JayWeintraub.com - Internet Advertising Analysis and Growth Insights

Musings from Jay Weintraub, Customer Acquisition Strategist. Currently, Founder of Grow.co. Previously Founder of LeadsCon.

ReachLocal buys DealOn But What Really Should Have Happened Is...

News broke recently of ReachLocal buying daily deal site DealOn. I had picked up a rumor a few days before the announcement that a deal for DealOn was imminent, and I must have thought through 20+ companies that I suspected would end up as the likely acquirer. Where was ReachLocal on that List? It wasn't. Given DealOn's white label offering with Zagat, I guessed that the likely acquirer would be an audience owner or one very good at customer acquisition. They would have been the perfect candidate for an existing performance marketer or cpa network to diversify. Both Perspectiv and IMM Interactive have made this switch.

ReachLocal buying DealOn makes perfect sense, though. If it works, it means they move from obtaining a piece of the ad spend of local businesses to transactions. It also means they can go from relying on payment from small businesses who are hard to sell to and have little cash to paying them. That alone could fundamentally alter their business. It will be really hard, even though they have so many small business relationships.

As with creating an ad network or lead gen aggregator, you have to first overcome the chicken and the egg - getting traffic and getting deals. Traffic without deals doesn't work and deals without being able to deliver the traffic doesn't either, the latter being ReachLocal's challenge. This is why so many deal sites focus on one city - it's manageable - but it's also why so many fail to make it on city or beyond. They just can't figure out how to grow both sides. The best deal sites are amazing aggregators - lots of users and lots of offers, and bringing the two sides together with scale not available through existing channels, e.g., were a restaurant to promote via AdWords.

Speaking of AdWords, what should have happened and what still can happen is for Google to buy ReachLocal. The company's value today is just under $600 million. We've been through Google trying to buy Groupon and now Google working on its own deal platform. Despite its large sales force, Google is not a sales company. They don't have sales dna. ReachLocal, despite its technology, is a sales company. If there is one thing I've heard about them, it is that they know how to attract and train great sales talent. If there is one thing I've heard about Google, it's that they know how to not hire great sales talent because they measure them using the same criteria as their technical, managerial, and product talent. If you're in a bunker, you don't use a putter. 

If Google wants to succeed in the deal space, pick up ReachLocal. They have the relationships and they have a platform that scales - a human capital platform. That alone is worth a premium over their current stock price. It's also how Google will best put its immense traffic platform to good use in the deal space. Self-service deals are a great idea, but curated deals work best today. We will hit a time when there will be a Quality Score for deals and only those with a great quality score succeed. For now, you need the people. ReachLocal has them.

 

February 16, 2011 in Daily Deals, Lead Generation, M&A | Permalink | 0 Comments

Groupon versus LivingSocial - Who Wins?

In the battle of Groupon versus LivingSocial, there is one storyline that pits company versus company. It has them in an all out battle over deals, press, users, big brands, and more. It plays well in the news, and it probably plays well internally too as a motivator.

The other storyline, the less sexy but more important one doesn't care who "wins" between the two, because the list of companies and individuals that have already won is impressive. I'm as addicted to Business Insider's salacious stories about meeting the next billionaires. The real winners, though, are Google, Facebook, and just about every major advertising platform.They will be recipients of this sector's almost one billion dollar online ad spend in 2011.

One billion? Maybe that's high, but probably not off by all that much.

Those in the daily deal space don't call themselves lead generators, but for those of us, like myself who have participated in and followed other performance-based marketing companies, the two worlds have a lot in common, one of the biggest being a well defined funnel and specific metrics on user value. The result is a business that can grow as a function of the media they purchase, but any media that doesn't back into a profitable customer won't be continued.The dna that helps lead gen companies scale is the same that helps the new kings of customer acquisition.

As Alex Rampell wrote in TechCrunch, he believes Online to Offline commerce is a trillion dollar opportunity. That's why a billion spent on media is nothing. It also explains why the largest company in the online lead generation space has a valuation of just over a billion, but the largest player in the daily deal space has a valuation approaching ten times that.

Followers of online lead gen always ask me what the next vertical is. What will be bigger than education and/or just how big will insurance get? The answer to the next vertical question, though is here, and it's curated commerce - daily deals, flash sales / private sales, and the up and coming ecommerce as a service businesses like Beachmint and Shoedazzle.

Groupon vs. LivingSocial? It's a fun but incorrect question.

January 31, 2011 in Lead Generation | Permalink | 0 Comments

Etsy - An Absolute Home Run And The Rule of Three

Is Etsy the biggest, best, and oldest startup company that many people have yet to hear of? Or, it could be just me.

