This blog entry is the first in a series of two blog entries discussing the macro-economics of vertical lead generation sites.

Part I.

An oft-cited criticism of vertical lead generation sites (“VLGS”) is that end-users have the ability to request information on multiple concepts. This, so the argument runs, dilutes the attention making it more difficult for any given lead-desiring concept (“Concept”) to convince the end-user to pick its product over the others for which information was requested. It is hard to argue that such is not the case. For if choice is limited then limited choices will obviously be made. The problem with the argument is not in its probity, it is in its mistaken simplicity and its lack of grounding in reality. A VLGS is nothing more than online information directory. Since the scope and reach of a directory is a function of the amount of revenue the directory can generate, it is unrealistic to expect that a directory limit the interest in, and therefore the information provided by, any one Concept.

A VLGS, like a directory, cannot operate efficiently if the number of Concepts for which information can be requested is limited. Both VLGS and directories are dependant upon generating a deep interest across a broad swath of Concepts. Limiting the number of inquiries that can be made by one end-user degrades the efficiency of the VLGS business model, and will eventually limit the efficacy of the model. No VLGS, nor any business for that matter, can limit its operational efficiency without some form of commensurate revenue increase as a counter-weight and expect to stay in business. To understand why this is the case one must first understand the economic and operational principles behind a VLGS.

A VLGS aggregates traffic for the use and benefit of the paying Concepts which have paid to be listed on the site and/or are paying for leads that are generated by the site. This is primarily accomplished by directing keyword search results toward a single website. One of the advantages of a VLGS is its directory style business model, to wit: it can offset the relatively high cost of purchasing a unit of advertising by diffusing the interest in the site across many paying Concepts. It is this operational efficiency that is degraded when a VLGS limits the interest in paying Concepts.

But the vertical lead generation model is equally as beneficial to the paying Concept as it is to the VLGS because of the time and cost associated with trying to drive traffic in increasingly very competitive marketplaces. The available SERPs on the major search engines is not growing, and in fact can be said to have achieved a certain amount of stasis in many categories. Few are the times when a new website can achieve top level organic placement, let alone top level placement on enough keywords to drive a high volume of traffic. Additionally, the cost of paid traffic continues to increase.

Moreover, one of the realities of online marketing is that there has been too much hype made of the “long-tail.” For consumer driven purchases the majority of traffic is not on branded keywords or obscure keywords but rather a reactively small sub-set of keywords that drive the majority of the traffic. For example, whereas there may be many searches on the word McDonald’s Franchise, a much smaller number of searches will be entered for MacD’s Franchise - even if MacD’s happens to be a subsidiary of McDonald’s and/or viable competitor. Similarly, while there may be quite a few searches on the term “food franchise” there are many fewer searches on the term “hamburger franchise.” While there are still people searching for “hamburger franchises” the opportunity cost of spending money in the relatively slight hope that a sale will result from their search is often times outweighed by the cost of not being included in a directory.

This is where the VLGS true value add proposition is realized. VLGS are adept at sifting through a large amount of traffic in order to provide only the most qualified of leads. It does so, by pooling its resources to get traffic on all relevant terms, as well as terms that are not in the specific industry but are within the general theme of the action being requested. Some of this traffic will not of a sufficient quality to warrant purchasing again i.e., the money will have been wasted. But the purchase of the “wasted” traffic will not destroy the model precisely because the model is built on scaling a great amount of traffic purchases into leads. Whereas an individual Concept may spend through its yearly advertising budget in a month or less were it to attempt to do this on its own and run into similar traffic difficulties, a VLGS can weather the storm and continue to produce quality leads. Moreover, some of the traffic that would need to be purchased to produce the leads would be cost prohibitive to many Concepts in the first instance.

W.C. Garth Snider

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