Quinstreet

April 25, 2008
Quinstreet update. The company has begun to invest heavily to expand its operations into verticals outside of education. They have this year finalized two acquisitions, one in the home services sector and the other which gives them a foothold into insurance. The former is a pure play lead generation shop with rather higher barriers to entry, i.e. a strong deterrent for QS to try and build up internally. The latter is a marketplace but fits very well into their focus of owning and monetizing organic content. Companies names withheld at this time.

June 26 2006:
As one reader pointed out, it is now June, and no filing has taken place.   The Advertising.com deal combined with the large percentage of revenue that came from University of Phoenix would seem to have played a role in the delay. The company has also struggled to break into mortgage, and I imagine any exit would require them to better diversify their earnings. While they have had sizable churn, they still have some strong talent. who, unlike other companies in this space, have the operational expertise that suggest they should pull through. I predict them trying to go public in Q2 2007.

11/11/2005 - (original post)
Quinstreet will file to go public in January 2006 and is on track to do more than $200 million in top line revenue for 2005. They've done well despite their draconian tactics, i.e., they have not won many fans in the industry.

On the acquisition front - Quinstreet has quietly purchased two companies. The first is Deep Star Interactive - operators of onlinedegrees.com, nursingdegrees.com, and nursing-schools.com among others. They have high page rank sites and receive quality organic search traffic. Purchase price between $3 million and $5 million. A great win for them.

The second is World Wide Learn, one of the best at organic search. Along with ClassesUSA and eLearners, arguably no company has a better grasp of SEO than they do (re: education). I believe the purchase price was around $8 million, which is a steal and quite a coup.

New Strategies in Incentivized Marketing (B2C)

If you have walked through an airport or attended a ball game, chances are you have come across some form of incentivized marketing. Almost every airline has their own branded credit card, and many will set up kiosks in their busiest terminals offering users a freebie in exchange for an application. Most people walking by one of these kiosks who want their hat, shirt, or airline miles upon activation, don't think about themselves as walking dollar signs. They don't think about themselves as part of an equation that says, each new customer is worth X on average, and we will be willing to offer an incentive worth Y to acquire them so long as X - Y = Z where Z is both a positive number and Z / X fits within a range we are comfortable.

As credit card companies are among the most sophisticated they also know that X and Y are highly correlated. X, what they make, will vary depending on Y, what they give away. They also know that what they give away influences who signs up, which again comes back to impacting the value these people bring. Similarly, depending on the incentive, the task to get it varies.

Let's start using some real numbers. A credit card application is worth $10 to $20 on average, i.e. a credit card company will spend that much to acquire one. The range varies because as is the case in lead generation, applications only represent potential customers, and depending on your source of applications, the ratio of application to approvals and approvals to active users varies. Get business travelers, and those numbers look good. Get a bunch of people off of a pay day loan site, and as they say, "not so much." These card companies will bump that $10 to $20 up to $40 to $60 when paying for an approved application.

These days, though, what they really want and how the vast majority of higher volume, higher risk deals get structured are on the card activation, which is defined as a purchase, balance transfer, or cash advance. They will pay anywhere from $60 to $100 for these, and it shows in the level of incentives they use. For example, several years ago, I became a new card member for one offering a golf bag for new active card users.

(In a slight tangent here, the real genius is Capital One. Their Card Lab might looks silly, but they understand that perhaps the best way to gain not just an active user but a truly active user is to have them develop an emotional attachment to their card and want to use it instead of another card sitting adjacent to it in their wallet.)

Thanks to both the tracking available through the web and the credit card companies' history of offering incentives along with their understanding of lifetime value, credit card companies developed a high volume relationship with many performance marketers from the no-added incentive, consumer directory style sites like CreditCards.com (that is CreditCards.com will display the current incentive dictated from the card company, e.g. a low rate, certain bonus miles, etc.) to becoming the mainstay of the backend monetization for incentive marketing space. In the latter, customers signed up for cards not for the specific card offer, i.e. because it had certain advantages inherent in the card but because that card helped them earn their ipod, computer, tv, etc.