Etsy-day Quick context: My interests center around customer acquisition - how buyers and sellers connect online. Most of I write about, call it the 80%, focuses on monetization and arbitrage, i.e., how is that company/network able to spend so much money buying ads. Call it tactics used by some of the biggest spenders be it fake blogs (if the site is still live) to companies like Groupon. The 20% covers companies that are doing something interesting in customer acquisition but whose businesses don't necessarily rely on spending money to make money. These are companies that are inserting themselves into massive verticals. It can be everything from for-profit-education to this posts company, Etsy.

I'm sure there is some rule, let's call it the Rule of Three, that describes how a company becomes one you start to pay attention to - three different connections - could be all personal or a mix of personal and professional. It doesn't have to be three, especially if someone really close to you says pay attention to this company or you use them. For me and Etsy, though, we needed three. Their core business - the place to buy and sell handmade or vintage - is not something I use. I still might not use them, but I'm in love with them as a business.  My three were:

  1. Professional - Fred Wilson's blog, as he is an investor, and other tech/internet industry news who have mentioned their growth and success in fund raising. Fred, I know you don't do "lead gen" investments, but you sure do know how to pick companies that change the customer acquisition landscape.
  2. Personal - My ex-girlfriend started to sell things on Etsy. She's all about vintage, handmade, and creativity. Prior to Etsy there wasn't a good commercial outlet for her creations.
  3. Personal - My fiancee (or depending upon when this is read, my wife). This is what I heard yesterday, "I can't tell you how many things I bought off Etsy today." These weren't just-becuase purchases. These were wedding related, one of the biggest verticals. It was also number three, so instead of "That's nice, Dear," I took out a piece of paper and started to take notes.

My fiancee is not an early adopter. She's not on Twitter. Uses Facebook often but with high privacy settings. She even goes to Google first in order to get to any site. She's not going to know about GroupMe any time soon, but, she's something that every successful business needs - a spender. Why is Zynga doing so well? It's not the young demographic. It's the QVC demographic. Why does Hautelook do so well or Zulily? Women like my wife to be. While she might not be an early adopter, if she and her peers use a site heavily, there must be something to it. I didn't learn of Gilt, RueLala, or Hautelook from her, but she was on them.

When it came to Etsy, I did what most conversion minded people would do. I asked about the flow, the user experience, and their design. She's used eBay, so I wanted to know what made Etsy different and intuitive. Just one look and you know that there is a certain essence captured in the shopping experience. There is a visual distinction, but the answers I received weren't about that visual cues .They were the essence.

  • Collaborative - You aren't just buying a product. You are working with the person selling to get something just the way you want it.
  • Community - Not in the traditional sense of social networking, but interacting on Etsy feels like spending time with like minded people. They are simply a nicer, more helpful group of sellers.
  • Passion - Because so much of what is sold is handmade / handcrafted, you aren't just buying a SKU; you are buying something with someone's passion. You are getting to buy products before they become brands, before they become SKU's. I don't think Etsy needs to stay Collaborative to succeed. But, if it starts to become a place for middle men and stores, it will lose that appeal which has made so many people feel good about buying there.  
  • No Bidding - For once, there is a startup that doesn't talk about game mechanics. EBay is the originator of game mechanics online, and Etsy takes a welcome departure from that. It's all about discovery (another big thing with startups today).
  • No Brands - No SKU's and no brands (or at least not an emphasis on it) also means no counterfeit hassles, no debating whether a price is too good to be true, no scouring for reviews of the product or the site.

Etsy is truly a home run. Yes, its investors will do extremely well. More importantly, though, the people using it are benefiting as much.

November 18, 2010 in Lead Generation | Permalink | 0 Comments

The Internet Is for...

When I look for consistent themes within my writings, certainly lead generation, customer acquisition, and performance marketing come to the top of this imaginary tag cloud. What I find myself obsessing on is the monetization ecosystem, namely how sites make money and how companies attract clients. This focus on monetization usually finds me taking countless screenshots not necessarily of best of breed companies but best of breed monetization.

For reasons that can be saved for another post, direct marketers often make up the majority of best of breed. Their creations span from no value-add (the flogs) to solving local (Groupon, et. al). The vast majority of direct / performance marketers, though, have earned for them and the category a desultory reputation. Their downfall is the product of human nature when trying to promote undifferentiated products and service, especially on a performance basis. It leads to false claims and other unsubstantiated promises because they need something to gain the attention of the user. Their challenge, which is not an advertiser challenge, is the difficulty of monetiation.

