More Risk, Less Reward


I noticed in a small blurb this morning that LexisNexis had spent over $2 million on acquiring an interest in a company called RocketLawyer described as a lead generation site for lawyers. There are lots of good reasons LexisNexis might make a move like this, notwithstanding its ownership of lawyers.com, which is, surprise, a lead generation site for lawyers. This did get me thinking though that lead generation offerings are becoming ubiquitous.

We're evolving, rather quickly, from a model where advertisers purchased access to our audiences. We've spent the last several years enmeshed in a pay-per-click model, where advertisers only paid if some particular action, usually a click-through, was taken against an online advertisement. Now, the ante is rapidly being raised once again, to one where publishers are delivering screened, qualified and active prospects to advertisers.

For several years now, I've been saying that the pay- per-click model was really all about a shift in risk from advertisers to publishers. Technology and a lot of innovation by the search engines helped advertiser rapidly evolve from "you pay your money and you take your chances" to "I'm not going to pay unless something happens." Publishers were put in the position of proving that their audiences were as engaged and responsive as they had always claimed them to be. Advertising risk was being shared, like it or not.

With a business model based on sales leads, I would argue that risk may be shifting totally from the advertiser to the publisher. That's because in most sales lead models, the advertiser only pays, on a per-lead basis, for qualified leads, delivered conveniently to his doorstep while still fresh and hot. What's not to like ... if you're an advertiser?

My problem with this historic shift in advertising risk from advertiser to publisher is that as far as I can see, it's largely de-coupled from reward. In the old days, advertisers did indeed assume all the advertising risk, but at least they were allowed to keep the full benefit of the results. If a $100 advertisement yielded a $1 million order, the advertiser kept the $1 million. The publisher took no risk, but received only a small benefit. There was some balance of risk and reward.

With the sales lead model, the publisher is essentially working on spec, and effectively assuming all the advertising risk because the publisher has to invest to identify sales leads for the advertiser, and is only paid for results. If a sales lead developed by the publisher yields a $1 million order however, it is the advertiser who keeps the $1 million, paying the publisher a flat fee only if and when a lead is delivered. In short, risk and reward are anything but fairly balanced.

Perhaps most significantly, it seems clear to me we're on a slippery slope with advertisers who are finding they can ask for increasingly unreasonable performance on increasingly unreasonable terms and publishers will deliver. While it may seem laughable, the next logical step in this evolution is for advertisers to decide they only want to pay when a lead turns into a sale. Even if the publisher were to share meaningfully in the sale revenue this really puts a publisher's success in the hands of strangers. Do you really want your revenue to depend on whether or not the owner's brother-in-law at one of your advertisers is a skilled salesperson or not?
I'd suggest that before the lead generation business spirals totally out of control, publishers should take a breath and think about their revenue models. It's great if you can get, say, $200 for a qualified lead. But if you can truly deliver qualified leads to your advertisers, you're worth a lot more. Further, it's not sensible or good business to get your advertisers used to a risk-free business relationship. Perhaps adding a monthly "program participation fee" on top of per-lead fees is a way to re-balance risk and reward while reminding advertisers that there is no free lunch.

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