By Sean Fenlon on April 5, 2008
LeadsCon Blog Coverage Table of Contents:
Keynote Address: Lessons from the Leaders
Thursday’s sessions began with a PowerPoint presentation from Jordan Rohan (who announced that he moved on from RBC just three weeks ago to start his own thing called Clearmeadow Partners).
It was a very detailed presentation that juxtaposed the market dynamics in the Lead Generation ecosystem in 2000-2001 to that of current day.
Jordan instantly became my hero when he addressed the misleading nature of the IAB’s reporting on Lead Generation in their breakdown of Online Advertising. IAB claims that “Lead Generation” is just $1.3 Billion in 2007. Although they call it the fastest-growing segment, I’ve seen with my onw eyes P&Ls from companies in this spaces that add up WAY beyond $1.3 Billion. Jordan accurately explained that when LowerMyBills.com buys display advertising on Yahoo! for the purpose of generating leads, that money is credited to display advertising. When Nextag buys clicks from Google with the intent of generating a lead, that money is credit to paid search marketing, and so on. Thus, Lead Generation INFLUENCES well-beyond the $1.3 Billion that the IAB reports. Thank you, Jordan. That one drives me crazy every year.
After the presentation, Jordan sat down for a fireside chat with Ed Ojdana. This format was very similar to the TARGUSinfo Summit, where Ian Smith presented and then sat down for a chat with Matt Coffin. Ed provided some wonderfully colorful insight in the timeline and strategic-insight of the acquisitions he made for Experian Interactive. He also acknowledged that he was helped significantly with those acquisition evaluations and transactions by Steve Krenzer (he had Steve raise his hand in the audience to be acknowledged). Ironically, Steve Krenzer evaluated my previous company TheLoanPage.com very closely, but ultimately decided we were too small for their scope and decided to buy LowerMyBills.com instead.
Mergers and Acquisitions, Exits, and Investment Landscape
Lou Doctor, Managing Director, Arbor Advisors, LLC
Bruce Eatroff, Partner, Halyard Capital
Chris Moore, Managing Director, Redpoint Ventures
Rick Wolfgram, Managing Director, Head of Media Investment Banking, Think Equity Partners
Having been through three rounds of venture financing with DoublePositive, including an excruciatingly painful process on our third round last year, I had asked Jay if I could sit on this panel as the voice of the entrepreneur, but Jay needed me on the Hot Transfers panel, so I grudgingly obliged.
It was painful for me to hear all the issues again as to why an investor or a buyer would NOT pull the trigger on any company in the Lead Gen ecosystem…
It’s just an arbitrage…
It doesn’t scale…
To much focus in one industry…
It’s just an execution play…
There’s no IP/it’s not defensible…
There’s too much margin compression…
I like businesses that do NOT have COGS…
And so on.
The panelists did an excellent job of pointing out that these are all valid concerns, yet they also pointed out that the biggest and the best players will overcome these objections and sell for handsome multiples. Speaking of multiples, moderator Ken Sonenclar set expectations to the audience that he would not answer the oversimplification-question “What are the multiples in this space,” arguing it has much more to do with the individual company than it does for a standard in the space.
We’ve seen plenty of lead gen companies get acquired in the 1-1.5X range, and other companies like LowerMyBills.com get acquired for over 3X their top line revenue, Lending Tree over 5X, and Nextag in the 6-10X range.
The panelists also emphasized scale (and profitability). Companies buying clicks from Google and Yahoo! and arbitraging CPC to CPA with $1M-$5M in revenue and are in one particular vertical are not particularly attractive acquisition candidates, and if they are, probably at low multiples.
It was particularly interesting to hear the comments from Bruce Eatroff if Halyard Capital, since he has become the biggest buyer in the space, in order to create the powerhouse EDU rollup with the new name Education Dynamics.
Lead Buyers’ Perspective
Moderator: Rick Natsch President at Potrero Media
Todd Davison, President of Bulldog Solutions
Jordan Drew, Chief Revenue Officer, FindaLocalAgent.com
Adam Graff, Senior Media Director, Career Ed
Chris Meerschaert, Director of Client Services, Adchemy, Inc.
This was a helpful session in the conference, since lead buyers were in the minority overall. I thought the most provocative moment occurred when a member of the audience asked Chris Meerschaert (who formerly was one of the biggest lead buyers in the mortgage industry when he was with QuickenLoans) what he knows now on the sellers’ side (with Adchemy) that he never knew from the buyers’ side.
Lessons from the Mortgage Market
Between Paul and David, there was a lot of experience to reflect back upon during this panel. That said, I don’t think the lessons learned were mortgage-specific. We continue to see the exact evolutionary process play out in non-mortgage verticals.
First early adopters come in, establish economic baselines around mortgage leads (and they’re usually great). Next, big players and big money become to pour into a space. Next, the cost of leads and media begin to go up and the conversion rates and quality begins to go down. Finally, the market goes into a frantic sequence of corrective measure. We’ve certainly seen that same process play out in EDU, and Insurance could be next.
Payam gave a nice short history of performance-based advertising from CPM to CPC to CPA. I have a slide I should’ve given to Payam that I use all the time that would’ve fit beautifully into his deck.
Proper Role of Affiliate Marketing in Lead Generation
Thomas Bruck, Vice President of Business Development, Find Your Customers, Inc.
Jeff Molander, CEO, Molander & Associates
Paul Moss, Affiliate Channel Manager at Insurance.com
Shai Pritz, CEO of Unique Leads
I’m going to oversimplify the summary here, but this was a good panel. I think the spirit from everyone is that, yes, there are still plenty of bad affiliates, and yes, there are plenty of good affiliates. What a lead generator gains by using affiliates (and thereby not having to take on CPC or CPM media buy risk) is not a free lunch. Constant mentoring and vigilance is key. Noel did a nice job of getting good audience involvement during this panel.
