Birth of a Marketplace

To balance out this week’s Digital Thoughts, where we look at the incredibly non-direct marketing world of MySpace and YouTube, in this week’s Trends Report, we focus closer to our roots by looking at a company that has come a long way from where it started, and in a good way, has plenty of room to grow. The company now operates in the fairly established vertical of auto loans, and those behind it have a long history in both the automotive and internet automotive industries. As an unintentional sign of their authenticity, they are even located in Detroit. I remember the first time I saw their name – Detroit Trading Company – I couldn’t understand the name. I thought of baseball cards not an Internet shop. In fact, I think it took ten emails from someone over there before I started to actually pay attention. Their story is one of my obstinance and the value of brand.

As we’ve covered before, lead marketplaces immerged as one of the bigger trends in 2006. There aren’t many, but in some ways that make sense. There aren’t many eBay’s for consumer goods. It takes a certain size and scale before becoming a marketplace can occur, or at least be considered a success. Leadpoint is among the best known and most successful such marketplaces. They started as a marketplace with the mission of changing the way leads are bought and sold. They focused on mortgage refinance leads first, and in many respects they have made considerable progress on reaching their goal. They, of course, want to be the place where leads are bought and sold, regardless of the buyer and seller. They want to be the technology layer that matches up buyers and sellers, placing the right lead with the right buyer. As a marketplace, they offer greater transparency to affiliates (the lead sellers) and pass along a greater percentage of the revenue from the lead buyers. Equally important, at least in the eyes of traffic owners, a marketplace shouldn’t compete for traffic. Like eBay, their job is to bring two sides together more efficiently. They should hold no inventory; in other words, eBay should not try and sell items, only its users should. Lead marketplaces often have an offer you can run, but they are best leveraged by those who want to create their own look and feel and use them as the clearing house.
 
Marketplaces act like outsourced sales forces for those with traffic. They work well for lead types with a lot of complexity where one size, i.e. one buyer does not fit all. They also work well for lead areas with a high barrier to entry for obtaining relationships with buyers and/or where buyers have tried to limit the number of relationships with which they deal. Marketplaces like Leadpoint, become the trusted clearing house for leads, enabling consolidation, and ultimately yielding higher prices and more leads sold. If you have a lead to sell, and you don’t have the time and resources to invest in a sales force that can go after the necessary direct relationships, let alone build the routing and interfaces for the buyers, you now have the option to let someone else handle that but let you retain all the design and brand control you would have with your own sales force. That is really the big difference. By selling to a marketplace, you gain liquidity without sacrificing any traffic channels you have – be it direct buying or through affiliates. This is what Detroit Trading Company has proven.

Detroit Trading Company began in early 2004 with three people – Don Campbell, John Campbell and Pete Bonner. They knew from the beginning that they wanted to help connect buyers and sellers without being a buyer or seller of leads themselves. Unlike Leadpoint though, Detroit Trading Company looked more Detroit than Trading Company. Situated in Michigan, they didn’t have the influences of the Bay Area or the connections found in Silicon Alley. Internet marketing, the way we often think of it, didn’t seem to be in their blood, and that explains in part why it took me longer than it should to understand what they did and appreciate their accomplishment. They haven’t changed their mission since early 2004, but how they fulfill that mission which has evolved greatly. 

For those that have worked with Leadpoint, imagine having to sign a contract with every single buyer of leads. Instead of signing one contract with the marketplace and their absorbing all the backend administrative hassles, a publisher / affiliate had to sign ten, even twenty insertion orders. Seems crazy, but if your DNA is more Detroit than internet, such an arrangement makes sense, at least in the beginning. Give the guys at Detroit Trading Company credit, because they recognized the scalability limits in this model and moved towards a unified platform. They replaced the “old” system, where each buyer had its own “trading agreement” that needed to be accepted/signed by all sellers, with one master agreement that all sellers and buyers sign. Additionally, the new system offers dynamic, real-time pricing in which the buyers can alter pricing based on current market conditions. Previously, all pricing was “static” with all changes requiring the appropriate documentation (paperwork), making short-term price adjustments very difficult to implement. Again, for those of us used to working with networks, such an arrangement seems ridiculous. The same holds true for billing. They handle all aspects of accounts receivable and payable. It’s an area that those running internet offers have come to expect. Blame the Azoogle’s of the world here. They pay out often faster than they take in money, and if clients play hard to pay, the publisher never knows. 

Looking at them today, Detroit Trading company resembles any of the best internet lead companies. Do what I have done, i.e. point out the differences in mindset and experience between them and other lead companies and you don’t do Detroit Trading Company Justice. With a current staff that totals all of 12 people, they have no debt and have grown entirely organically. In their first month of business in 2004, they facilitated $100 worth of lead transactions. Today, they facilitate upwards of $2 million monthly lead transactions. From less than one hundred leads per month, they have hit 200,000, and it’s their platform powering some of the best known auto loans offers. Didn’t know that? That’s exactly the point. The company might not have begun in fashion we are used to, but they do their job and enable those in our space as well as any.