Lead Exchange: The Future of Lead Generation?

Our CEO, Marc Diana, participated in a discussion on the future of Lead Exchanges moderated by James Cham of Bessemer Venture Partners. Additional panelist included Anik Gagnuly, Board Member of Detroit Trading, Payam Zamani, CEO of Reply! Inc., and Keith Moore, Senior Vice President of Tree.com.

In starting off the panel, James asked each panelist to explain their company’s business model and the verticals they worked it. LendingTree replied that they were mostly mortgage but given the state of the mortgage industry they were branching out into areas such as loan modification. Reply and Detroit both said that they did the majority of their business in the auto sector. Marc explained that while LeadPoint began in mortgage, it has increasingly become a technology platform serving multiple verticals including Credit Card Debt, Education and Tax Debt. As a platform, the company is able to quickly support new emerging verticals.

Additional questions raised by the moderator included the following:

1. How do Lead Exchanges differ from Lead Aggregators?
2. What are the factors critical to the success of a Lead Exchange and what factors do you want to avoid?
3. What are the factors that may be preventing lead buyers from working with your exchange?
4. Is your exchange currently growing and what are your growth projections for 2009?

How do Lead Exchanges differ from Lead Aggregators?

In explaining LeadPoint’s business model, Marc explained that to succeed as a true exchange a company must earn the trust of both its buyers and sellers. To do this, it must act as an impartial intermediary between the buyer and seller, not favoring one over the other. It is important that both sides receive equal value for their efforts in a sales transaction. Reply CEO, Payam, added to this that exchanges provide dynamic pricing that enables every lead to sell. This liquidity ultimately helps provide sellers with greater overall payouts and provides buyers with greater value in pricing. Anik with Detroit Trading also noted that exchanges helped sellers by providing a single outlet for their leads and eliminated the hassles of having to collect monthly payments from numerous sources.

What are the factors critical to the success of a Lead Exchange and what factors do you want to avoid?

Marc discussed that quality and impartiality was critical to LeadPoint’s success. He discussed the company’s recent launch of the LeadClass Quality System which benefits buyers by enabling them to optimize their marketing spend by selecting the quality and price that best suits their operational needs and rewards top direct marketers with the true market value of their leads. The one thing Marc wanted to avoid was competing against sellers by having LeadPoint generate its own leads. Marc explained that if LeadPoint were to generate its own leads, it would no longer be a nonpartisan company and would go in direct competition with its sellers. Marc referenced his experience with LowerMyBills where he was one of the original employees who helped found the company. He explained that when a company generates its own leads it has an incentive to monetize the investment. This may lead to a preference of its leads over those of their sellers. Additionally, it may also adversely impact buyers as the company may push their internally generated leads on to buyers when it is not necessarily in their best interest.

Payam said that their success was derived from market liquidity and disagreed with Marc’s assertions (Reply generates their own leads). According to Payam, when a company generates its own leads within a vertical they have a more vested interest in the success of the vertical and are thus able to get it to a point of critical mass.

Keith with LendingTree said that their biggest success was building a brand with consumers. By delivering on the consumer expectation, consumers trust LendingTree and this enables them to deliver interested leads to their buyers. Keith stated that their biggest obstacle was predicting demand (Tree.com like Reply generates their own leads).

Anik with Detroit agreed with Marc that it was critical for an exchange to be a neutral third-party. As part of the duties of being a neutral party, Anik said it was critical for an exchange to provide transparency to both buyers and sellers.

What are the factors that may be preventing lead buyers from working with your exchange?

Keith said that non-Internet generated leads were their biggest competitor and that there was some understanding of how to work an Internet lead that prevented some customers from using their services. Overall, the strength of the LendingTree brand helped as many people are aware of how they generate leads.

Anik with Detroit said that sellers have the greatest reason to want to use exchanges as it allows them to reach many customers. More customers lead to greater demand and greater demand leads to higher overall prices for leads. Anik said that buyers have some skepticism of exchanges as they perceive they have less control in ruling out fraudulent leads. In fact, Anik says that fraud is something exchanges must pay close attention to as it has the potential to collapse a market. Overall, Anik feels that Lead Exchanges provide the greatest opportunity to provide buyers with exactly what they want as the diversity of sellers provides greater diversity in leads.

Payam commented that he agreed with Anik that an underlying buyer objection to Internet leads was that they did not trusting the quality of lead traffic.

Marc also agreed with Anik’s comment over buyers concern with quality and pointed out that this was the impetus for creating LeadClass. With a market blend of leads, buyers could not control the quality they received. However, with LeadClass now they are able to specifically purchase by quality. Marc also mentioned that there is confusion over the exchange term in lead generation. He believes that exchange by its very nature should mean an impartial entity. He does not believe a company can be impartial when it generates its own leads and thus should not be termed an exchange.

