What our industry needs is to come out with firm best practices that address HOW leads are collected and WHAT advertisers do with leads once they get them. Issues such as transparency, data sharing, and misleading promotions need to be tackled head-on. When we talk about consumer data, isn’t the bigger issue the reselling of this personal data over and over again without the consumer’s knowledge or consent? Best practices that deal with these types of issues are what the industry lacks.
Unfortunately, we often dive to the minutiae
when everyone is dancing around self-interest and perceived loss of flexibility in our practices.
I could probably script 10 Best Practices for Online Lead Generation in a day, without much effort.
There has been a lot of discussion about Internet lead quality declining. Is it the marketing or the market? I believe it has a lot to do with consumers reacting to the media and the market.
Interestingly, Experian quickly and specifically lays the slowing growth at the feet of LowerMyBills:
The group said that in the six months to the end of September, its revenues from continuing businesses, at constant exchange rates, rose 6 per cent. However, the figure would have been 2 percentage points higher, Experian said, but for the fall in revenues at LowerMyBills, its US subsidiary which provides leads to subprime mortgage lenders.
In July, Experian said that LowerMyBills’ revenues fell 20 per cent in the first quarter, after an 8 per cent decline in the previous quarter, but it expected that to be the low point for the business.
This subsequent statement may explain reports that Experian has swooped in to the once hot start-up and is reengineering:
Don Robert, Experian’s chief executive, said that "while the revenue environment is tougher, we remain focused on delivering profit in line with our expectations for the year as a whole."
However, I think the most interesting part of the latest media blitz is who they leave out. They start building their master plan, as revealed on Investment Dealers’ Digest, by cutting out the mortgage broker (last I checked that was about 65% of the mortgage originations in the US mortgage market):
These days, Ranieri and Myerberg are back in the mortgage finance world with a new venture, an Internet business that links consumers directly with mortgage lenders, thrifts and commercial banks, bypassing mortgage brokers [emphasis added]. Called Root Markets Inc., the new business will be linked to Internet portals and newspaper sites.
Root Markets aims to simplify the process of finding a mortgage loan by directly linking consumers with the actual mortgage banks that will keep the loans on their portfolios or resell them into mortgage bonds. By linking the end buyers of a mortgage loan directly with borrowers, Root Markets hopes to bring down costs for home buyers.
And then Mr. Ranieri, recounts an anecdote, laying borrower woes directly at the feet of these same mortgage brokers.
Ranieri recalls fielding a call from a family recently. A nurse with five children and her husband had fallen behind on payments for a home financed with a negatively amortizing loan. Spotting the loan terms — specifically, the rising loan payments — Ranieri remembers wondering, "how the hell are you going to pay for this?"
"These are not bad people. They wanted a house with more bedrooms. They’re not stupid, but they’re financially not sophisticated. The broker sold them on the loan," says Ranieri, adding that he would not be surprised if some consumers eventually give up making mortgage payments because with home prices dropping even as their loan payments rise, they’ll have little incentive to keep on top of the payments.
Myerberg appears to be in his [Seth Goldstein] office now and the company’s website doesn’t talk about consumers at all, just buyers of leads and the companies that sell them. Except for some little house icons on the screen, it doesn’t even seem to be specific to the housing industry.
A quick glance at the screencast video that describes the offering doesn’t mention consumers either. It appears to be a Web-based lead management system with some auction-type functionality built in that allows buyers to bid on leads.
Are Lew Ranieri and Marcia Myerberg building a marketplace that reduces consumers and their loan professionals to ticks on a market board? Will that work?
I can see what they are trying to do in many ways. They have obviously had few issues:
1. Really getting the Root Exchange off the floor and perfecting their model.
2. Like many lead-gen companies (I know they are not Lead-gen, but for sake of simplicity) have had a tough time acquiring good buyers and I think this has to do with their short tail stratagy.
I see this has their way to remove themselves from the market as we see it. They are more familiar with the big banks and not the mortgage broker and this is their way of removing themselves from it. Between all the executives at Root they have plenty of connections in the world of finance and hope to capitalize on them. I think the major problem they have and will continue to have is their lack of insight to the consumer and the inability to communicate properly to them.
As the mortgage market tightens, lead generation companies begin to mount tactical offensive and defensive strategies to position for dwindling Internet originating mortgage companies.
"We at ZipSearch would like to offer any lender shut out from their network to contact us about their unique situation and how we may be able to help them increase their closing ratio with a custom campaign."
Now, knowing the ZipSearch guys personally I am sure this was NOT the intent of the post, but I do think that we should all be concentrating on helping lenders get better at online lead originations and focusing on the consumer. As opposed to taking opportunities to snipe customers.
Apparently, according to these clients there is also an actual decline in back-end CLO (closed loan offer) fees relative to increases in the match fees in prime and mid-prime leads and there are a significant price cuts in subprime leads.
Believe me no one is more competitive than I am, and I am more than happy to migrate a Leads360, LeadROI, or LeadMailbox client, but I am certainly not going to ever insinuate that my competitors are working against their clients.
I think we should all focus on building the market not cannibalizing it, IMHO. I would rather add 5000 loan officers to the market buying and understanding leads than trying to fight over Leads360’s 5000 users.
