Is Lead Gen a Zero Sum Game?

Online lead generation is thriving. There are now publicly traded lead gen companies, like Quinstreet (valued at almost $500M) and BankRate (valued at $2.4B); a bi-coastal conference – LeadsCon – that now attracts almost 3000 people per conference and was recently acquired in a ‘huge buyout’; and even a silly LinkedIn group that I founded five years ago now has 39,000 members interested in online lead gen!

In sum, lead gen is no longer the ugly step-sister that no one wants to talk about – it’s an established, multi-billion dollar industry that is an integral part of marketing for many, many businesses. Ironically, however, the success of the industry may not be a good thing for most lead sellers. The maturity of the industry is making it harder and harder for “the little guy” to compete in lead gen.

As I see it, lead gen has become a “zero sum” game – as the big players get bigger, they take away opportunities for the small players, until eventually, only the biggest players in each vertical remain. Here are five reasons it’s hard for all but the largest lead sellers to survive today:

  1. Lead Quality: Simply selling leads is no longer the end game – the end game is selling “quality” leads, generally described as leads that convert into paying customers. I’ve noted this in the past, but lead gen is really a misnomer to describe this sort of transaction, it’s really just a revenue share. For lead sellers, this means that you have to work a lot harder to get paid, and you are constantly evaluated on your ability to consistently bring in quantity and quality.
  2. Economies of Scale: Big lead sellers can negotiate better deals with partners and thus get their leads cheaper. They can also “blend” high quality and low quality leads more seamlessly, which enables them to buy and sell low quality leads that a small player could not.
  3. Diminished Arbitrage Opportunities: Five years ago, you could buy “San Mateo bad credit refinance mortgage rates” on Google AdWords and potentially be the only bidder on this keyword. Today, a combination of AdWords changes that largely eliminate “long tail” keywords and much savvier competition makes it unlikely that you can buy a click for $.05 and make $50. Most online marketing arbitrage opportunities have gone by the wayside.
  4. Buyer Knowledge: Most large lead buyers now have sophisticated in-house teams and technology to evaluate their lead sources. In some cases, lead buyers are acquiring their leads directly, through in-house marketing teams. The bottom line is this: five years ago, you could still “fool” some buyers with bad leads, today you can’t.
  5. Regulation: Federal and state regulations have made it more expensive to operate a lead selling business. CAN-SPAM is the most widely stated example of regulation that has impacted lead sellers, but there’s also been increased attention by the FTC and proposed regulation in Europe that is taking its toll.

Taking all of these factors together, you need to have a pretty large operation to be a successful lead generator. From lead quality technology, business development teams, smart ad buyers, and talented lawyers, lead gen just isn’t the domain of ‘mom and pop’ shops out of a garage like it once was.

 

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David Rodnitzky
David Rodnitzky is CEO of PPC Associates (www.ppcassociates.com), a leading online marketing agency located in San Mateo, CA. You can follow David on Twitter @rodnitzky, or through his company blog: www.ppcassociates.com/blog.

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