Some of the best monetization, not in dollars but skill, can be found amongst the crap, the crap inventory it is. But what is crap? Crap is the (almost) unmonetizable content. It has existed since the dawn of the internet, and it will continue to exist as long as we are the users of the internet. Crap is the time waster or the brand unsafe. It is the low quality, bottom feeding content, whose biggest flaw as far as the web is concerned, is being free. For as bad is crap is overall, there is just so much of it, and while at some level those who facilitate the crap do so out of more personal than business reasons initially, that inventory sits there almost begging to be made into something.

What is crap? Here's an attempt to chart the crap landscape (web traffic only).

Ad-Intent-Quality2-1 

Legend

  • Low Intent - Undirected traffic, neither commercially or transactionally
  • High Intent - Highly engaged traffic, users with something specific on their mind
  • High Quality - Brand safe traffic, high transactional quotient 
  • Low Quality - Brand unsafe, low transactional quotient and/or ability

Intent is all about the topic. Quality is all about the desirability of the audience.

Low intent is not inherently bad. It is simply people in situations where they aren't actively searching. But, it doesn't mean they can't be high quality. A lot of display traffic can be low-intent but the audience is comprised of people who are clickers and converts. The "crap" in this case is not an intent issue. It's a quality issue. Crap comes in all types of content and intent. We think of a site like Google's own search pages as one standard of good traffic. It is high intent traffic. Then again porn is pretty high intent traffic as well. So what separates the two? Distilled, the difference comes down to the ability to monetize one versus the other. That's at the heart of "quality." Amazon is the easiest example of quality. Although not an ad supported play, the vast majority of its traffic goes there for very specific reasons and they do so in order to transact. On the ad side, quality doesn't mean an audience who will always convert. It can simply reflect desirability - a large number of advertisers for whom that traffic would produce the desired results either branding or performance.

Many a company has done a fine job at monetizing the unmonetizable (CPALead being a great example that has a polished appearance), but doing so means being realistic about your business. Those sites are below the line for a reason. You can force their attention into an ad environment, especially in some of the higher intent areas, but getting their attention and getting them to convert doesn't equal quality. It can mean money, but inherently not long-term money. 

May 27, 2010 in Affiliate Marketing, Lead Generation | Permalink | 0 Comments

Quality-Volume Divide

Understanding The Challenge of Capturing High Quality and High Volume

Ask almost any advertiser who has at least a modicum of experience in online advertising, and growing volume while maintaining quality will rank high among their challenges and frustrations. It is a problem old as time in the performance marketing sector, and the unfortunate truth is that after a certain point, quality starts to degrade. Let's use an auto insurance offer running on a cpa network in order to better illustrate the challenge. The offer looks to get users to enter their information to see if they could lower their auto insurance payments. When a user enters their information, the network receives credit and they then credit the appropriate publisher. The person buying the lead receives no money from the user filling out the form only from the percentage of users who then go on to purchase a policy. The higher that conversion rate from lead to policy, the higher the quality, with quality as defined here and price the buyer can be being highly correlated. If more people convert from lead to policy, the lead buyer can afford to pay more. If fewer people do, then they will have to lower the payout in order to continue covering the cost of buying the leads.

In the optimal scenario, conversion rates start out profitably and even increase over time as both sides optimize. At a point, though, especially in the optimal scenario where the advertiser sees good returns with good volume, they will want more. Two things start to happen at that point. The first is often counterintuitive for the advertiser, and I called it the price fallacy in lead generation, namely that more volume comes at a higher price per lead. What the price fallacy fails to capture, tough, is what more often than not happens to quality. Almost invariably, once buyers and sellers work on capturing incremental leads, they end up succeeding but at the expense of the initial quality. Here's an illustration of what happens:

Quality-volume-divide

As the above shows, the optimal phase sees volume growing with quality remaining above the break even for the lead buyer (where break even is an internally designated metric representing an acceptable spread between the desired cost per transaction and the actual cost per transaction). When the two parties switch into the forced growth phase, volume continues to increase (often at a slope higher than the initial growth), but quality starts to slip. More quickly than either expect it goes from the advertiser having a positive yield to a negative one.

