New Verticals – The Lead Gen Chicken and Egg

It’s not as though we don’t spend enough time thinking about the lead gen world. Writing about it, though, has us thinking of it even more. This, in addition to the countless conversations we have during the week with companies related to the space. In so many of those, one question comes up almost more than any other. What’s the next vertical? As we’ve mentioned before, the answer it turned out was online to offline as exemplified by the deal space. As for the other verticals, auto insurance wasn’t a super obvious candidate, but its continued momentum proved that it had legs starting a little more than two years ago. Senior care is hot in many people’s minds, but the market has a long way to go despite the favorable economics. Still, there are a lot of companies that need customers. Why then don’t we see more lead gen verticals and offers?

Lifetime Value
One of the long-standing components to most lead gen categories is a higher lifetime value. Auto insurance has a relatively low lifetime value, not the 1000’s of dollars per new customer allocated to earlier verticals like mortgage and education. Auto and the deal space is proving that you don’t need the largest lifetime value to create large lead gen verticals. It is certainly important. Pepsi will be tough to do traditional lead gen, the same is true of q-tips. You just don’t spend enough, but for a holding company like S.C. Johnson who makes many household goods, it could work as you want to influence ongoing consumer behavior.

Coverage – Local vs. Nationwide
In the heyday of mortgage and in the early days of education, all it took were a handful of relationships and almost anyone could start a lead gen site. As most people know, coverage is key; namely, if you generate a lead does a buyer exist to purchase it? Generating leads that cost media dollars doesn’t mean much if you can’t sell them. Generating leads is also much easier when you have someone to sell them to who has the coverage. Groupon is another good example here. They have coverage, but it took a lot of time and a lot of money. Before they decided to go big, they had the luxury of picking one market with a handful of places. That gave them enough of a buyer base to work on getting the first several thousand potential customers. We suspect that their early growth mirrored a site we heard about not long ago that was on track to do six hundred thousand for its one mid-size market. Perhaps not huge, but enough to support a modest team with modest overhead. Replicating that across other cities without money would take a lot of time, and/or not be possible. This is the quandary for many who want to build new verticals. It takes a lot of work to create coverage. And that alone doesn’t mean enough. Because…

Sales Culture
Mortgage and education did and have done well for many reasons, lifetime value and coverage being one. It helps that most decisions are researched online, transacted offline and apply to a large percentage of the population. Arguably, one of the biggest reasons for their success comes from a buyer culture that knows what to do with leads. That is one of the things that took insurance so long. The companies weren’t used to dialing. They wanted to have the phone ring. In lead gen, while that is possible, it isn’t as scalable as providing information on an interested consumer. The same is true for the senior care space. Those who work at the properties, even those places that are part of bigger chains, rarely have existing processes for effectively handling leads. While they need customers and want them, their operations structure evolved out of one where the phone rings and people walk through the door.

Unless an industry has it in their DNA or deliberately begins with an outbound culture, it takes an enormous amount of time. You can succeed in getting buyers, but keeping them becomes very difficult. They buy leads and then stop buying. They complain about not getting in touch but neglect to mention how they didn’t call for days. Or, they get in touch but close a lower percentage than if someone was to walk in the venue. It’s still wildly profitable, but they don’t have a basis for comparison. Overcoming these beliefs with a handful of buyers is challenging. Imagine having to train a long-tail of hundreds or thousands.

Peter Thiel Approach?
Peter Thiel made headlines for his giving $100,000 to 20 late high school / early college age students to drop out and start companies. Not chump change, but it’s less than he makes in one month off his interest alone. As a model, though, it’s compelling, and I almost wish that the marketing firms in our space got together to create a pool of funds for those willing to go create a buyer network. Then, when ready, the marketers would do their magic and scale the businesses with those contributing funds getting first access. This way, though, the creation of the buyer pool doesn’t drain on day to day business operations. If it pays off, amazing. If it doesn’t, the investment wouldn’t have been that great.