Making Introductions, Profitably

An interesting article in the New York Times highlighted a company called Legal Services Link. As you might infer from the name, the company works to connect lawyers with those who need legal services.

Lead generation? Yes, but with a twist. In this model, buyers are actively seeking sellers and the intermediary is attracting these buyers and adding value by actually matching buyer to seller. In many cases, the buyer is asked to complete a requirements survey, which is then matched to a database of qualified sellers. The intermediary (usually a data company), identifies usually from one to three vendors best qualified to help the buyer, and puts everyone in touch.

The benefit to the buyer is that a small number of pre-screened, qualified sellers make immediate contact with the buyer – enough sellers to have some choice, but not enough to be overwhelming or annoying. You may possible be surprised to learn that a hidden value-add of these matching services, is that they monitor the sellers to make sure they get in touch with the buyer quickly. Yes, even with sellers paying sometimes hundreds of dollars for a hot lead, they still manage to drop the lead on the floor!

What’s also nice about this model from the perspective of the intermediary is that there is no chance of “leakage” – a term for when buyers or sellers circumvent the intermediary, often to avoid paying a commission.

This model works well for both B2C and B2B. It seems to work best for high-value purchases that the buyer only purchases sporadically. This irregular buying pattern is key because it means the buyer can’t keep up with what seller offers what product, or even the products themselves. Markets with rapidly changing technology are especially good.

Since the buyer fills out the requirements survey with full knowledge she will be immediately hearing from salespeople, she makes an enormously high value lead. And since the seller has a good understanding of what the buyer needs before making contact, the initial conversation is more productive and the sale tends to close faster.

This is a strong model that makes more sense than ever in a world that’s rapidly getting used to apps that speed the delivery of everything. If you see the right fundamentals in your market, it’s a model that’s well worth exploring.

Knowing More Than You Can Tell

Most of you have some familiarity with Gerson-Lehrman Group (GLG), the phenomenal success story that pioneered the idea of connecting experts on a wide variety of topics with those who needed fast, trustworthy and unbiased insights into a market, a company, a technology … whatever.

Not surprisingly, GLG found most of its clients in the financial sector, from hedge funds to private equity firms and others that needed expert insight fast to inform the often significant investment decisions they were making. These clients paid fat fees, and the experts were well paid for small chunks of their time, and it all went swimmingly for many years.

Where things got awkward is that some investors wanted more than background information: they wanted confidential information. GLG was very aggressive about policing this, understanding that it could damage its business. However, some GLG competitors didn’t have the same ethics, and differentiated themselves by playing on the often-murky line between public information and inside information. This potential to misuse the raft of expert services that now exist continues to cast a pall over another otherwise strong business model.

Enter a new start-up called Emissary. It’s an expert service, but rather than focusing on connecting experts to investors, it seeks to connect experts to salespeople. Want to know how to tailor your pitch to a particular company? Emissary can find someone who knows. Similarly, salespeople often find themselves wondering if they are dealing with a decision-maker or not at a particular company. Say hello to Emissary, whose experts may well have worked at the company in question.

Visit the Emissary website, and you’ll see a carefully crafted message: we’re just people helping other people. At one level, this is certainly true. And connecting a sales team to a recent former employee of the prospect company doesn’t seem to be rife with the same legal and ethical issues that exist for investors, but I suspect Emissary’s long-term success will depend on it also establishing an ethical line in the sand and policing it closely.

What also makes Emissary interesting is it’s a model that can be moved not only across verticals, but across functional areas as well. 

Data Insights from Bitsight

A Boston-area start-up called Bitsight is pulling in investor money so quickly, a total of $95 million, that it doesn’t know what to do with it all … yet.

And what does Bitsight do, to justify this level of investment? It examines company websites, evaluates them for the quality of their website security, and assigns them a rating, much like a credit score.

How do they do it? There’s a bit of proprietary secret sauce in how the company evaluates the security of a website, but what’s particularly interesting is that they do it all with publicly available information. And that raises another fascinating aspect of the business: the companies that Bitsight rates are not its clients. Bitsight is not an online security consultant with an automated assessment tool. Indeed, it has evaluated over 60,000 websites to date, and ultimately may evaluate tens or even hundreds of thousands of websites.

Why would anyone want this information? The uses for this data are surprisingly numerous. You can sell it in the form of a benchmark products to the companies you have rated. What IT manager wouldn’t want to know how their company stacks up against its peers? A better opportunity is to help insurance companies properly price data breach insurance policies.

But perhaps the best opportunity is to help big companies evaluate and manage risk with their vendors – a huge issue as a number of headline-grabbing recent data breaches resulted from a company’s network being penetrated via one of its vendors that was connected to it.

While Bitsight may look like a cutting edge analytics company, what’s significant is that so much of its business model is drawn from very basic approaches used by many other data publishers. It is aggregating publicly-available data into a database. It normalizes this information, then applies an algorithm to assess it and produce comparable company ratings. It sells this data product for internal benchmarking, risk management and due diligence applications.

In short, despite its high tech trimmings, Bitsight very much has data publishing DNA. It is also a great example that data products don’t have to be perfect right out of the gate. By relying on public information, Bitsight can’t possibly know everything about the security of a company’s website. But by relying just on public data, it can quickly build a large database of comparable company ratings using a credible methodology and solve market needs that require a certain scale of coverage. If you’re the first data provider serving a serious market need, you can launch with good-enough data and improve it over time. Trying to perfect your data prior to launch can mean missing the opportunity entirely.

