LeadPoint Blog

It would be a significant understatement to say that the mortgage industry has undergone some changes in the last few months. Everyone within the industry saw the potential peril associated with potentially questionable lending practices when interest rates were at all-time lows, but few could have predicted the significant impact that it would have on the mortgage origination industry as a whole. The Internet lead industry certainly has not been immune to the effects.

Since the lead generation business’ relative inception, the market has been a key catalyst to the growth of an industry that is approaching $1 billion annually (the most recent statistic that I have been able to locate is from 2005 where PricewaterhouseCoopers valued the Internet Lead Industry at $753 million). Originators, especially through the refi boom, were able to charge higher points and fees on sub-prime loans thereby enabling them to pay higher lead costs on sub-prime leads. This additional revenue is what has allowed the top-tier Internet lead providers to become significant players in on-line media spending, many falling in the top 5 in monthly spend on a consistent basis.

However the industry has seen a steep downward trend as significant sub-prime buyers of Internet leads have decreased their appetite for leads dramatically, or ceased purchasing them altogether. Unfortunately now, the lead generation industry, not unlike the mortgage origination industry, is one replete with news stories on contracting margins, revenue-losing quarters, layoffs and companies going out of business altogether.

While margin contraction, lay-offs and closing doors are never a happy topic, it can mean that a market correction is underway. In a great post recently to the Matrix blog by Jonathan Miller (read it here), the author talks about how market, “Bubbles,” are good. The concept that he discuss via a book called, Pop! Why Bubbles are Great for the Economy, by Daniel Gross is that, “the frenzy of irrational economic enthusiasm lays the groundwork for sober-minded opportunities, growth, and innovation.” I think that the story of LeadPoint is a perfect example of such an opportunity.

Despite the downturn, I don’t think anyone can question the viability of the internet leads as it relates to the mortgage industry. There is no doubt that the lead-gen market is contracting along with the origination market in general, but while the figures vary somewhat based on the survey, general consensus is that between 45% and 75% of homebuyers begin their process on the Internet. So, if you are not including Internet marketing in your marketing portfolio, then you are potentially excluding over 50% of your potential market. It is inconceivable that the genie is getting back in the bottle with respect to Internet leads, the only question is, is there a business model better suited for the current times? The answer to that question is a resounding, “yes” and the validation of this has been provided by the two biggest names in Internet advertising. Both Google and Yahoo recently made some very significant acquisitions that may potentially provide an illustration of what is to follow in the lead-gen industry.

DoubleClick was bought by Google recently for $3.1 billion dollars after it, “recently launched a Nasdaq-style exchange for buying and selling display ads.”

Yahoo purchased the remaining 80% that they did not already own of Right Media for $680 million. Right Media operates the “Right Media Exchange,” which, “gives advertisers, publishers and ad networks open access to each other and a constant, immediate supply of ads and inventory.”

What do these companies have in common with LeadPoint? We are all exchanges. Their business model is our business model. They do for media what it is that we do for leads. I feel that this is further validation that our business model is ideal for the current market conditions. Obviously I am going to say that, I work for the company. But a recent article in BtoB Magazine (here) took an in-depth look into the recent exchange acquisitions by Google and Yahoo. What was significant about this article — which included quotes from Eric Schmidt, Google’s CEO — is that they also chose to interview our CEO and ask how our “exchange,” business model benefits us in our industry.

“Marc Diana, CEO of Leadpoint, which operates an online exchange for the marketing lead generation industry, said: “The value I see in exchanges over brute sales forces is that it creates a tremendous level of efficiency, especially when you are able to assemble a `disaggregated’ critical mass of buying or selling power. The nirvana of that is when you are able to weave both ends together. That is a true exchange and is the most efficient mechanism to price and trade.””

The secret is this. The traditional lead-gen company is only as effective as their advertising spend. The revenue that they make from selling leads is in direct proportion to the presence and quality of their advertising. But contracting revenues will logically have a deleterious effect on their ability to acquire consumers. It is a grand dilemma; either increase prices to make up for a diminishing add buying power, buy fewer media placements or a poorer quality of media, or divert funds from other sources (like a reduced payroll) in order to maintain your marketing spend. LeadPoint, however, will never be faced with this dilemma.

LeadPoint, like the companies purchased recently by Google and Yahoo, is not saddled with a marketing spend. LeadPoint makes its money off of the transaction of lead buyers purchasing leads from lead generators. This is why LeadPoint has continued to grow at a time when the overall market is contracting. By providing the world-class marketplace that attracts both the very best in lead generators and lead buyers we provide the more efficient platform for lead acquisition. This model provides:

- A better model for growth

- More price stability

- A better quality lead

Growth. For us to continue the growth that we have experienced to date, we are not saddled with the burden of generating revenue for an advertising budget. We simply need to continue to screen and add the best-in-class lead generators to our already very significant marketplace.

Pricing. On an exchange, the market, (read: you, the lead buyer) sets the pricing for the leads. Pricing is influenced entirely by supply and demand and not buy our need to acquire consumers so there is never any question as to whether or not you are getting a fair price. You set your pricing.

Quality. Our quality is not influenced by contracting revenues that we rely upon for advertising because we have no advertising spend. We only allow the top-tier lead generators on our sales channel and we constantly screen and monitor the quality of our channel based on the feedback that we get from you, the lead buyer.

If you have any questions about LeadPoint, our leads, business model or how you may initiate a test with us, please feel free to contact me directly. I look forward to the opportunity to discuss this with you in greater detail.

John Challis

National Account Executive

704.780.1163