Beyond Lead Arbitrage

by Tyler Newton, Apr 23, 2010, 12:30 PM

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The online lead generation market is in the early stages of shifting away from the easy money of arbitrage profits to a more value-added model driven by content.  Because consumers are getting savvier and the Justice Department is becoming more protective of consumers' privacy, lead generation companies need to embrace the concept of "opt-in" transparency. 

The most valuable leads are those consumers that want to become a lead.  Consumers will only want to become a lead if they trust the site collecting their information.  To build trust, lead generation companies need to build their brand through investments in trusted content and brand-building.  The shift from arbitrage to content and brands creates an opportunity for traditional offline publishers to expand into online lead generation.

At its very essence, online lead generation is the transformation of page views into leads.  Page views can be generated through producing content, buying display ads or buying search keywords.  Leads can range in quality from mere clicks to actual converted customers.  Arbitrageurs are those that buy their traffic.  While Arbitrageurs add value to the lead by trading product information for contact information, it is difficult to obtain a lasting competitive advantage when the next player can simply out bid or out spend the Arbitrageur for traffic.  Value and margin are fleeting, and the Arbitrageur is always in a race to find new, under-exploited arbitrage opportunities.  While such a strategy can make money over time, it won't build long-term value.

A content-driven strategy can create more long-term value than an arbitrage strategy, although that does not mean it is easy.  The Content Master seeks to acquire its traffic for free by providing relevant content that can by itself attract leads.  Just because the traffic is not paid for doesn't mean it's free.  It costs money to produce content, and it takes time to build up the body of content required to consistently drive users to the site.  In addition, relying on search engine optimization for traffic leaves the lead generation company vulnerable to changes in Google's search algorithm.

Build a brand to build trust

To reduce reliance on unpaid, "organic" search, the Content Master must also invest in its brand.  Building a brand increases the amount of direct traffic to the content.  Building a brand can also build customer trust.  Most consumers at one time or another have regretted filling out an  online form only to find that their information had been sold to countless other vendors.  Customers are more willing to part with personal information if they trust that the information will be used to provide them information they want in return, and remain safe.  

Consumers are willing to provide their financial information to companies like Lending Tree, Bankrate, and Edmunds, because they know that they are legitimate.  Consumers navigate directly to Kelly Blue Book, Monster, Expedia, ServiceMagic and Priceline, because those companies have spent years building their brands through advertising and word of mouth.  In other words, the indirect marketing of brand-building can help build the trust that drives success in direct marketing.

If the way to build long-term value in online lead generation is through content and brand, then traditional media companies should have an advantage over most online-only lead generation companies.  Traditional offline media companies sit on a huge library of quality, trusted content and have well-established brands.  They have their own excess advertising inventory with which to promote their online lead generation programs.  They have a treasure-trove of customer information in their subscriber lists.  The opportunity for traditional media companies to dominate lead generation is there, if only they can get out of their own way to seize it.

This article is based on the recently released research report "'Brand Aid' for Online Lead Generation." 

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