A good number lead generators in the audience do not sell leads per se, but rather sell traffic on a CPA or CPL basis. This panel was particularly good for them.
Understanding Lead Exchanges
Moderator: Chris Moore
I don’t know if it was discussed or not, but I hope the panel settled on a definition of an exchange. In my mind, the archetype of an online exchange is eBay. However, I keep noticing a disturbing trend of blocking the buyers’ transparency to the sellers on the exchanges (presumably to prevent circumvention?). When that occurs, is it really still an exchange? All I know is that I would never buy anything on eBay if I did not know who the seller was.
Incentive-ized Marketing – Is it More Harm than Good?
This was an excellent panel. Matt Wise and Jere Doyle were particularly compelling speakers, describing in exact detail where incentive-ized marketing fits into the ecosystem (and, oh yes, it absolutely has a place). Jere (in the past) and Matt (in the present) have worked hard with organizations like the IAB and OLGA to establish strong and literal industry standards in order to eliminate the slippery slope of shades of gray.
There was a healthy discussion amongst all the panelists regarding the nature of an incentive, and that not all incentives are created equal. I forget the exact examples, so I’ll my own (but capture the same spirit). An “incentive” for a 20% discount or a free trial of a specific product or service is a significantly different “incentive” when compared to potentially winning a plasma TV (which may be completely unrelated to the offer).
Matt Wise walked through a sample sales conversation he might have with a customer when he’s trying to determine their quality, quantity, and cost objectives. The sample customer would ask Matt to not go on ANY promotional sites. Matt would answer, OK, that’s fine, I can get you 10,000 leads at $10 per lead. The sample customer would say, “but Matt, I need 100,000 leads at $1 per lead.” Matt would say, “no problem, we can do that too,” and all of a sudden, the customer would be much more liberated to placing their offer on promotional sites.
The one thing I felt was missing was a clearer sub-categorization of what a “lead” is. During the panel, I heard at least three different categories being discussed, but they were all discussed under the umbrella of a “lead.” In the case of advertisers such as Columbia House, Net-flix, or Book-of-the-Month club, they would only pay out if an online sale (with credit card) was transacted. Guys, this is really not a “lead.” This is a Cost-per-Sale deal. Those advertisers are not going to complain about lead quality – they only pay if they made money, and that’s a beautiful thing. Another category was what I call “marketing leads.” Brands such as Pfizer, Budweiser, Nike, or Colgate may all buy marketing leads. Marketing leads are not cost-per-sale, but at the same time, they are not putting the lead into the hand of a Budweiser sales professional and have them call the consumer and sell them Budweiser. Rather, they function more like consumer registrations, and coupon offers are often congruent with these marketing leads. Even though they are not cost-per-sale (you can’t buy Budweiser online anyway ;-)), the only risk is the price per lead. There is no additional DIMENSION of risk to manage, which is absolutely the case with “Sales Leads.” Sales leads are leads that do indeed come offline and are put into the hands of a live human sales professional. Industries such as Mortgage, Debt, Insurance, Education, and Automotive buy Sales Leads. With Sales Leads, risk management extends beyond the price paid per lead, because at even at extremely low price points (i.e. $1 per lead or even less) they can become such a waste of a salesperson’s time that any sale that is made is an unprofitable, once the time of the sales person is factored into the equation. The sales persons’ time is the additional DIMENSION of risk managed.
Not surprisingly, the sales lead management industries I have mentioned have almost entirely eliminated incentive-ized lead supply channels for the exact reason I described above. However, incentive-ized lead generation of Marketing Leads and Cost-per-Sale campaigns is healthy and growing like a weed.
A theme that kept recurring is that there is no such thing as “bad leads,” but rather there is only “mis-priced leads.” By and large, I completely agree with that premise, with the exception of the Sales Leads I describe above where conceivably even $0 per lead could still be unprofitable because of the time consumed.
My good friend Rob Deichert could played many roles in this panel, but decided to take the role of the publisher (AOL/TW).
Compliance and the Legal Landscape
I’m sorry guys, but as a sales- and hyper-growth-oriented CEO, I hated this panel discussion. It’s not that I hate the spirit of compliance, quite the contrary. What I hated was the lack of rules, guidelines, and hard lines. What I heard was a lot of shades-of-gray, with lawyers tending to become extremely risk-averse based upon technicalities instead of common-sense realities.
I also did not appreciate the smug attitude towards the relationship of tele-sales to Internet (data) lead generators. One panelist who I will not mention glibly stated that “Telemarketing is a word that is NOT in our vocabulary.” What this person was failing to acknowledge is that Internet sales leads have NO VALUE unto themselves. Rather, they need to be called by the lead buyer in order to make a sale and it is THAT value that flows back downstream to Internet lead generators. I certainly do not mind deal where lead aggregators wish to feel insulated from the practices of their lead buyers, but nobody should dismiss the need for it in the ecosystem.
There was also a lot of scary discussion about how when a company believes it is doing the right thing, it could be argued from a different perspective that what the company is doing is downright evil.
We’re coming off a period of time where industry stalwarts such as ValueClick and Adteractive have been hit with heavy fines from Federal agencies, but the answer is not to fearfully handcuff deal-making and innovation with over-burdensome legal fears. Draw the lines, and tell us the rules. We’ll play by them. But don’t get upset if someone is “too close” to the hard line that has been drawn.