Quite a few explanations exist for the quality-volume divide. One of the more straight forward revolves around intent. Only so many people have a given interest in a product. B2B marketers deal with this issue all the time. For some high dollar, super complex sales, e.g., a multi-million dollar database configuration, there just aren't that many people who could be buyers. With auto insurance, the number is fortunately much higher, but it's not infinite. Different traffic channels have different levels of intent - search is not surprisingly higher than co-registration. But for many verticals, there are only so many keywords available. To get in front of more users it means trying other avenues - longer tail terms, coreg, email, display, contextual ads, etc. Each one of those will have its equivalent of head users and tail users - sites / placements where users who click will have an interest as opposed to someone who places an ad on facebook saying, "Find out how much it is to insure a Ferrari." Each incremental step works in obtaining more traffic, but without without additional technology / processes comes at the expense of the intent of the person who views / clicks / converts on the ad. Here is what it looks like plotted.

Volume and intent

Saturation too plays a role. At some point, an advertiser will simply have reached the vast majority of potential users for the product. That of course doesn't stop them from still wanting to grow. They don't want to settle for the same amount, and it pushes them to continuing trying even at the detriment of their quality. It's not that higher volume and good quality can't go together. It's all about the incremental lead in the growth phase. In the forced growth phase, instead of the next lead converting at or near the previous lead, it keeps slipping. Good leads still exist, but they get lost among the lower quality ones. It's a problem, if solved, will mean incredible gains, but it currently falls outside the skill set of both the lead buyer and lead seller. Each can get better - they can implement various levels of verification (quality, scoring, call centers), but to get really good means each getting away from what they do best. Buyers and sellers get closer, but they will never close the divide fully. It's too complex, too distracting, and not urgent enough for them. All of which means one of two things will happen. The divide will come and bite everyone in the behind and/or someone else will come along, solve it, and do very well. A note of warning though, there is another reason why no one has done so to date. It's anything but easy.

April 02, 2009 in Lead Generation | Permalink | 0 Comments

Mortage Advertising Is Saved...Sort of

Have we found the magic pill that will bolster the ever declining internet advertising spend?

Mortgage marketers, long a staple of the internet advertising landscape, have in the past year had a much more subdued presence online, especially on display. As an inescapable piece of text link advertising on content websites, through providers such as MSN, mortgage markets have not fallen completely from view, but they sure haven't dominated the mind share and market share the way they did from 2002 into 2007. Outside of Bankrate, which most know as the publicly traded, internet ad supported company that has almost miraculously avoided stock market disaster, you will struggle to find other signs of the mortgage market advertising online.

With hundreds of billions recently injected into the financial system, and into the banks themselves, you might start to expect a bigger presence. And, while it took longer than expected, the impacts of the capital infusion have made there way online. And not surprisingly, one of the pioneers in the online space, LowerMyBills, has ads to this extent. Below you fill a recent banner touting the passage of the housing bill and the corresponding landing page that reiterates the theme. The banner uses their familiar "Calculate" call to action, but the landing page focuses on the doubts many people have over the financial meltdown, stressing "Refinance with More Confidence."

LMB Holiday Rescue Ad
LMB Rescue Themed Landing Page


Despite the often overly optimistic nature of many mortgage related campaigns, such as those still touting rates at historic lows, this one has some truth to it, especially the last part of the of landing page's headline, which reads "Rates Dropping Sharply." Give them credit for finding yet another powerful headline. While we can't vouch for the quantity of the infusion or when this ad began, we do know that about two weeks ago, just before Thanksgiving, the Federal Reserve said that it would buy $500 billion in mortgage-backed securities currently guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Rates had dropped some at the announcement of the bailout, but that specific announcement caused a truly dramatic in mortgage activity. And, it's not just marketers saying truly dramatic, with indices tracking activity seeing three to four times the normal mortgage activity. Is it enough, though> So far, the answer seems mixed. The number of refinances expected this year will amount to not much more than 1/4 of the total seen in 2003 during the height of the housing boom. Then again, that doesn't take into consideration the recent uptick.

For those of us that worked in the internet ad space during the bursting of the tech bubble, signs of rates dropping and mortgage activity rising remind us the foundation for great times. As rates drop, it should mean that a greater number of people become eligible to refinance, but unlike a few years ago, of those who technically qualify, i.e. their current mortgage rate is higher than what mortgages could be had for today, only a small number will actually get the lower rates. Whereas almost anyone mammal could get not just a new loan but one at a low rate, now only those with pristine credit and significant equity in the house can, limiting the overall impact of the lower rates. Subprime lending has virtually come to a halt, and current lending rules also make it tougher for those seeking larger loans or small-business owners and other self-employed individuals. The demand is still there, but the supply just hasn't caught up.

