Digital Thoughts - Making of a Market

Making of a Market - Part 1

by Editor

If someone were compiling a list of major milestones in performance-based online advertising, the rise of mortgage ads and the equivalent prevalence in incentive advertising would certainly make the list. Neither, though, happened by accident. It took a series of factors to fall into place, and with both, the underlying factors enabling their ascension had nothing to do with their particular field and everything to do with the broader economy. If we look at mortgage, during the time LowerMyBills cracked the code for mortgage lead generation, interest rates for homes had plummeted as a means to stimulate growth. People didn't have money, but a lot of them did have homes, and lower rates meant home owners could, in effect, lower their mortgage and have cash on hand to spend. The downside of the transaction meant a longer loan term depending on what they borrowed, but for most, extra payments was a small price to pay for paying less each month and the opportunity to purchase or pay off other debts. In the earlier part of this decade as the boom began, you had what we've previously described as the perfect storm - a large percentage of users who could convert (key for a run of network style ad), a high dollar value per successful conversion (necessary for a decent payout per lead), and an excess of inventory in which to advertise (which meant low prices). Today of course, we have a low percentage of users who could convert, a decent but not as high value per conversion, and a much more competitive ad landscape, all of which helps explain why mortgage ads do not run with the same frequency and success. Without leverage, often through technology, those trying to operate in this field can't. The same held true for incentive advertising.

Incentive advertising on display took off because, like mortgage, it made for an incredible run of network campaign. The dollar per successful conversion paled in comparison, but the appeal of the banners and ease of conversion helped to compensate, and the something for nothing nature of the ads captivated an even larger audience. The key driver here paralleled the rise of mortgage - the glut of inventory that existed from the rapid pull back in ad spending but only increasing supply of ad space. Thanks to a host of factors, including regulation, burn out, and site restrictions, we see fewer incentive ads, but the primary driver that led to the decreased spending came not from anything that the incentive sites did wrong but the increase in robustnesses of the overall ad market. With much of the inventory previously occupied by them now costing multiples more, they became priced out of the market, and in some ways the decline of these soaker ads makes for a good proxy on overall ad health. Ringtones on the other hand didn't benefit from any economic advantage that propelled their success. Instead, they inadvertently solved a problem that came to prominence as social network inventory generated the higher percentage of text and display impressions. Ringtones and other mobile subscription marketing found a way to monetize a younger audience who, without a credit card, fell outside the realm of traditional soaker campaigns like Classmates and mortgage. The solution - charge the parents by having the kids sign-up. It wasn't intentional, only reactionary with companies pumping up the spend once they saw it working.

When thinking about the economically driven ad markets, such as mortgage, what we often forget is the time it took for the industry to hit scale, or in this case mobilize (no reference to mobile marketing intended). The lag between economic opportunity and, in this case, customer acquisition opportunity didn't happen in unison. Had the economic stimulus not lasted as long as it did, we might have missed or seen a much smaller mortgage lead generation market. This matters because we are entering the very beginning stages of a similar opportunity that has no first mover equivalent of LowerMyBills. This market deals indirectly with mortgage as it first sprung to life during the subprime meltdown. Being better versed in the economics of performance marketing than the economics of lending, those stronger in the latter might find this summary slightly lacking but hopefully on target. As we understand it, institutions who lend money, must keep a certain percentage of cash on hand to cover potential losses from lending. As they lend more, and especially as the risk for bad debt increases, companies must scramble to accumulate cash as part of the law. This started to happen with companies like Countrywide as subprime loans started to sour, forcing them to focus on their consumer banking side. They needed fresh deposits to help with their debt issue, and they were willing to offer incentives in the process. Read between the lines, and it equals opportunity - a big institution looking for new customers, offering. Unfortunately, the opportunity to drive new banking customers dried up before ever launching as the companies simply imploded rather than solving the cash need. Fast forward nine months and the situation has returned, this time with some of the best known names in consumer lending - Chase, Capital One, Citibank, and just about anyone else who lends money.

Instead of debt related to housing driving the need for cash, credit card debt due to spending has had analysts who follow these big lenders point out that they need cash, and badly. It wasn't until a talk with a similar analyst covering our sector that this market came to light. It just so happens that one of the bellwether sites for financial ad spending reported that an area typically not its strongest started to outperform (i.e., see higher CPMs from advertisers) than its typical category leader. That growth category just happened to be deposits. Banks need people to put money with them and they will pay those in the customer acquisition arena rather handsomely. That has caused some people not directly tied to the lead market but familiar with the success of many lead firms to wonder whether a business exists. Big buyers, a potential desperate need by those buyers, a wide audience, it could just work, or could it? That's what we'll tackle in Part 2.

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