The Maturation of Online Lead-Gen

Speaking at a number of conferences lately, I’ve fielded many questions regarding “different types of online lead gen.” My response is usually to inquire what the questioner means. The answer is generally along the lines of, “Well, there’s online lead gen derived from search, banners, contextual ads, e-mail, etc.”

When writing about online lead generation, for the most part I’m referring to the point at which the consumer has reached a registration or lead form after clicking on any of the above vehicles.

A future column will touch on the various types of lead-gen drivers, because what’s getting lost in the latest reports (including the IAB’s recently released lead quality whitepaper) is the distribution element. In other words, where consumers are coming from, so online lead gen can really scale to fully benefit advertisers and Web sites.

Every once in a while, someone from outside the lead-generation world critiques the business and gets it pretty much right. The most recent example is a report from GP Bullhound, an investment banking firm. (In the spirit of full disclosure, my company, while we provided no input, is mentioned briefly and favorably in the report.)

GP estimates online lead generation will be a $1 billion-plus business globally this year, with lots of growth coming from overseas. There’s this keen observation on the first page: “Technology is becoming an increasingly important differentiation factor, and the consolidation game has started.”

This hits the nail squarely on the head. Lead gen’s early days (back in the ’80s) were characterized by lots of low-hanging advertiser fruit and scads of lead providers snapping that fruit up by all possible means. Quality wasn’t king. In fact, it barely existed in the kingdom. Even today, entry barriers into lead gen are, as GP puts it, “virtually zero.” Anyone with a computer and a business card can do it. Of course, nothing truly good is easily done or lasts forever. “Due to the flood of companies entering this market… the affiliate networks model is having its challenges,” the report notes with great understatement.

The report makes the case:

Advertisers will many times have poor insight into where leads are ultimately generated due to the often large number of middlemen who “re-sell” leads through chains of affiliates. Whereas primary concerns are around negative brand association, advertisers are also learning that the 80/20 rule strongly applies to affiliate networks where a small number of affiliates generate the vast majority of leads and, as a result, customers. A reverse discount model also applies where lead acquirers will pay more per lead to companies that can generate large quantities due to benefits such as lower costs of quality assessment and administration. This is driving companies to contract directly with a small number of established lead generators outside affiliate networks.

This is where differentiation via advanced technology enables the better lead-gen players to rise to the top, because the key to producing top-quality leads at good prices is required to, as the report notes, “optimize matching and relevance for individual campaigns.”

Hence the better mousetrap. What we’re now seeing is the lead-gen market winnowing out those companies that have spent time and money building their own technology and database assets. A key aspect is scalability, which I’ll cover more in-depth later.

GP’s report also documents ongoing consolidation among lead-gen providers, particularly the affiliate networks. The big are getting bigger and the small are disappearing, either through acquisition or failure. There’s AOL’s recent $900 million purchase of Swedish firm TradeDoubler, which offers lead gen alongside other online advertising solutions. And of course there’s Google, “which has announced that it wants to develop pay-per-lead technology,” according to the report.

Just what we need, another Google venture! Perhaps Google should get into some really interesting businesses like, say, manufacturing automobiles or running an airline. Then we’d all be safe… for a while.

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