The incentive promotion space, get your ipod, computer, tv, etc. was really an online twist of the standard practices used at offline kiosks except that the credit card brand was not part of the initial pitch, only the incentive was. With the decline in overall incentive promotion traffic, it would be easy to think that the incentive space has declined. As I've learned recently, that is definitely not the case. The incentive space has shrunk a little but the topic for the next piece, New Strategies in Incentivized Marketing (B2B), will highlight how companies using offers as a platform for alternate payment methods, especially those integrated with social media applications are killing it from a volume standpoint; the quality question is as of yet unanswered.

From the B2C perspective where companies focus on advertising to consumers, using offers to underwrite an incentive, an ad on Facebook caught my eye.
Facebookadipodshuffle


Initially, it caught my eye not because it signaled anything innovative but that typically, the running of an incentive promotion ad (aka "Free iPod offers) could be used as a proxy for undervalued inventory. While this might be the case here, the story gets more interesting when you click on the ad and go to the landing page.

Facebookadmyeasyrewardslp

What makes this promotion different from the others is its more direct nature. On the landing page, instead of focusing only on the prize, it clearly states the backend offer needed in order to achieve the prize. And, unlike the current crop of offers, and something they exploit in their marketing, no other offers are needed, no referrals needed.

In a way, we've come full circle. This is no different than the offline offer for a golf bag, and it's the business that made YFDirect -> Netblue -> Connexus its money early on, a more one-to-one approach of offer to reasonable incentive. What makes this work now is that the incentives have increased in perceived value but decreased in price such that it looks more attractive than offering the latest Harry Potter DVD or a $50 gift card.

That we see a one-to-one relationship with product and incentive is not the interesting point. What we see evolving are the incentive promotion companies from frienemies of the credit card companies to platform providers. Whereas a Commission Junction might offer outsourced affiliate tracking, the incentive promotion companies can offer incentive based outsourced customer acquisition marketing. The big trend and the long term play is becoming transparent or even non-existent layers, that is a type of performance-based agency for direct marketers whose business models support the use of incentives. The marketers can do what they do best - placement and offer creation allowing the products themselves to focus on value maximization and data feedback for the marketers.

Credit card companies aren't going anywhere, but those whose business is solely based on improperly priced inventory have a less sure future, and those whose business is that where the revenue comes from business models that don't add value, are even shakier. I've always believed in the incentive space, especially in the long term C2C nature where friends receive monetary value for the influence they have on others. I've also believed that incentives had a longer term role in the online ad space and not just as an offer type relying on breakage. While we don't know what it is, becoming a platform play might be the angle for those who operate in the B2C space.

Comparing Search and Display

Display advertising goes hand in hand not only with internet advertising but all of advertising. In fact display predates all other forms of advertising, except one - search...sort of. It wasn't called search, though; they called it classifieds. No one will accuse classifieds of being a sexy form of advertising or one sufficient to build a brand, classifieds are the great equalizer. Every company wants more customers, and while not everyone can create a newspaper ad, a billboard, a page in print, a good looking banner ad etc., everyone can create and afford a classified.

As surfers, we so many ads - both display and other - that we might not stop to think about just how many advertisers make up the bulk of the impressions we see. The answer, with respect to display, is not many. This shouldn't come as a surprise, but I thought it at least a worthwhile exercise to look at their differences as a way to understand why they act so differently. The billions on display come from perhaps one thousand active advertisers, whereas the billions in search come from hundreds of thousands. While not exhaustive, I chose three attributes which highlight the differences and apply to any ad channel - Ad Creation, Targeting, and Aggregation.

1. Ad Creation

With respect to ad creation, search versus display comes down primarily to text versus graphics, and they can be looked at across a spectrum from simple to complex.

