ValueClick Not Only Company in Lead Gen Scrutiny

Insiders say ValueClick isn’t the only firm under scrutiny for its lead generation practices. At a conference in New York yesterday, an Internet industry stock analyst familiar with several firms in the lead gen space said another unnamed firm already has settled with the Federal Trade Commission as a result of an investigation into its lead generation practices. In addition, the analyst indicated other lead generation services as well as advertisers using such services have been subpoenaed, or spoken to lawyers regarding potential legal issues surrounding such marketing practices.

Possible regulations requiring an end to practices employing controversial incentive-based marketing efforts, could leave some lead gen firms “profitless,” said Jordan Rohan, managing director of US Equity Research at RBC Capital Markets.

The analyst said he knows of “at least one” private company that has settled out of court with the FTC over its lead generation practices, and added he’s been contacted by “dozens of industry execs” and spoken to lawyers involved with “at least 12 different companies” regarding such practices. Added Rohan, “advertisers have been subpoenaed for information” regarding their lead generation marketing efforts.

Panelist Leonard Gordon, acting assistant regional director at the FTC, did not confirm or deny whether the commission is investigating other companies in addition to ValueClick, which announced officially in May its incentive-oriented lead generation services are under investigation by the regulatory body.

Industry watchers on the panel at yesterday’s OMMA conference suggested the FTC’s investigation of ValueClick could drag on for some time since the firm has the financial and legal support to vigorously fight the commission.

A source close to the investigation of ValueClick who asked to remain anonymous told ClickZ News, “The perception is ValueClick is under investigation for its lead generation practices when in reality the lead generation industry is under investigation for its promotional advertising practices.”

Indeed, what the FTC seems most concerned with in regards to lead generation services are what Gordon referred to as, “generally deceptive misleading online campaigns that start with ‘win a free iPod’ [or other promises of free giveaways]… that can sometimes give online lead generation and online marketing a bad name.”

“I’ve even seen lead generation companies that can’t fulfill [an advertiser request for a certain number of leads]… turn to third parties that do more aggressive things,” such as garnering consumer names and personal contact information through incentive-based efforts, said Rohan. He believes the sale of personally-identifiable information (PII) “runs pretty rampant in the lead generation space,” contributing to a substantial portion of revenue.

If, as a result of potential litigation or regulatory penalties, lead generation companies can no longer collect money from incentive-based lead generation e-mails or PII data sales, Rohan estimated they could lose 40 percent of their revenues. Because he believes such firms’ profit margins are around 40 percent, “removal can render them profitless,” he continued.

Panelists, including the FTC’s Gordon, also discussed the possibility of advertisers coming under fire for engaging in unscrupulous lead generation efforts, suggesting they could make for likely lawsuit or investigation targets because they tend to have larger coffers than tech companies and other firms supplying lead gen services.

Dan Felter, CEO of lead gen firm Opt-Intelligence, board chairman of Online Lead Generation Association (OLGA) and a ClickZ columnist, also suggested punishing publishers that run offending lead gen ads on their sites, such as MySpace, could also help stave off bad players. “If you choke off the distribution, you choke off the problem,” he said.

In the end, said Gordon, self-regulation could be the most successful means of ridding the lead generation industry of its negative reputation. “Litigation and investigations are a cumbersome tool; they don’t have [reliable] results,” he added.

Self-regulation is a ways away. OLGA has begun putting together its own set of standards and best practices for lead generation campaigns, picking up where some panelists believe the Interactive Advertising Bureau has been largely unsuccessful. According to Rohan, the IAB’s lead generation standards are “too broad and not specific enough.” He suggested best practices should require advertisers to conduct post-conversion tracking, taking note when certain lead sources result in “a very high rate of [consumer lead] churn.”

Information such as names of sites and advertisers that might contact consumers who sign up through lead generation campaigns should not be buried in privacy policies either, added Felter.

The FTC expects “very clear, very conspicuous disclosures” when advertisers are collecting PII, said Gordon. Lead generation services and advertisers “need to take serious precautions to make sure data is not lost.” Doing so, he continued, “is exposing [companies] to tremendous problems with [the FTC]” and civil litigation.

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