Are you currently growing and what are your growth projections for 2009?

Both Keith and Anik mentioned that the current market conditions were negatively affecting their companies. Lendingtree noted that the decline in the mortgage industry had impacted them and led to them branching out in other products such as loan modification. Anik said that Detroit Exchange (like the city it is named after) is suffering from the devastating slow down in automobile sales. He noted that business is cyclical and they are doing their best to weather a down cycle at the moment.

Marc, on the other hand, noted that LeadPoint is growing. LeadPoint’s growth is fueled by growth in Credit Card Debt, Tax Debt, Education, Voice products, and growth in their UK division. Payam noted that Reply was also growing but was less clear on what sectors were fueling this growth.

A difference of opinion occurred between Marc and Payam who both argued that each of their companies was the biggest leads exchange. Both companies are private companies and neither discloses their revenue figures. However, as LeadPoint is the top Lead Exchange in the mortgage business, the leading exchange in credit card, tax debt, education and voice it is hard to see how Reply is of equal or greater size than LeadPoint, especially given that by their own account their largest vertical is auto. However, arguing oversize is not of great importance, as size doesn’t really matter. What buyers and sellers care about is their return on investment. With the launch of LeadClass, LeadPoint has set itself apart from any other exchange for the foreseeable future in delivering value to both its buyers and sellers.

LeadsCon Keynote Address

This morning Duke University professor, Dan Ariely, helped to launch LeadsCon activities with his key note address entitled Transforming Consumer Insights into Market Opportunities.

Professor Ariely’s talk was quite interesting and reminds us that as online marketers there are many ways people are influenced by how things are presented. Given the examples he provided, we may inadvertently not be getting the responses we anticipate because of how we are presenting our information to consumers/customers. It is our responsibility to constantly evolve and test our messaging in order to improve the results we get.

Some of the examples he discussed included:

1. People avoid making decisions when complexity is added to the decision making process
2. People can easily misinterpret information based on how information is presented
3. When people become too focused, they may inadvertently miss noticing the obvious
4. When giving people too many choices you may paralyze them from taking action
5. People’s decisions can be greatly influenced by what you include in an offering

People avoid making decisions when complexity is added to the decision making process

In showing how people avoid making decisions when adding complexity, Ariely gave an example of how citizens in countries responded to government efforts to have them donate their organs upon death. A graph was shown of various European countries with a group of countries where 0% – 25% of citizens donated organs and a group of countries where close to 100% donated organs. Ariely explained that many of these countries shared many of the same cultural backgrounds. However, what affected participation in organ donor program was “Opt-in” vs. “Opt-out” choice. Ariely argued that low participation was associated with “opt-in” programs as people are reluctant to think about what will happen to them after their death.

People can easily misinterpret information based on how information is presented

Ariely showed two images of tables and asked if one table’s diameter was greater than another table’s width. The table with the diameter was tall and thin while the other table was square. As it turned out, the diameter and the width were the same. However, the image he showed tricked the eye into believing the thin and tall table was going to have a much wider diameter.

When people become too focused, they may inadvertently miss noticing the obvious

The audience was asked to watch a short clip of two groups of people each passing a basketball. One group wore white shirts and the other group wore black shirts. Ariely asked the audience to count the number of times the white group passed the basketball and told us our financial success in life depended on accurately counting the exact number. Both groups weaved within each other as they passed the ball so that the audience had to pay close attention. After the film finished playing Ariely asked us if we had noticed the small black gorilla that was in the screen. Few people raised their hands. In replaying the clip, a man in black gorilla suit walks across the screen and waves at the audience. Something extremely noticeable, but something few people caught because we all were paying such close attention to the passing of the ball by the team in the white shirts.

When giving people too many choices you may paralyze them from taking action

Ariely cited a study in how shoppers reacted to an in-store supermarket test with jams. In one test 6 jams were sampled by customers while in the second test 24 jams were offered. At the end of each sampling, the consumers were given a coupon to purchase a jam. While the test with 24 jams generated greater consumer participation, only 3% of the customers ended up using the coupon while 30% of the consumers used the coupon in the test where only 6 jams were offered.

People’s decisions can be greatly influenced by what you include in an offering

The Economist ran an ad for its news service with the following offering for a period of time:

1. $59 for complete access to its website
2. $125 for the printed newspaper
3. $125 for the printed newspaper and access to the website

Ariely pointed out that $125 for the printed newspaper was clearly an inferior offering and should never be chose given that a consumer could also receive access to the web in option 3 at no additional cost.

In testing his students with all three options, 16% chose option 1 and 84% chose option 3. No one, understandably, chose option 2 given its inferiority. However, when Ariely removed option 2 from the equation, the results were quite different with 68% choosing option 1 and 32% option 3.