(Where things get tricky and why Google AdSenes flourished so greatly is that it blurred the lines of search and display, using technology to make them equal from an ad creation standpoint. Do we consider AdSense ads display because they often occupy spots allocated for display or search because they are keyword targeted and look like search ads? There is no right answer I believe, but it's left out of this comparison because when people hear display, they think graphics, and it is the graphical market which illustrates the concentration issue.)

For the sake of this analysis, we'll mark it as either one or the other, depending on where it most closely falls. Some might argue that graphical ads aren't that hard, but unlike text, they do require a skill. A person of average computer literacy can create a search ad, but they can't create a banner ad. Thanks to advances in technology (for example Adready), after a decade of being out, banner ads have started to close that gap, but search versus display still comes down to skilled versus unskilled with respect to ad creation.

Simple Complex
Search (Text) x
Display (Graphic) x

2. Targeting

After making your ad, next comes having it shown to an audience. Both search and display strive to show the right ad at the right time, but they do so in fundamentally different ways, and unfortunately for display, search has a fundamental advantage in two ways - active versus passive and contextual versus behavioral. Let alone the second distinction for a moment as that can cause contention. At its core, search involves a user looking for something and receiving something in return; display involves looking at something and inferences being made about the user's intent. As a result with search and search advertising, each keyword becomes a marketplace and the universe of available targeting options becomes not quite infinite but incredibly granular. Display on the other hand lacks the granularity. Advances have allowed contextual approximation and/or attributes to be appended to approximate behavior. As such, we show text ads in display spots, but they still don't qualify as search. And, on the whole, regardless of the current advances, display targeting has yet to mirror the granularity in targeting and active nature of search.

Granular Broad
Search x
Display x

3. Aggregation

The last piece of the puzzle comes down to scale. It's not just that search offers more granular targeting than display; it's that it can deliver more volume across a wider strata of audience segments. More importantly, it's easier to buy across these segments from a single interface. Granted a large part of that has to do with Google's absolute stranglehold. Display doesn't offer such an entry point. The ad exchanges and ad networks all help, but at the moment, until they can combine with the other key components, it's like buying a one-size fits all. It will work for some, but not many. Aggregation definitely exists among display, but it's what we would consider limited aggregation, like buying on Fox. As a station they have a huge market share, but they don't have great representation across the entire universe of content.

Aggregated Fragmented
Search x
Display x

Microsoft-Yahoo, or Yahoo-AOL, or AOL-Newscorp, etc., in the end, I want not just another company but another format compete with Google's search dominance. There is a reason offline display evolved after classifieds, which is why we shouldn't confuse the maturity of display with its age online. It has already come incredible distances, but don't confuse progress with arrival. Then again, there is a real chance that display will never catch search, that it will never offer exact parity. If it wants to achieve parity, we have a framework for doing so, but that might end up being the best bet. If display were a business, it needs to decide what it wants to achieve. Copying search might not provide the best path for our success. If that is true with display, it either needs to find the framework right for it once it realizes that matching its competitor will not prove attainable. I hope it figures it out soon.

Guilty Until Proven Innocent

What If?
In the movie "The Lives of Others" (Das Leben Der Anderen), a question is asked, "What does an actor do if they can no longer act?"

The movie takes place before the fall of the Wall, in the socialist Deutsche Demokratische Republik, or DDR, a state with an all powerful government that has complete and utter control over its inhabitants lives. The state has complete autonomy to determine the success or failure of any person. There is no appeals process for those whom the state has deemed broke the rules, nor consistency in the passing of judgment. That element of whim is especially dangerous for those trying to live by the state's rule.

At first, such a state almost works, but in the end such suffocating power alienates those living by its rule. And, in a just world where enough outside pressure exists, the people can ultimately find a better life through an alternative system.

Google is such a system. It is the equivalent of a socialist state, and each day it ruins the lives of those dependent upon it. For the ruined, the blacklisted, there is no redemption or reprieve. I know. I am one of them, and I could live with that because I had options. I cannot now because often others do not.

