Making of a Market – Part 2

In Part 1 of "Making of a Market," we cover the historical setting that paved the way for some of the more significant, or at least pervasive, online advertising segments, including mortgage and incentive marketing. In both mortgage lead generation and incentive marketing, one of their keys to success had less to do with an improvement in their business models and more to do with the broader economic environment. With respect to mortgage, if it weren’t for the gap between supply (number of people with higher rates) and demand (loan officers who could make money aiding in the refinance), it wouldn’t have dominated the online landscape the way that it did. All of which leads us to potential opportunity that might exist in the deposit business, i.e. the business of getting consumers to fund a bank account, certificate of deposit or other banking instrument. On the outside, it certainly looks at least interesting. The question on people’s minds, does that demand from the companies seeking new customers translate into a business that those who understand online media can leverage to become the next LowerMyBills?

· Time frame / Stability – While quite a few companies today wish they could pull out completely from mortgage, the frothy market lasted for years. A new marketing opportunity might seem incredible, but before committing resources, we would want to understand how likely this scenario would last. With respect to deposits, the companies might need new cash now, but does that current need translate into a need likely to exist for years, or will we see a similar implosion such as that with subprime that negates the urgency of the need? Here too, one of the driving factors seems to work against the desirability of a customer acquisition business, the interest rates. In order to spur economic activity, the federal reserve has lowered rates recently, and the lowering of rates means that banks offer a lower interest rate to consumers. From a marketing standpoint, the lower interest rates makes a conversion less likely.

· Buy-side Mobilization – During the refinance boom, rates dropped enough to create a wide segment of potential customers for refinance capable institutions by 2002, but companies in the space didn’t see their highest returns until 2005. As we touched on previously, a lag exists between when the opportunity starts and when those servicing it can see returns. It’s the complementary side to the time frame. In considering the deposit market, the question we’d ask is how ready are the buyers, how truly ready are they to take volume. They might spend on a few sites, but if companies could generate leads for them, do they have the infrastructure in place to take those leads and turn them into new customers? Perhaps they only have the ability to purchase on CPM or CPC today; maybe they don’t have experience in performance-based or as one industry entrepreneur refers to as qualitative marketing. Once they make up their mind on how they could pay and their commitment to paying a certain way, how long will it take, and will that time fall within the overall time available?

· Tracking – The simplicity of the action made running and managing refinance and incentive offers easy. The buyers became conditioned to pay for data regardless of the actual performance and despite the fact that in many cases, it took a considerable amount of time before those buying the data could determine the true profitability of it. Focusing ourselves on the deposit market, in addition to mobilization of the buyers, a big unknown exists on how those attempting to generate new customers would get paid. Would the market parallel refinance or would it look more like the credit card market where instead of the application being the revenue event for the marketer, the usage of the card is. For this market, would the marketer receive compensation upon submit or upon funding, and do the companies have the mechanisms in place to report on that data?

· Media Competitiveness and Coverage – If we think again to the mortgage market or to incentive marketing, they excelled because they performed, that is they did better than a vast majority of the other alternatives. Sure, it didn’t help that not a whole lot of other alternatives existed, but that doesn’t take away the basic requirement that any new ad perform above a certain number of others in order to receive distribution. As a surfer who pays a little bit more attention to ads than the average, I can recall seeing ads for ING and ETrade looking to acquire new deposits, but neither company has cracked the ubiquity of other performance ads and still runs on finite placements. Unlike refinance, most of these companies have national footprints so that a potential aggregator wouldn’t need to amass hundreds of buyers in order to launch a campaign, the way you might in home remodeling. The coverage issue helps, but it doesn’t seem to make the pitch any more appealing, which brings us to our next point.

· Userbase and CPA – Among the most important questions is just how large the potential audience is and what will it take for them to do the desired action. Put your hard earned money here doesn’t quite have the curb appeal as a potentially free product or lowering a monthly pain point like one’s mortgage payment. The other issue with deposits comes from the fact that the reason for this offer in the first place has to do with people being in debt, and this offer is looking for people to put money they don’t really have saved into an account. The fiscally responsible ones don’t make up a large percentage of the surfers, and they certainly don’t represent the audience known for clicking on ads. It’s like a Catch-22 or circular argument and helps to explain why it might remain a high paying offer in a narrow band of online inventory.

What do you think? The next big thing or the next thing on which to pass?