Companies like Lending Tree and LowerMyBills could prosper because they had enormous quantities of both supply and demand. A huge percentage of the population qualified for a loan, and an equally liquid market existed for them to receive them. Here we have the same depressed online ad inventory, and a slighly reduced demand from home owners, but again, there is a liquidity problem. Compounding the disctinction between now and then are the percentage who now owe more money on their house than it is worth along with overall unemployment. These two make for powerful forces against a mortgage ad recovery. Focusing on the former, underwater home owners, they have had limited options to date. Like debt settlement they can attempt to get a modified loan from their bank, but most report limit success in doing so as the banks have not the motivation or process for handling this in scale. Enter the FDIC who announced their plan for to prevent an estimated 1.5 million foreclosures by the end of 2009 by creating guidelines that will modify more than two million loans. It seems so promising, as it would create liquidity for financial leads. But, according to the Journal, "This may be wonderful politics, but the real-world evidence suggests it will be far more difficult and expensive." Making sense of the math for the various options for modifying is also difficult. It's tempting to root for the plan because selfishly it would result in an amazing resurgence in mortgage spending online. 

Returning to the second point, unemployment, for the past four to five years, the housing market has acted like the economic center of the universe. In good times it can do to the economy what no other industry can, and, it can pull the economy down in a similar fashion. In good times, it provided the consumers liquidity for everything else. In bad times though when the whole economy has faltered, fixing housing won't fix it. Only jobs will. Now, instead of fixing housing, we must fix the owners of the homes. And not to sound to stumpish, but fixing the home owners means a growing economy and job creation. Then and only then can people afford their homes, regardless if they need a loan modification or were caught up in the frenzy and made poor decsions. We all make poor decisions and get caught up in the frenzy of a good deal. The latest Wall Street fiasco only shows that. That said, this holiday, I don't want to look a low rate gift horse in the mouth. Quicken economist Bob Walters summarizes the upside best, saying  "...the unique combination of falling home prices and falling rates are bringing home affordability back to 'normal' or 'better than normal' levels, making it a great time to buy a home."

December 16, 2008 in Lead Generation | Permalink | 0 Comments

Quinstreet

November 20, 2009
The day many of us have been waiting for (including Quinstreet) has arrived - the Quinstreet IPO. After years of speculation and some unanticipated market twists, Quinstreet announced its intention to go public, filing their S-1. Look for a more detailed post outside of this thread. For a company that has been incredibly secretive, the S-1 is an amazing look under the hood of one of the most intriguing companies in the online lead generation space. It details their acquisition history, and while many of us knew about their acquisitive nature, none would have expected it to include more than 100 purchases with at least four eight figure deals. The Quinstreet today is no longer an education lead generation business. They are a roll-up and have been a source of liquidity for countless smaller publishers who sites earn revenue through lead generation. And, today they are a diversified play with some large client concentration but only 50% of the business being edu.
 

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.

April 27, 2008 in Lead Generation | Permalink | 0 Comments | TrackBack (0)

The Other Subprime Fallout

The payday loan market has long, if not always, catered to the subprime market. The mortgage market on the other hand accommodated the subprime market because they could. Only recently has the mortgage lead generation market had to deal with that which the payday loan lead generation market has long struggled, ineligible borrowers. Mortgage lead generators might think how unfair it is that fewer and fewer of their leads can qualify as sold leads, but almost all other major verticals have to contend with not only a decent percentage of un-sellable leads, they typically can sell a lead only once. Instead of setting back subprime focused verticals such as payday loans, the combination of not converting all leads into a sold lead and any sold lead being bought only one time has led to innovation, i.e., ways to maximize the value of the data they do capture. This innovation and desire to make the most of an interested consumer brings us to the heart of a recent shift that, like mortgage, has impacted those attracting subprime borrowers, one that didn’t start out directly related to payday loans but whose rise and fall can be best explained through the lens of the payday loan vertical. We’re talking about none other than the credit card industry, but not the cards that you probably have in your wallet. Some of these cards might carry the same Visa and MasterCard logos, but they act anything like the "priceless" promotions. These cards, targeted towards with poor credit or no credit at all, carry a definite price, both to set up and in terms of what they can do.

The marketing of subprime credit cards has gone on in scale, albeit rather quietly for years. My first recollection of these cards comes in 2002 not long after the collapse of Providian and their NextCard division which made, and lost, a fortune doing, of all things, the same thing that the current mortgage market has done, extending credit to high risk customers with little or no stated income. Unlike that ambitious, and now defunct, venture these cards didn’t take the same level of risk; their customers had to pay often heavy fees in order to obtain the cards. Their growth, while ongoing for years, certainly shot up in conjunction to the ever increasing number of subprime mortgage borrowers who needed additional funds to cover their credit driven, and now debt ridden, lifestyles. These consumers who found themselves in ever need for money didn’t turn at first to these credit cards, they turned first to the more obvious choice, payday loans.

