Lead Generation 1.0: Challenges with Lead Generation Today
The lead generation industry has been significantly impacted by legislation, a downturn in the economy and tightening of consumer credit. In 2007 and 2008, several large lead generation companies went out of business or stopped generating leads (RealEstate.com, House.com, Loanweb, Loanpage). FTC investigations into lead generation incentive tactics cast a shadow over the industry, and ValueClick’s settlement marked the dawn of a new day where companies are forced to revamp acquisition methods to give consideration to the end-user experience. The result of this shake up has been a focus on quality and control not just raw volume.
Today, the lead generation market is highly fragmented into numerous vertical categories and companies. This fragmentation makes it expensive and complicated to profitably transact leads. Pricing is generally static and does not respond to changing market conditions in an efficient manner, and quality is not communicated effectively, delivered consistently or reflected in the price paid for leads. Most importantly unlike solutions provided in the CPC market by Google and Yahoo, I think the current lead generation offerings lack controls over volume, price, quality and ROI. This lack of ability to segment lead buys negatively impacts the size of the budgets businesses are willing to commit to lead generation opportunities
For most companies, a majority of leads are either purchased through lead providers or generated internally. However, both methods provide limited controls and cause companies to engage in tactics that are not beneficial to the entire lead generation value chain. Internal lead generation requires a significant investment in the right talent and infrastructure. Companies often find it difficult to optimize their advertising spend to acquire the right mix of quality, amount, price, and ROI of leads. The results are often a large number of unmonetized and under-monetized leads, requiring a network of retail and wholesale buyers to help offset acquisition costs.
Companies that purchase leads through lead providers often find it difficult to get to their desired ROI, and frequently switch between providers in search of that ever-elusive “profitable cost per sale.” Additionally, quality is not communicated effectively, delivered consistently, or reflected in price paid for leads, and there is limited incentive to improve quality. Stated differently, controls over volume, price, and quality are missing.
Lead Generation 2.0: The Opportunity to Leverage a Lead Marketplace
At any given moment, there are millions of consumers using the Internet to research real estate related products and services, and there are countless businesses trying to reach those consumers. There is a multi-billion dollar opportunity to expand online advertising to provide access to businesses who need to speak with online consumers to close a deal. It is clear that clicks don’t walk into a real estate agency or call on the phone, particularly for important transactions such as the purchase of a home or an apartment. It is time that businesses and move away from CPM and CPC marketing towards a more efficient CPL (Cost-Per-Lead) method.
At least in my opinion, Lead Generation 2.0 will be transacted in an exchange / marketplace where market-driven pricing and dynamic distribution of leads are possible. The result is a powerful ecosystem that challenges the reigning cost-per-click Internet marketing model, dominated by Google and Yahoo!, with a cost-per-lead system that is targeted, efficient and more manageable for businesses.
Using a lead exchange/marketplace such as Reply! (my employer), service-based businesses like mortgage brokers and real estate agents can easily access multiple sources of targeted consumer leads, purchase only the leads they want with easy-to-use filters, purchase the right quality, and set the price they will pay per lead. On the seller side, the lead generators and publishers increase the size of the network they access, tap into a highly liquid marketplace that maximizes yield per lead, and more efficiently liquidate undersold and unsold inventory of leads.
A lead marketplace provides local real estate businesses with easy-to-use, geo-targeted, performance-based marketing solution. Marketplaces will greatly benefit from the millions of local businesses that to date have not had a viable option for online marketing. As these local businesses shift their offline advertising budgets to capture online consumers, marketplaces are strategically positioned to capture a significant share of these advertising budgets.
A marketplace allows lead providers to grow revenue by instantly facilitating real-time trading of leads (arbitrage) among the existing lead generators in every category. This technology will allow companies to check a wide array of potential buyers and sellers simultaneously to obtain the highest value for a lead. Using and exchange, buyers and sellers will find maximum liquidity for every category and will allow those businesses to immediately tap into a broadest set of buyers and sellers.
Publisher networks can now flourish by offering lead generation tools. An approach similar to Google’s AdSense, will allow businesses a way to increase their eCPM / revenue per page.
The opportunity for growth of Lead Generation 2.0 is massive. I believe, as lead generation becomes efficient, dollars will shift from CPC and classified advertising to cost-per-lead acquisition. The Online advertising market is expected to continue its market share gains at the expense of traditional media– U.S. online advertising market is forecast to grow to $62.4 billion by 2012 (22.6% CAGR). Classified or Local search, print Yellow Pages, and Internet Yellow Pages is estimate to grow from $33.3 billion in 2007 to $41.4 billion globally in 2012 (4.5% CAGR).
As Lead Generation 2.0 continues to evolve, I expect to see a fundamental resurgence and revival of the lead business as more agents and providers tap into the vast benefits of the marketplace model to get the value, quality and control they deserve and expect.
For the sake of full disclosure, note that I am the Chief Marketing Officer for Reply!, a company that has built a lead marketplace.
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