Our CEO, Marc Diana, participated in a discussion on the future of Lead Exchanges moderated by James Cham of Bessemer Venture Partners. Additional panelist included Anik Gagnuly, Board Member of Detroit Trading, Payam Zamani, CEO of Reply! Inc., and Keith Moore, Senior Vice President of Tree.com.

In starting off the panel, James asked each panelist to explain their company’s business model and the verticals they worked in. LendingTree replied that they were mostly mortgage but given the state of the mortgage industry they were branching out into areas such as loan modification. Reply and Detroit both said that they did the majority of their business in the auto sector. Marc explained that while LeadPoint began in mortgage, it has increasingly become a technology platform serving multiple verticals including Credit Card Debt, Education and Tax Debt. As a platform, the company is able to quickly support new emerging verticals.

Additional questions raised by the moderator included the following:

1. How do Lead Exchanges differ from Lead Aggregators?
2. What are the factors critical to the success of a Lead Exchange and what factors do you want to avoid?
3. What are the factors that may be preventing lead buyers from working with your exchange?
4. Is your exchange currently growing and what are your growth projections for 2009?

How do Lead Exchanges differ from Lead Aggregators?

In explaining LeadPoint’s business model, Marc explained that to succeed as a true exchange a company must earn the trust of both its buyers and sellers. To do this, it must act as an impartial intermediary between the buyer and seller, not favoring one over the other. It is important that both sides receive equal value for their efforts in a sales transaction. Reply CEO, Payam, added to this that exchanges provide dynamic pricing that enables every lead to sell. This liquidity ultimately helps provide sellers with greater overall payouts and provides buyers with greater value in pricing. Anik with Detroit Trading also noted that exchanges helped sellers by providing a single outlet for their leads and eliminated the hassles of having to collect monthly payments from numerous sources.

What are the factors critical to the success of a Lead Exchange and what factors do you want to avoid?

Marc discussed that quality and impartiality was critical to LeadPoint’s success. He discussed the company’s recent launch of the LeadClass Quality System which benefits buyers by enabling them to optimize their marketing spend by selecting the quality and price that best suits their operational needs and rewards top direct marketers with the true market value of their leads. The one thing Marc wanted to avoid was competing against sellers by having LeadPoint generate its own leads. Marc explained that if LeadPoint were to generate its own leads, it would no longer be a nonpartisan company and would go in direct competition with its sellers. Marc referenced his experience with LowerMyBills where he was one of the original employees who helped found the company. He explained that when a company generates its own leads it has an incentive to monetize the investment. This may lead to a preference of its leads over those of their sellers. Additionally, it may also adversely impact buyers as the company may push their internally generated leads on to buyers when it is not necessarily in their best interest.

Payam said that their success was derived from market liquidity and disagreed with Marc’s assertions (Reply generates their own leads). According to Payam, when a company generates its own leads within a vertical they have a more vested interest in the success of the vertical and are thus able to get it to a point of critical mass.

Keith with LendingTree said that their biggest success was building a brand with consumers. By delivering on the consumer expectation, consumers trust LendingTree and this enables them to deliver interested leads to their buyers. Keith stated that their biggest obstacle was predicting demand (Tree.com like Reply generates their own leads).

Anik with Detroit agreed with Marc that it was critical for an exchange to be a neutral third-party. As part of the duties of being a neutral party, Anik said it was critical for an exchange to provide transparency to both buyers and sellers.

What are the factors that may be preventing lead buyers from working with your exchange?

Keith said that non-Internet generated leads were their biggest competitor and that there was some understanding of how to work an Internet lead that prevented some customers from using their services. Overall, the strength of the LendingTree brand helped as many people are aware of how they generate leads.

Anik with Detroit said that sellers have the greatest reason to want to use exchanges as it allows them to reach many customers. More customers lead to greater demand and greater demand leads to higher overall prices for leads. Anik said that buyers have some skepticism of exchanges as they perceive they have less control in ruling out fraudulent leads. In fact, Anik says that fraud is something exchanges must pay close attention to as it has the potential to collapse a market. Overall, Anik feels that Lead Exchanges provide the greatest opportunity to provide buyers with exactly what they want as the diversity of sellers provides greater diversity in leads.

Payam commented that he agreed with Anik that an underlying buyer objection to Internet leads was that they did not trusting the quality of lead traffic.

Marc also agreed with Anik’s comment over buyers concern with quality and pointed out that this was the impetus for creating LeadClass. With a market blend of leads, buyers could not control the quality they received. However, with LeadClass now they are able to specifically purchase by quality. Marc also mentioned that there is confusion over the exchange term in lead generation. He believes that exchange by its very nature should mean an impartial entity. He does not believe a company can be impartial when it generates its own leads and thus should not be termed an exchange.

Are you currently growing and what are your growth projections for 2009?

Both Keith and Anik mentioned that the current market conditions were negatively affecting their companies. Lendingtree noted that the decline in the mortgage industry had impacted them and led to them branching out in other products such as loan modification. Anik said that Detroit Exchange (like the city it is named after) is suffering from the devastating slow down in automobile sales. He noted that business is cyclical and they are doing their best to weather a down cycle at the moment.

Marc, on the other hand, noted that LeadPoint is growing. LeadPoint’s growth is fueled by growth in Credit Card Debt, Tax Debt, Education, Voice products, and growth in their UK division. Payam noted that Reply was also growing but was less clear on what sectors were fueling this growth.

A difference of opinion occurred between Marc and Payam who both argued that each of their companies was the biggest leads exchange. Both companies are private companies and neither discloses their revenue figures. However, as LeadPoint is the top Lead Exchange in the mortgage business, the leading exchange in credit card, tax debt, education and voice it is hard to see how Reply is of equal or greater size than LeadPoint, especially given that by their own account their largest vertical is auto. However, arguing oversize is not of great importance, as size doesn’t really matter. What buyers and sellers care about is their return on investment. With the launch of LeadClass, LeadPoint has set itself apart from any other exchange for the foreseeable future in delivering value to both its buyers and sellers.

LeadPoint was featured on ABC’s Good Morning America Weekend edition on Sunday, September 9th.

Click here in order to watch the piece.

Work rarely stops at LeadPoint – even on the weekends.

That said, when we let Marc go home, his wife Dorothy shows her appreciation by sending the office some of her great cookies!

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 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 (2005 statistics from 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 dramatically decreased their lead purchasing, or ceased purchasing leads altogether. Unfortunately now, the lead generation industry, not unlike the mortgage origination industry, is one replete with news stories of 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 by Jonathan Miller to the Matrix blog (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 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 home buyers 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. 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.