In "The Lives of Others", Albert Jerske is a director blacklisted by the state, and his life never recovers. It wasn't just the impact of his ban on art that was the tragedy but the ruining of a good man. A central character, the writer Georg Dreyman, finally takes action, motivated by the impact the state's overly harsh decision to ban Jerske had on his friend's life. For Albert Jerske to be denied a livelihood didn't just impact Albert but all those whose lives he touched.

Googddr

Google. Not Just the New Microsoft.
Much has been written about Google being the new Microsoft. The latter has its fair share of detractors, and for the savvy few, they can live their lives free of Microsoft's reach. There is a difference between being able to and having equivalent options easily within reach. You might be able to live without Microsoft, but it's not easy for the vast majority to do so. The same is true of Google. As a consumer, other options exists; whether they are equivalent is up in the air, but they are available for use without difficulty.

As a business, though, you do not have the same ability to live without Google. Whether you rely on organic search traffic or paid search traffic, if the Google Socialist Sate judges you unfit, your business will be ruined. There are workarounds, but all rely on deceiving the state that you no longer practice your trade.

When the State is young and its reach not as widespread, the number of bans to false positives are in alignment. When it must make judgments across an ever increasing universe that has grown in not just scale but complexity and especially subtlety, the State makes mistakes. And that is OK, because everyone will make mistakes. Where it is not OK, and where we are today is when the innocent have no voice.

It's a search engine, what's the big deal?
I used to be of this camp when I'd hear of people who had their publisher sites shut down or their advertiser account banned. Surely, the State had its reasons. They broke the rules. Then, it happened to me, and I had a taste of its potential impact.

As someone that has written extensively about the online space, I am fortunate to have both a broad and deep understanding of many aspects to the online advertising ecosystem. That knowledge doesn't necessarily translate into practical expertise, the same way that some of the best coaches will never play as well as the players they coach. Still, first-hand experience is critical in making for not just a better player but coach. For me, that means understanding what those I write about go through.

I started promoting an offer, having first built out a site to support it. It was a pretty unique offer but the backend for it relied on a technology provider that a wide range of other companies also leveraged. The experience provided just what I hoped it would and a chance to put my money where my words were. Then, one day, about three months after I begin, all traffic stopped. After checking the settings and ruling out the obvious, I wrote in to Google. The reply surprised me.

No AdWords for You.
Google suspended my activities because of "repeated violations." Given that I had never received a warning or error, I sat dumbfounded. I wrote in again. The reply let me know that it wasn't necessarily my account but one to which I was linked. (Given Google's ultimate goal of user experience which includes policies against double listing, if they feel a person has set up two different accounts to game the system, they treat those accounts as one.) That they do this in an automated fashion makes sense given the sheer size of accounts and ease with which a person can set up an account. It's ripe for abuse.

There are countless stories of how accounts get linked, and many are cautionary tales at best, horror stories at worst for companies who might not appreciate the consequences. A classic example is as follows. A person who has access to the company's AdWords accounts has their own AdWords account. They are a good employee and don't work on their personal project at the office, but as a good employee they do work on your business while at home. By accessing both AdWords accounts on the same machine, Google decides both accounts are the same person despite their being different. Worst case, the employee breaks the rules with their personal account. The employer finds their campaigns stopped and can't get them back online.

With my account, linked because of the technology provider's other clients, I called Google support to see if any additional information would come to light. Dealing with Google is like a bad dream, like the a perversion of justice. Want to know what it's like? Read John Grisham's non-fiction book, The Innocent Man. The arrogance, lack of information, and unwillingness to help by Google employees who find themselves in the position of power and more frustratingly the almost unquestioning trust in their system's correctness in dispensing sentencing. Without a doubt, you are presumed Guilty, but you will not be allowed to prove your innocence.

