this steady, high quality injection of prospects

2. A discriminating efficiency in buying, monetizing, and scaling their traffic and resulting lead generation

Simple in concept, hard in execution. Even the top ones are having challenges as things change--in markets they support, in techniques they use, in sales processes they feed, and in consumer expectations.

LeadCritic

I don't think generating the leads is all that simple, as you stated. What makes it difficult in todays market is matching your marketing spend to your buyers spend. This is becoming much more challenging then it has ever been. If you work for a company that depends only on organic traffic, as does Paul's company then the delivery mechanism may be your major concern.
Distributing leads efficiently is obviously very important, but more and more companies that pay for marketing are realizing that it is also very important and sometimes difficult to keep a nice margin built in.

I think companies are realizing that technology is not the only answer. Even with algorithmic distribution methods LT lost money last quarter because they could not manage to lower their marketing spend to match their buyers spend and that goes for many of the companies in the market.

paulknag

Legendary mortgage lead salesman Bruce Cook once told me that the ideal lead generator would "inject high quality leads into the bloodstream of the lender." I agree. The best lead provider must master both quality and delivery mechanism, and LendingTree in their time (circa 1999-2004) nailed this better than others.