Investigation, Consumer Unease Puts Squeeze On Lead-Gen Space

by Dan Felter, Mar 20, 2008, 12:31 PM

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So the Federal Trade Commission finally bagged its self-proclaimed elephant. After a long trek through the incentivized lead generation underbrush, the feds got ValueClick Inc. to fork over $2.9 million stemming from some of ValueClick's business activities. This came almost simultaneously with the news that eBay is leaving ValueClick's Commission Junction affiliate network in favor of eBay's new in-house affiliate marketing program. If getting all bad news behind you once and for all is part of its corporate strategy, then ValueClick must be in for better days ahead.

If you think the turmoil at the Emperor's VIP Club is bad after the Spitzer scandal -- if you want to see something really scary, take a look at what's happening to the incentivized lead-gen space. Or, more to the point, what I think is going to come very quickly. A perfect storm of industry consolidation, consumer unease, government investigation and advertiser uncertainty is putting a renewed squeeze on incentivized lead paths. EBay's pulling back the affiliate marketing from ValueClick (Commission Junction) is just the latest step (another would be bringing search in-house) in the Web auctioneer's drive toward total control over its quality and distribution.

I fully expect, and would hope, that big advertisers follow suit so that they will know exactly where their lead-gen offers are running. What we at the Online Lead Generation Association (OLGA) have been saying for the last two-plus years is that it's no longer smart for advertisers to fixate on sheer number of leads generated. With volume comes headaches, like having to closely watch affiliates (it's bad enough to have to compete with sources for keywords). Conversion and quality come to the fore, and not all lead-gen providers are up to the task. Given consumer discontent and enforcement settlements in the headlines, it's that much harder for the good players to shepherd advertisers through this tumultuous time.

As for ValueClick, a one-time (one hopes) record settlement of $2.9 million, from a company with adjusted 2007 EBITDA of $165 million, marks the FTC's biggest-ever enforcement action under the CAN-SPAM Act. So what did we learn about such ValueClick entities as Hi-Speed Media and E-Babylon? We have the by-now familiar "deceptive" advertising claims via banner ads and pop-ups and in emails. The bait: consumer "eligibility" for laptops, iPods and high-value gift cards ("Free PS3 for survey"). This seems like such old news, but to the FTC it's bad news all the same.

Regardless of your view of legality, these companies' handling of sensitive personal information go beyond sloppy, according to the FTC findings. To quote the feds: "The FTC alleged the companies published online privacy policies claiming they encrypted customer information, but either failed to encrypt the information at all or used a non-standard and insecure form of encryption. The agency also charged that several of the companies' e-commerce Web sites were vulnerable to SQL injection, a commonly known form of hacker attack, contrary to claims that the companies implemented reasonable security measures."

Going forward, ValueClick and other companies will have to list the specific obligations -- such as applying for credit cards, purchasing products, or obtaining a car loan -- that consumers must incur to qualify for a "free" product. This disclosure must be clear and conspicuous both in ads and on Web pages. So, with the head of the ValueClick mascot hanging in the FTC's trophy room, whither incentivized lead generation? If these and other settlements over the past year or so work as intended, meaning to educate other companies on what not to do, then all such activity will probably end very shortly -- and global warming will be stopped, too... What we'll more likely see instead is a continuing, albeit very slow, flight to quality -- perhaps more of a stroll than an actual flight, but a movement nonetheless. It takes awhile to change the habits of very large advertisers, but when the change comes, it usually happens en masse.

Meanwhile, OLGA and the Internet Advertising Bureau continue to exchange views over consumer protection, with an eye toward having consistent Best Practice standards for both groups. The talks remain productive and hinge on whether to enable consumers to opt-out, on a global basis, of offers into which they initially opted in. This would come after the consumer had been notified that their email address or other personal information was going to be given to third-party companies. Licensing or reselling personally identifiable information still represents a big pool of money for those who want to do it. And it's still the big thing that drives consumers nuts. Stay tuned.

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