As mentioned, not everyone who applies for a payday loan will get one. In fact, often only two-thirds of those applying will turn into a sold lead / funded loan. In the mortgage market, they call this 15% to 30% unsold; companies in the mortgage space have done so well that they didn’t focus heavily on the unsold, they didn’t need to. Not so in the payday space, where they call them declines. Instead of going to a trash bin like they often do in mortgage for other companies to mine, in payday loans, they aggressively try to monetize these declines (as some have already paid the affiliates). That they do so, and quite effectively, sets them apart from many other offers. As we look to understand how credit cards came to play a large role in this, it first helps to understand the difference between a payday loan offer and almost any other type of lead. With a payday loan applicant you, more often than not, have an incredibly motivated consumer. They didn’t click on some dancing alien suggesting they click to calculate a new rate. They came to the site because they needed a specific amount of money, and they need it right now. This means they will fill out a form that resembles what they call in the mortgage space a full ten-oh-three. Payday loan providers don’t collect just basic demographic information and property details; they collect the most personal of information, social security numbers and banking information. Even if a consumer won’t qualify for a payday loan, they fill out this information, and that sets the stage for what some have called the dirty little secret in payday loans. To understand, think of the incentive promotion space.

In the incentive promotion space, users first come to a site in anticipation that they will receive an item of value, from a restaurant gift card to high end electronics, or even a lawn tractor. The first step of the process asks the user to enter their email address with the next page asking for the shipping address, only the shipping details apply for a limited number of people, namely the miniscule fraction that will complete the process successfully. The postal information plays less a role in the original product fulfillment and almost everything to do with the various offers shown during the survey portion. By already having the postal information, the incentive promotion people can make it that much easier for a user to accidentally or otherwise sign up for an auto loan among other things. And, it’s the same thing that happens with payday loan providers, but in a more significant fashion. When a user fills out all of their information to try and receive a payday loan, they hit submit expecting the next screen to show their match. The vast majority don’t realize that after completing the form the next step occurs, behind the scene, with the lead generation taking their data to various buyers, seeing which if any will want the lead.

The submission of a payday loan brings us to the pros and cons of this business. Those filling out the form tend not to fall into the window shopping category that plagues other verticals where people often have a minor interest and just want more information, not to take action. The downside with such motivated, or as one company appropriately calls "desperate" consumers comes from the fact that your form is too commonly not the first form. These users, especially in search, will have filled out site after site to, in their eyes, increase the likelihood of obtaining the loan. An aside here comes from how this behavior negatively impacts their chances. Unlike mortage or education where filling out more than one form happens often, but tends to mean just more phone calls for the form-fillerouter, in the payday space, each successfull completion of a form results in a credit inquiry. In this case, the credit inquiry happens at one of two specialized agencies that do not report up to the Experian, TransUnion, and Equifaxes thus impacting their FICO score, namely Teletracks, owned by LeadClick parent and DPburea.


If a potential lender sees that a person has had their credit pulled quite frequently, they will often shy away from them as their algorithms will believe that person at higher risk for paying back the loan. Additionally, lenders will reject a lead when the user does not receive their paycheck via direct deposit. The terms of a payday loan allow the lender to initiate a transfer out of the recipient’s account, but without direct deposit, they do not have a good gauge of whether that check went to the person’s account, hence they can get their $550 on the $500 five days later, or if the person simply cashed their check and went to the track. Additionally, a buyer will decline a lead if the user has too many payday loans ongoing. They don’t mind lending to those with poor credit, but they don’t want to lose all their money doing it. For the estimated 15% to 30% of declines, people who really want money, almost no offer works better than a card offering them the chance to charge stuff. And, given that the payday loan providers already have collected so much personal information, the exact information excluding perhaps one field needed for a subprime card product, you can see how payday loan lead generators began to promote credit cards for subprime users to their declines.

When it comes to credit cards aimed at subprime consumers, three main types exist. The first are very similar to cards issued to prime consumers in that they too are unsecured credit cards, i.e. you don’t have to put anything down. Unsecured cards targeted at subprime consumers do require a set up fee and have low limits, generally no more than $300. They look, feel, and act like a standard Visa / MC and are backed by a bank. One of the biggest is Imagine Gold Card run by publicly traded Compucredit and distributed online via MediaWhiz’s Monetizeit division. The second type are secured cards or pre-paid credit cards. These too have set up fees and they offer no credit limit. Like a pre-paid phone card, you get to spend only what you put in there. It’s no different than buying a pre-paid Visa card, except that these cards find you at the right time. For better or worse, life often requires having some form of credit card, e.g. booking something online. One of the more successful ones was Everprivatecard.com. Third we have merchant cards. These can come in both unsecured and pre-paid, but they are not credit cards. They allow you to spend money at a limited number of stores. Several companies offer these including Edebitpay.

