The Year Of The Customer
Three weeks ago, collaborator and friend Cliff Kurtzman, creator and maintainer of the wonderful Online Advertising Industry M&A Deal Flow, sent me a link to a PDF white paper created by Ken Sonenclar, Managing Director of the Digital Media & Technology Group within media investment bank DeSilva + Phillip titled, “Lead Generation: Digital Media’s Killer App?” The paper didn’t start to make the blogosphere rounds until a week or so later when posted by PaidContent.org and Greg Yardley. As Greg points out, the paper is by no means perfect, but it represents the first of its kind to gain traction. Many of us have been working in and covering the lead generation space for years, so hearing of the attention being paid to it by the outside world comes not as a surprise but as a confirmation of our efforts.
If 2003 and 2004 was the rise of the networks – beginning with the display ad networks and moving on to the cookie cutter affiliate networks – 2005 showed signs of becoming the year of customers and customer acquisition. Some of the biggest deals involved large content networks such as MySpace, About.com and IGN, but it’s those in the customer acquisition space that numbered more. The customer acquisition purchase trend began in earnest with Experian buying LowerMyBills and continued with the multi-billion dollar combined purchases of comparison shopping engines Shopping.com, Shopzilla.com, and just last month PriceGrabber.com. Last year also saw the purchases of ClassesUSA, Vente, Inc., LeadClick Media, iLead Media, eLoan, NewCars.com, and many more in the lead generation space.
Expect 2006 to pick up where 2005 left off with respect to lead generation companies being acquired or even going public. The two that I mention most often are NexTag and Quinstreet, but there are quite a few others positioned as well as positioning themselves for significant exits. Along with this consolidation, though, will come many dropping off and shifting to other areas. One check on Google for the terms “phoenix degrees,” “phoenix online,” and “online masters degrees” shows why. The online lead generation space is beyond crowded, extremely fragmented, and overlapping. More disconcerting is the fact that currently too many players exist to create a useful user experience, and that has always been the sign that change will happen regardless of whether companies want it to or not.
The lead generation market resembles the co-registration market in 2001 and 2002, and interestingly enough, many of the players that were active in co-registration are now making their living in lead generation. The reason lead generation is crowded is the, to-date, low to no barriers to enter. The fundamental pieces have always been access to traffic and monetization, i.e. lead buyers. Google has opened up access to traffic to almost anyone with a credit card, and enough affiliate options exist to get a reasonably competitive price per lead, many of these affiliate companies even allowing posting.
It was this historic ease of access that led to the overcrowding we see today. Affiliate companies have a disincentive to accept fewer affiliates, so it’s left up to the direct lead buyers and the traffic sources. The direct lead buyer who for a long time had typically not had enough quality vendors to work with have found themselves with too many. In addition, the direct lead buyers have found themselves facing increasing opacity with respect to where they get the leads. While there exists only four main sources – search, display, email, and co-registration, buyers have started to feel less distinction than they would like from Vendor X and Vendor Y.
The cleanup of the space is again left to the traffic sources, as they ultimately suffer by providing a decreasing user experience. It is in this vain that Google announced last year their affiliate policy that prevents more than one company promoting the same display URL from being seen on the same search query. And, it was lead generation in particular that led to Google’s recent landing page relevancy factor in determining bid prices. While not nearly an end-all solution, they represent a first step in attempting to create a meaningful barrier. Without easy access to traffic, fewer companies can compete online. Companies will be forced to focus on those areas under their control, such as effective PPC campaigns and landing page optimization or will have to gain in-roads on the relationship front. Each of which requires significant expertise and thus investment that it will weed out many in the space today.
Lead generation is far more fragmented than the search market, and as a result will support more than a handful of companies, but it cannot successfully support fifty companies in each vertical, which is the case today. The education space supports quite a few seven-figure monthly companies including Quinstreet, Vantage Media, ClassesUSA, Adteractive, Advertising.com, Cole & Weber/Red Cell, Platform Advertising, and eLearners, let alone the even greater number doing more than $200k per month. Those in the upper tier get their traffic from search, media buys, and/or affiliates. When one company doesn’t own seven out of the ten to twelve ad spots, then we’ll know that progress has been made. If the company that owns the six has done so without bullying the advertiser then they deserve to be where they are, but that doesn’t mean they will be immune from the relevancy changes. It only means they have helped mature the market by becoming their own barrier to entry. More barriers means better lead generation in 2006.