Where is the next lead generation frontier? I think it is becoming increasingly clear that getting local should be in your strategic plan if you are in the lead generation business. Mike Sachoff, of http://www.webpronews.com points out the glaring opportunity:
The dollar gap between U.S. local online spending and total local media ad spending is large with $97 billion going to offline media such as yellow pages and newspapers. Only 2.9 percent of all local ad spending will go online in 2007, or $2.9 billion.
The obvious drift (we all probably note in our daily routines) of eyeballs away from local newspapers, phone books, and radio–the media of that current $97 billion annual spend–will drive the shift of dollars to follow the eyes.
The question now becomes who will be the players in this emerging market. The big media brands, who are currently moving aggressively into the space, or some as yet unknown homegrown local media moguls?
“If marketing budgets shrink, and they are often the first to be cut in a downturn, digital will still continue to grow,” said Eric Bader, managing director of digital at MediaVest.
“The focus will be on advertising that can be measured for effectiveness, and online will gain share relative to television, newspapers or radio.” (Financial Times, 2007-09-23)
While there may be a decrease in total advertising expenditure, I think we may be seeing the realization that online advertising can be far more efficient, targeted, and measurable. All factors that are driving the shift.
Online is the fastest-growing advertising sector, and could reach over $20bn this year, just over 7 per cent of the total $285bn US advertising market. (Financial Times, 2007-09-23)
In the debate, we also forget the dramatic shift in methodologies for online advertsing that has taken place since the last economic downshift. The shift from CPM, display advertising, to more targeted search and more measurable lead generation (ROI).
In the last US downturn, online spending was slashed, resulting in the collapse of many new media companies and billions of dollars of writeoffs in investments which had counted on online ad revenues.
Since then, the growth of search, dominated by Google, as well as other forms of online advertising, and the growth of networks that allow advertisers to target certain types of audiences, have increased confidence in web spending. (Financial Times, 2007-09-23)
The ironic thing is that the recent dramatic downturn in the mortgage market may accelerate this shift.
Among US mortgage lenders, Countrywide has, for example, increased its share of online ad spending from 21 per cent to 55 per cent in the last 12 months, according to Sanford Bernstein. (Financial Times, 2007-09-23)
If you think of all of the companies like E-Trade, AIG, H&R Block that got in to mortgage as an adjunct to their core business models there is still a decent list left of those that will probably make the move out of the sector to preserve liquidity and earnings in other, more profitable business units.
How does this create a get rich strategy? Well, in the last down cycle it was arguably the catalyst opportunity that made Dan Gilbert a billionaire. After being battered on Wall Street for having a highly volatile, non-core mortgage business embedded in a technology company, during a down trend in the mortgage market Gilbert got to buy back his company at a deep discount.
Bryant Keefe
12:59 pm on September 18, 2007
Permalink
It seems like this would be an optimal time to launch a Mortgage Company offering wholesale lending in the Alt-A and Subprime space. With all the companies closed there is a ton of business and money to be made. I have to wonder how much longer it will be till the investors green light new investments? We can see the writing on the wall that most banks will end wholesale loans and focus on retail.
I think you are absolutely right. Seems most of these lay-offs (i.e., E-Trade, IndyMac, Washington Mutual) are all wholesale for retail personnel swaps, not significant downsizing.
Adding to my argument for sustainable growth in the online lead generation market…
If you agree with my premise that advertisers are increasingly demanding a shift from CPM to ROI as the effective marketing metric. Then it seems that the Internet Advertising Bureau may have the most compelling statistics:
"The Interactive Advertising Bureau says Internet advertising is a $16.9B per year business; online lead generation is a $1.3B per year business, growing faster than any other type of online advertising."
Mortgage companies including Countrywide Financial Corp. and IAC/InterActiveCorp’s LendingTree Inc. haven’t cut spending much and are moving ads to the Web from print and TV, analyst Jeffrey Lindsay said in an interview. A 50 percent drop in ads for loans would cut Google and Yahoo’s profit by 1 percent to 3 percent.
"Under economic pressure, advertisers favor online because it’s a lot cheaper, it’s measurable and it gives a higher return on investment," Lindsay said. Almost all of Yahoo’s second- quarter growth in display advertising came from mortgage ads, he estimated. "The biggest beneficiary so far has been Yahoo."
Mortgage companies spent $755 million on Web ads in the year ended June 30, or about 3.4 percent of the U.S. online ad market, Bernstein said. The report doesn’t cover third-quarter spending.
Bryant Keefe are discussing. 
I can see what they are trying to do in many ways. They have obviously had few issues:
1. Really getting the Root Exchange off the floor and perfecting their model.
2. Like many lead-gen companies (I know they are not Lead-gen, but for sake of simplicity) have had a tough time acquiring good buyers and I think this has to do with their short tail stratagy.
I see this has their way to remove themselves from the market as we see it. They are more familiar with the big banks and not the mortgage broker and this is their way of removing themselves from it. Between all the executives at Root they have plenty of connections in the world of finance and hope to capitalize on them. I think the major problem they have and will continue to have is their lack of insight to the consumer and the inability to communicate properly to them.