Each of the three types, while different, all play a role in helping payday loan lead generators monetize their declines. As important, they make up a fairly significant piece of the entire subprime consumer monetization. It’s not a secret that card offers exist in the flow, but it’s not wildly publicized either, until recently that is. An almost perfect storm hit the marketing of subprime credit cards. Two of the top performing offers were pulled at roughly the same time, the unsecured Imagine Gold Card and the extremely well-marketed, debatable in value, Everprivatecard, which unlike other credit card offers allowed for it to be almost an opt-out, not opt-in. As for the Imagine Gold Card, they did nothing wrong, but looking into their SEC Filings it seems as though they couldn’t raise as much as they planned, given the current lending environment so they had to cut back on new acquisitions.The third company mentioned above, Edebitpay also ran into some issues but of the more severe variety. They found themselves the subject of an FTC investigation and had their offices raided and business shut down at the beginning of the August (back up now). A check of their better business bureau ranking sheds additional light. The company currently has an F rating, not an easy task considering the BBB has 11 gradients starting at AAA going to F. Just check out a recent review corrected for spelling and languague, "fraudulent lying pieces of s***, poor excuse for human being, that's what I think of this company and all their lying employees, with their crappy customer services."

The timing of the credit card pull out and its subsequent effect on pricing of payday loans (off by 15% to 20% at one point but coming back now in the end of September) might seem connected to the broader events as a whole. In the case of one major player that holds true, but for now, both the payday loan space and card space remain strong. If anything, this recent change highlights the interconnectedness between various offers – the benefits and the risks. As one online payday loan generator put it, "No one’s having a happy August," and joked, "Now, we actually have to work." There is some truth in those jokes, but as we spoke, what came through was not frustration but opportunity. Every offer, every vertical runs into bumps, and this one which has impacted just about every major online payday loan offer, means no one has a definitive advantage. It’s also a lesson about making money too easily and not offering value to the consumer, as was the case with Edebitpay. It’s one thing to simply collect data, but another completely when you bill customers money, often money they don’t have. The cards will rebound rather quickly, and payday loans will continue to thrive. In the interim, we can probably expect others who have now realized the value of squeezing out every last penny to do so more aggressively in other areas.

September 24, 2007 in Lead Generation | Permalink | 0 Comments | TrackBack (0)

LeadsCon, April 2 - 4, 2008

I have a few posts I'm working on getting ready, one in particular that I like on the mortgage lead generation supply and demand where I would appreciate your thoughts. In the meantime, I thought I would answer the most common question I've received, namely, what will I be doing.

In a nutshell: Online Lead Generation has grown into a multi-billion dollar industry, but there is no show focusing on the needs of those in the space. That's what LeadsCon, the first conference and expo for the online lead generation industry, looks to change. On April 2 - 4, at The Palms in Las Vegas, LeadsCon will be bringing together some of the best minds in the lead generation space for learning, collaborating, networking, and having a good time.

It's worth noting that in the time that I've wanted to play a part in organizing an industry wide event (almost two years now), two other shows have gotten the ball rolling and shown why this one can be such a great success - the upcoming TargusInfo Online Lead Quality Summit and the just completed, intimate, primarily mortgage lead gen focused Leads2007.

Have ideas on what you'd like to see covered at the show? Want to sponsor and/or secure a booth? Would you like to be a part of the group that puts this on? Write to: jay (at) leadscon.com. The site will be up in two weeks or so, but I couldn't help but share in the meantime.

January 10, 2008 - It was a long two weeks, but please check out www.leadscon.com. I will post a separate update shortly.

September 04, 2007 in Lead Generation | Permalink | 0 Comments | TrackBack (0)

Thanks for the warm welcome

My sincerest thanks to those who commented and/or wrote me regarding this blog's return. One comment in particular struck me. "Seosnafu" wrote, "Can you post any ideas for upcoming posts? Taking requests? :)
"

While it's fun to think of things to share, I enjoy most answering something that I know at least one person wants to read. I encourage anyone who thinks I might have something to add on a topic about which they'd like to read to send it my way. In other words, requests are more than welcome.

