How Scalable Is Lead Gen?

In my Last column, I wrote about the state of lead generation and where I thought it would be a year or 18 months from now. My column was focused on cleaning up the space and some other assorted thoughts about best practices. I received a lot of comments, the most common of which was, “Where do you actually see lead generation heading from a scale perspective?”

This is a great question. Just how big can online lead generation get? All online direct response is lead generation in one sense or another. Search enjoys the lion’s share of the mix of online lead collection methods. But take search out, and online lead generation has only a small piece of the overall marketing pie.

I’m going to focus on that piece today. We’ve seen some shakeouts in the last year. Most companies don’t go near opt-outs or just “sling” data any more. MetaRewards shut down apparently for fear of regulatory repercussions. (My instincts tell me it was also because of the watered-down quality of advertisers’ leads, but that’s unconfirmed.)

For what it’s worth, those pieces drove a significant amount of ad dollars, and on aggregate a good chunk of those dollars have been replaced by the microsites that continue to pop up all over the place. But how scalable are those? In this space, the margins are already being squeezed, and unless it’s done very well, the lead quality is horrible. So a lot of companies just keep churning and burning advertisers. Not exactly what I’d call a scalable model.

The key to scale is lead generation tying itself to direct response. If I pay $10 a lead and my allowable is $50, do I get one in five to be a paying customer? Let’s say I do. I’ve created a medium that generates customers within the allowable. But where do I go to get scale? If you look at search marketing, advertisers generate customers by the millions. The need for distribution is the current battle, which shows why Google would pay $2.6 billion over the last quarter or so to increase its distribution. Its customers just want more, and it’s trying to get that (I’m leaving out the branding opportunities video offers Google, that’s not my area of expertise).

The short story is online lead generation companies must find more ways to get more targeted offers in front of more eyeballs, provided they deliver leads priced out where advertisers can maintain an endless appetite. I just don’t see the growth with the free iPod, $100 of free gas, a free credit report, and so on. Some advertisers turn a blind eye to the manner in which the lead is collected in exchange for high volume, but that’s going away over the next 18 months.

How much scale online lead generation can get outside of search depends on lead providers figuring out how to generate large quantities of leads while maintaining high-quality, user-friendly experiences. Do they currently exist? On a very small level — perhaps one bite of our small piece of the online advertising pie, if you will. In the short term, lead generation will, for the most part, be dominated by the companies that figure out the “next great trick” — unless someone figures out how to scale it on a distribution level.

Nominate your favorite product or campaign for the 2006 ClickZ Marketing Excellence Awards, October 16 through close of business (EST) on October 24. Final voting begins on October 30.

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