DM News' Essential Guide to Interactive Marketing Technology: Lead Generation: Stunning Growth in 2005
Companies that slash their clients' marketing outlays by delivering qualified prospects at a reasonable cost blossomed across the Internet in 2005. Business to business or business to consumer, product or service, it made little difference. The Web seems crafted as the supreme lead generator.
It's impossible to say precisely when the Internet first was recognized as an incomparable mechanism for unearthing new customers. Each of the hundreds of online lead-generation firms is unique, with its own twist on building customer traffic, gaining client listings, balancing organic and paid search, partnering with complementary (and sometimes competitive) sites, managing keyword spending and charging for its service.
Click below for a chart of 2005's Top Lead-Generation Deals
Usually, the largest operating expense arises from driving traffic to the lead-gen sites. Strategies for managing sometimes massive numbers of keywords on the major search engines often make or break a firm. Beyond that, consumer sites may turn to traditional media to boost marketing, sometimes coining catchphrases - "When banks compete, you win" - along the way. Sites also may rely on e-mail newsletters and the promotional help of partners (often BTB publishers' sites) to enlarge their audience.
Like many aspects of the Internet, from retailing to blogging to aggregating the news, it is possible to set up a lead-gen site on a dime - almost literally. Search results for products on Google are usually sprinkled with single-page affiliate sites that, with one more click, redirect you to a vendor and perhaps collect a small fee for their trouble. That is not what this report is about. Rather, with the exception of consumer shopping sites, leads - as this report uses the term - must be "fully contactable."
Four approaches have come to dominate lead generation.
Magazine/directory. The simplest form of Internet-based lead generator is best understood as either a Web-hosted directory or an online magazine advertorial. Examples include All Star Directories and GlobalSpec. The revenue model will seem familiar to anyone associated with traditional publishing. Typically, magazine/directory-type lead generators sell space on their sites like a traditional print publication. Terms reflect ad size, duration and positioning.
Though the site may offer some "editorial" (for instance, a travel site may include information about health, weather and political risk at the destinations), it is all in service of the advertising. Though some skimpy information may be available to any site visitor, full access requires registration. Likewise, while magazine/directory sites meet user demand for comprehensiveness by listing all credible vendors, only clients (advertisers) get preferred positioning and leads data.
Comparison shopping. These sites - the major ones are Scripps' Shopzilla, Shopping.com, CNET and PriceGrabber - are databases structured to let you compare and contrast products quickly and, once you've picked a model, let you choose among vendors based on price, availability and reputation.
Information exchange. The "information exchange" (examples include TechTarget's Bitpipe and KnowledgeStorm) is not far removed from the magazine/directory model. Like that group, information-exchange lead generators derive revenue from fixed-fee "advertising." Rates depend on circulation, demographics and positioning.
However, while magazine/directory users often click through to a particular service or product supplier - a school, a cruise operator, an equipment manufacturer - users of information exchanges are information professionals (such as IT and finance). They seek to fill gaps in their functional knowledge with white papers, Webcasts and other materials produced by product and service vendors, designed as much to persuade as to inform.
The information-exchange lead generators have built strong businesses by making alternative information sources available in exchange for contact information - and the chance for an eventual sale.
Multiple fee. While these lead-gen firms gain revenue for every lead delivered (whether the client consummates a sale or not) as opposed to earning a flat fee from an ad, these companies may sell the lead (and get paid for it) multiple times. Examples include BuyerZone and Referral Technology. These companies often rely on pay-per-click traffic and develop sophisticated arbitrage strategies, with operating margins determined by the gap between PPC costs and revenue per lead sold.
Rather than merely surrendering contact data, users here are required to drill down and specify what type of product they seek. This could range from office products to a car to a home mortgage. Multiple-fee firms make a virtue of buyers often wanting several sellers with the same product to compete on price.
Successful firms across the lead-gen spectrum share a few characteristics:
- Thoughtful, sophisticated design and organization of their sites.
- Superior knowledge of search engine marketing and keyword management.
- Embracing search engine optimization techniques.
- Deep domain expertise, intelligently and artfully organized.
- Robust, automated screening and scrubbing technology.
- Single-mindedness about building traffic.
Prospects and perils. Ask most lead-gen CEOs what worries them and you rarely will hear about the one or three or 12 other small and midsize businesses vying for leads in their vertical. They can be handled. The main concern is the same 500-pound gorilla who strikes fear into the hearts of Microsoft Corp.'s Bill Gates, WPP Group PLC's Sir Martin Sorrell and The New York Times Co.'s Arthur Sulzberger Jr.: Google.
Everyone across the lead-gen spectrum fears disintermediation. This is even true among companies that rely little on search to draw traffic, since search could do the job as well. Should they be worried? Of course. Is their demise imminent? Probably not.
Google (and Yahoo and MSN, for that matter) certainly could devote resources to other aspects of lead gen. But several factors seem to discount that probability. Most important is the narrow, vertical nature of most lead-gen businesses versus the major engines' broad world view. Strong, profitable vertical businesses dominate lead gen, but few niches would seem rich enough to invite a direct challenge from Google or Yahoo.
A lurking problem for any lead-gen company that needs to buy traffic via PPC is the rising cost of keywords. Rates fluctuate, but the long-term trend for keyword pricing on Google, Yahoo and MSN has been upward. For lead generators, this will mean greater focus on gaining traffic via SEO as well as non-search sources.
The concept of lead generation has been empowered by the Web in a way no one could have imagined a decade ago. Various approaches exist, some better suited to individual markets and niches than others, but there are many roads to success on the Internet. Competition is intensifying, but no market seems anywhere near saturated. Product innovation, combined with solid marketing, still can gain market share quickly.
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