Over the past nine months or so that I have not publicly posted, I have written some pieces. I plan on updating the blog with some of them. Below is one discussing a deal announced earlier this month between Apollo Group and Aptimus, a deal that doesn't seem to solve any of Apollo's problems or cover for areas in which Advertising.com (the current exclusive distributor) lacked.

In February of 2006, University of Phoenix shook up the lead generation space by forming an exclusive partnership with Advertising.com.  This meant that any company that produced leads or wanted to produce leads for University of Phoenix had to go through Advertising.com. Most of us first learned of the deal a few days after its closure when parent company Apollo Group's President Brian Mueller announced it as part of a turn around strategy to lower their cost per enrollment. Phoenix wasn't the first for-profit education company to outsource its online marketing. Whole companies exist to offer this service, including Datamark, CUNet, along with agencies such as Avenue A / Razorfish who has for years managed all of Capella's lead buying. Few might have expected University of Phoenix to follow that route given their comfort and early leadership role in the space. Similarly, few would have predicted them to choose Advertising.com or that Advertising.com would even consider such a deal as it required them to stop doing business with all other education companies.

Those inside the lead generation space, namely those generating the leads for institutions such as University of Phoenix, found the deal even more surprising, if not alarming. Some of the larger ones had an idea that Phoenix wanted a unique partnership, but those making the best candidates didn't want to lose 60% to 80% of their existing revenue as Phoenix sought exclusivity; those that could drop everything for Phoenix generally didn't have the technology and expertise to add the value the number one education player wanted. As education wasn't core to Advertising.com's business, they were in a position to make that bet and align themselves with University of Phoenix even at the risk of disappointing their other major spenders such as Career Education Corporations' AIU Online. This explains the logic but not the alarming piece. The deal unsettled those providing the leads because unlike Datamark or the better example, Avenue A / Razorfish, Advertising looked more like a competitor than a vendor management firm.

Unlike Avenue A / Razorfish Advertsing.com had access to inventory, lots of it, along with a skilled media buying team and contacts at every major inventory source. In addition, it had search technology and handled some large clients campaigns, ones that required Advertising.com to maintain certain CPA objectives. If UOP wanted to lower their enrollment costs what better way than to funnel all activity through Advertising.com then allow Advertising.com to purchase media smarter based on the activity of the other lead providers. Fortunately, despite these concerns the past 18 months have hummed along smoothly with no major incidents or breach in trust. From the beginning of the University of Phoenix / Advertising.com deal, though, Advertising.com seemed poised to benefit the most. With last months earnings results, you might (finally) call it equally beneficial and worth continuing, But in an even more surprising turn of events than the original March 2006 exclusive partnership comes the announcement this week that Apollo has struck a deal, this time purchasing an internet advertising firm, namely the publicly traded and not profitable Aptiumus for roughly $48 million.

In the press release announcing the deal, Apollo President Brian Muller said, in a statement not all that different from the Advertising.com announcement, "This acquisition is another step to strategically position the company to best monitor, manage and control our marketing investments and brand," and that "Integrating Aptimus' technology and very experienced team into our current marketing initiatives and service center model will take us to the next level in managing student inquiries and achieving further process and cost efficiencies in new-student enrollments." Later he adds, "While the exclusive management contract with Advertising.com expires over the next several months, Apollo believes that the significant investments it has made in personnel and technology, as well as the acquisition of Aptimus, will enable the Company to efficiently and effectively manage Internet marketing internally, without any disruption." Translation, no more Advertising.com after February 2008.

I've re-read Muller's statements a few times, but I'm still a little confused by the purchase. Last year, we hinted that it might make sense for an institution like Apollo to not just partner but to acquire. From that perspective, it makes sense. But, Aptimus? According to their CEO Rob Wrubel, "This is a significant opportunity to deliver our business vision to one of the most important education companies in the market, improving their ability to reach new students." I guess he speaks of new students via-coregistration as that is Aptimus' business to date. And, if I were to buy a company, I might buy one that actually made money. Aptimus lost money last year, and they earned all of last year what Azoogle earns per month. Not only did they lose money, but they saw no top line growth year over year, most likely attributed to their exiting the incentive space. Perhaps in the end, Apollo will pay close to $50 million for people and tracking. They have eighteen months of information and process expertise from Advertising that they can port over to the Aptimus team. We'll see if this move turns out to be penny wise and pound foolish as it looks like a way to avoid paying commission to Advertising.com, which surely equals about $50 million per year.

August 24, 2007 in Lead Generation, M&A | Permalink | 0 Comments | TrackBack (0)

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