My suspension was not just frustrating, but it felt like a questioning of my character. You feel like crying out, "Don't you know who I am? People will vouch for me. I'm respected in my field." And on and on. You don't because you know it will fall on deaf ears. And, while your friends feel for you, they know how the State works and won't offer up their relationships in the State to help, lest they need to use their one get out of jail free card for themselves.

No Longer Silent.
The real problem with the suspension is that it's not a suspension. It's a ban, a blacklist. I am tainted. If I want to help someone else out, I can't, unless I do so from a machine that never logs into my gmail account. That was my first mistake. I set up my AdWords account using the gmail account that I use for my entire life.

I didn't write about my ban initially because I had other things to do. My time and effort was being spent on LeadsCon, which is looking fantastic. It's unfortunate that I cannot actually advertise my conference on Google because of my suspension, not unless I go through some extraordinary lengths to make it seem as though it's not actually me behind the conference. I know how to do it, but I don't want to live two lives. My childlike was reaction has simply been to make sure Google is not welcome at my show. We need to understand how to use them, but that doesn't mean they represent the type of company that I want around the people I like and respect. If MSN were smart, they'd make sure to be at the show to tap into marketers who spend more than $2 billion are big in search and display. Yahoo will have some people there, which I think is a smart decision and consistent with their aims of better understanding lead generation especially aftertheir acquisition of Blue Lithium.

My Albert Jerske
This post has certainly had a quasi-therapeutic effect, allowing me to finally share, rather vent, about a personal frustration, but if it comes off only as that, then I've failed at expressing the main point, the danger of Google's policies and raising awareness of a growing problem that impacts a growing number of a legitimate talent each day. It's much like a global warming; you know the problem exists, but until your life has an interruption due to it, you can do a pretty good job ignoring it and paying it lip service.

What really forced me into writing about the Google State was not my experience, which is several months old now, but one that happened to a dear friend, not just my friend but a friend to the industry, a remarkable person, who as it turned out also happened to spend several hundred thousand monthly with Google. Almost insultingly, Google wouldn't assign him an account manager. Can you imagine a company that you spend seven figures with yearly and you didn't have a person in the company to whom you could speak and knew your business?

His particular problem started when Google having sent him a note informing of an infraction early February. Then, on February 13th, a follow-up email came saying that they had done as requested. Google had said that his campaigns contained too many irrelevant keywords. Like many of the more sophisticated, he was a long-tail bidder, and long-tail is often audience based, especially, and as was the case for him, when spending money on content sites. It makes sense to advertise a high end watch on high end car words. There is an audience overlap. A person spending money on a $100k+ car is the same one who is likely to want a $5k Panerai. His weren't quite that far reached, but it's the same concept.

My Albert Jerske, my amazing talent of a human being who was blacklisted, didn't expect to receive a note sent at 5pm PST this past Friday saying that his accounts were being shut done and that any new campaigns or accounts he tries to set up would be declined. He's not on PST. Do you think Google works on the weekend? No. What type of behavior is that on their part to shut down his business, which isn't just him but a staff of people who rely on him for employment, at the end of day on a Friday?

You could blame him for not diversifying, not figuring out display or email or not doing scale with other engines, but anyone who actually spends money on search, I mean truly spends money, knows the fallacy of those arguments. Google is the online advertising platform for an enormous group of companies, much like Microsoft is for personal computing. Not everyone can be a Toyota or Proctor and Gamble (or wants to be); not every company has a business which doesn't really need search. For those that do, Google is the only real alternative.

Remembering Spider Man
The Jewish people call it Yiddishe Kopf. It's a way of thinking and caring for your fellow human, a type of consideration and compassion. If you are a superhero, you could describe it as Spider Man's Uncle Ben did, "With great power comes great responsibility." It's the Golden Rule, and that's just the problem. For Google, the Golden Rule is mathematical. They revere phi. For a just society, we revere a much different Golden Rule. Google could learn to get in touch with that other Golden Rule. Mathematics might help describe the universe, but it can't help the people of the world.

