In “Finding the Sweet Spot,” last week’s article on the Internet advertising acquisition landscape, we grouped the majority of activity along four main lines – lead generation, comparison shopping, content networks, and ad/affiliate networks. In addition to the four categories of activity, two companies stuck out as being candidates for a large capital event in the upcoming months. The two, NexTag and Quinstreet, may seem dissimilar at first, the former known for its comparison shopping, the latter for its lead generation business, but a closer look reveals they have one major thing in common – significant lead generation activity. They also seem to desire an exit on the high end of the current purchase spectrum, perhaps approaching the arbitrary but really exciting $1 billion mark. In this week’s Digital Thoughts, we look more closely at the lead generation space and some of the specific challenges that face lead generation companies such as edu champ Quinstreet and mortgage giant NexTag, looking to go “wide and deep” and exit big.
Surveying the lead generation landscape, one thing sticks out – that not one lead generation company plays a dominant role in more than one vertical. Some, such as Azoogle and Adteractive have done a commendable, i.e. seven figure monthly, job building large businesses in both, but neither yet ranks among the top three for either. What makes it tough for any one lead generation company to dominate more than one vertical has to do with the nature of the lead generation model. By definition the business involves three pieces - buyers of the lead data, a platform for collection and distribution of the data, and traffic. Once a company successfully scales all three for one vertical, it seems reasonable that doing so for a second vertical should take fewer resources and less work than the first time; but lead generation has yet to work that way. To better understand this we’ll look at mortgage and education, two of the biggest, most mature lead generation verticals.
Mortgage lead generation is perhaps the oldest and most established vertical. While it didn’t start out this way, today, almost all companies who sell data to mortgage banks use a standardized form. Whether you work with Countrywide or East Carolina County Bank, the data fields they receive are the same. From an aggregator’s perspective this means that they only have to design one form for their landing page. Differentiation occurs on the backend. One bank will have different criteria than the next, e.g. minimum loan value, loan to value ratio, etc. Taking on a new client though means making modifications to the database not to the design. In addition, taking on a new client generally means potential incremental revenue as the vast percentage of mortgage lead generation works on a shared model. Mortgage lead aggregators will sell a lead up to four times, something popularized by Lending Tree in their television spots. Other markets do not currently support this.
The education market, for example has, on the whole, little tolerance for shared leads. Rather than it being the norm, it’s the exception with only a handful of companies being= allowed to present more than one school to a user. Even in those rare cases, the user must still opt-in to the different schools rather than automatically being sent to up to four schools. What this means is that with mortgage, the user does not necessarily know who will get their lead upon hitting submit. Whereas, with education, the top schools all want the users to have chosen to receive information from their school. This means companies in education must build many landing pages, not just one. Each school client will have their own form, and will run lead generation campaigns for a particular school or for a quasi-portal that will drive students to a school they select.
In education, the lack of a shared lead model is primarily driven by regulation. Accreditation plays a big role in the post secondary education institutions. The governing bodies that decide this are not marketers and have pulled a school’s accreditation for choosing certain market techniques, e.g. incentivized leads. Mortgage too has strict regulations, but they differ greatly from the education space. Theirs, for instance, does not focus on how the leads were generated.
Even if the schools buying the data had greater tolerance for being promoted along side others, the variation in their forms makes it difficult. Unlike mortgage, it’s not as simple as asking for first name, last name, etc. and focusing on whether the buyer knows it as “fname” or “first_name.” With education, you also have different buyers having not just different names for the variables but you have very little consistency in which form fields they want. Were you to take four different schools and try to create one single form, instead of the 12 fields needed for one, you would end up with a total of 30 so that each school could collect the information they needed. This variation in data makes it very difficult not only to manage education well but extremely challenging to build a unified lead platform for multiple verticals. Ideally, you would want one comprehensive set of fields on the backend. Executing on that strategy means you wind up with an ever growing list that becomes a bear to standardize.
To compound the challenge of cross-vertical dominance, traffic acts differently. NexTag has had great success with mortgage but not with education. Quinstreet has rocked portions of the education segment but has not done well in mortgage. Both companies have extensive media buying prowess, ample technology talent, and an existing track record of executing. What we see though is that ultimately, the specific needs of the data buyers from field information to buying model to regulations impacted their operations combined with the challenges of building a unified lead platform and difficulty in mastering the specifics of traffic in each vertical, mean that moving from one vertical to the next is a multiple of prior effort not a fraction. It seems that moving into a new vertical would be easy, but it really isn’t. Instead, it really is like building a new business from scratch. Will someone figure out how to rule more than one category? Of course, and one or two companies are getting close. Just don’t assume that because you do well in one you will do as well in another.
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