I can accept a mistake made against me, but I can't can't when something happens to someone as dear as family. I respect and appreciate what Google has done and built, what they provide. But, I don't like them, and I certainly don't trust them.

Actions speak louder than words. Google has always had the right things to say, but their words are empty in the face of their actions, a shield that weak people hide behind to feel righteous and better. it's time for the world to see that the emperor has no clothes and for those inside the State to change lest their Wall comes down and leaves all the bureaucrats without their layer of ill-earned, ill-deserved, and protective self-importance.

Footnote:
A little bit of irony and an example of how one hand doesn't talk to the other. Here is a message on my personal and currently black-listed AdWords account:
Googirony

FTC and Lead Generation

Last May, ValueClick can under scrutiny after it reported that the FTC had begun an investigation into a specific type of advertising conducted by the company, the highly lucrative but to many non-beneficial incentivized marketing; or, as the FTC was concerned, "websites which promise consumers a free gift of substantial value, and the manner in which the company drives traffic to such websites, in particular through email." After nine months of discussions and meetings with the FTC, last month, ValueClick reached a settlement. As reported in the release (see also the previous post), "ValueClick agreed to a settlement payment of $2.9 million without an admission of liability or conceding that the Company violated any laws. In addition, the Company and the FTC have agreed on the standards that will govern its lead generation business.The settlement is based solely on the past practices of the Company's Hi-Speed Media division and not WebClients or any other ValueClick subsidiary." While large, the fine represents a rather small percentage of the total profits earned, and that the settles focuses solely on ValueClick's smaller, Hi-Speed Media division and not their much more prolific WebClients division.

The settlements, specifically the word choice often used in the releases and articles, brings up a broader issue - how to properly describe the type of direct marketing activities in which companies like ValueClick's WebClients and The Useful (who settled with the Florida Attorney General for $1 million) engage. With respect to ValueClick, we see not incentive promotion but reference to lead generation, e.g., "has completed its previously-announced initiative to consolidate its lead generation activities into the Company's WebClients       division," or with an article covering The Useful investigation where it describes the company as "lead-generation firm World Avenue USA." Are these really lead generation firms? When someone says lead generation, LowerMyBills, Quinstreet, Reliable Remodler, LeadPoint, and countless others come to my mind before ValueClick and The Useful. The latter specialize in a type of marketing, leveraging a promotion to aid in customer acquisition, but does that mean they qualify as lead generation companies? In their quest to monetize a user who enters their paths, they do try and generate leads for a select number of companies, but their business offers leads only as a consequence as opposed to being the core marketing activity. Take Education Dynamics on the other hand, whose Recruitment and Prospecting division, and in much the same vein as Vantage Media, Quinstreet, and The CollegeBound Network, works on behalf of the higher education institutions to drive interested students. Their ads relate only to education, use no unrelated incentives (actually no incentives) at all, and they receive compensation for leads generated to the particular school the user selects. The same is true of any number of companies across the ever increasing spectrum of verticals.

Incentive promotion is a fire house of a marketing vehicle, a powerful tool for leveraging user intent for a good or service and leveraging ads to help the user fulfill the intent, but again, does that imply lead generation. Users who come to these sites do not have the same intent or interest that users going to an education lead gen site, student loan, car service, and so on, do. If users come to associate lead generation with incentive promotion, the real risk is billions of dollars of corporate value going out the door. Lead generation as a subset of customer acquisition has the ability to revolutionize the way companies and potential customers meet. It is one sense the yellow-pages with intelligence and accountability, offering merchants a pay for performance model to meet qualified customers and end users the chance to connect with companies that can fulfill their exact needs instead of just pointing at one and calling. Combined with other customer feedback data, mapping, and other internet only value-adds, it will continue along its path of being invaluable to both constituents. Incentive promotion can make a lot of money, but I'd argue that it does a disservice to lead generation if the two are used interchangeably.