Ratings Wars

A new start-up called RentLogic has entered the New York City real estate market with a smart, simple idea wrapped around a proven business model. It provided a data product that rated rental properties on how well they were maintained. Unlike opinion-driven ratings sites like Yelp and TripAdvisor, RentLogic mines complaint and violation data from official government records, assessed them, and assigned every building a letter grade from ‘A’ to ‘F.’
 
It’s a clever idea and arguably much-needed. At the very least, it began to address asymmetric information exchange that has long characterized the real estate business. Put simply, your landlord wants to know everything about you prior to renting to you, but you know little or nothing about the landlord or the property itself.
 
RentLogic also was smart about its marketing. It hooked up with one of the largest rental brokerage firms in New York City, a firm called Citi Habitats, to match its database to its apartment listings. Pop up a listing in Citi Habitats, and you would see not only the standard apartment description and other details, but you’d also see a letter grade for the property and a summary description of violations and complaints. This was great exposure for RentLogic, and a differentiating website feature for Citi Habitats. And just to make sure that not too many landlord noses were bent out of joint, the two companies agreed that RentLogic data would only be shown if the property had earned an ‘A’ or ‘B’ rating.
 
All smart moves, and a win-win for both companies and apartment seekers. A ‘happily ever after’ story then? Not exactly.
 
Just eight days after rolling out the new ratings system, Citi Habitats pulled the plug and ended the deal, reportedly after receiving strong pressure from landlords. At least in New York City, landlords have lots of clout. While Citi Habitats makes it money from fees from apartment renters, it still needs access to apartment listings in the first place. And New York City landlords aren’t that into transparency, at least not about their own activities. Several landlords described the ratings system as “unfair” and “inaccurate.”
 
From a strategic perspective, RentLogic did everything right. In my view, its business model, drawing from official records, is far more defensible than sites like Yelp that aggregate largely anonymous opinions and turn them into ratings. But RentLogic missed one big item: the supply and demand imbalance in its market. RentLogic is trying to serve the demand side of its market (apartment renters), but given a shortage of apartments, the supply side (landlords) makes the rules. That complicates market entry for a disruptive market player, because with landlords closing down many distribution channels, RentLogic is left with selling its data direct to apartment seekers, a slower and more expensive path to growth.
 
But we’ll be keeping an eye on them to see how they evolve since more than one company has pivoted their way to a Model of Excellence. You can meet this year’s winners at BIMS. Here’s a preview, starting with TrendMD. 


Meet TrendMD at BIMS

Want to find out why TrendMD won an InfoCommerce 2016 Model of Excellence Award?

This year’s winners will be showcased at BIMS, November 14-16 in Ft. Lauderdale. It’s a peer-to-peer forum complete with exclusive tracks on Data and the unique opportunity to hear from the MOE founders firsthand.  Register now to attend!
 
Here’s just a taste of the brilliance behind TrendMD – be sure to attend BIMS to get the full story.
 
"It's difficult to fail if you actually talk to customers, " says Paul Kudlow, Founder of TrendMD. As he was going through medical school the last few years, Kudlow pictured his future: talking to patients all day, providing solutions, and working all hours. "It was still a massive transformation," Kudlow said, "I went through medical school and started residency—and then this came out of nowhere. TrendMD is a kind of Outbrain or Taboola for the medical world. TrendMD enhances content discoverability for readers by providing publishers with strong incentives to display relevant links to third-party content. We took that model and designed an article recommendation widget that's embedded in places doctors and other researchers use. Content producers can also promote their links on sites where the TrendMD widget sits.
 
"Unlike medicine, there's no playbook for startups," Kudlow said. "You kind of invent it as you go and see what fits. We offer value to readers. We're distributing content so it can get to the readers and give value to the authors. Before TrendMD, there was no way to push this kind of content to readers. Often we heard journals say that they get new readers through good SEO or posting content online," Kudlow said. "That's a bit like saying we printed the journal out it in one library hoping that people can read it."
 
Hear more at BIMS!

Credit Scores: Not Just for Credit Anymore

A credit score, like it or not, is something that exists for all of us. Pioneered by a company called Fair Isaac (now just known as FICO), the credit score provided powerful advantages to credit granters in two key ways. First, using massive samples of consumer payment data, FICO analysts were able to tease out what characteristics were predictive of an individual’s willingness to re-pay their debts. With this knowledge, the company built sophisticated algorithms to automatically assess and score consumers. This approach is obviously more efficient than manual credit reviews by humans, but it offered consistency and dependability as well. Second, FICO reduces your credit history to a single number in a fixed range. The higher the number, the better your credit. This innovation made it possible for banks and other to write software to offer instant credit decisions, online credit approvals and more. Moreover, a consistent national scoring system made it easy for banks to both manage and benchmark their credit portfolios, as well as watch for early signs of credit erosion.

There’s little doubt that credit scoring was a brilliant innovation, but is it so specialized it can’t be replicated elsewhere? Well, it appears that creative data types are seeing scoring opportunities everywhere these days.

Consider just one example: computer network security scores. There are several companies (and FICO just acquired one of them) that use a variety of publicly available inputs to score the computer networks of companies to assess their vulnerability to hackers. Is this even possible to do? A lot of smart people in the field say it is, and pretty much everyone agrees the need is so great that even if these scores aren’t perfect, they’re better than nothing.

You may also be asking whether or not there is a business opportunity here and indeed there is. Companies buy their own scores to assess how they are doing and to benchmark themselves against their peers. Insurance companies writing policies to cover data hacks and other cybercrimes are desperate for these objective assessments. And increasingly, companies are asking potential vendors to provide them with their scores to make sure all their vendors are taking cybersecurity seriously.

While scoring started with credit, it certainly doesn’t end there. Are there scoring opportunities in your own market? Put on your thinking cap and get creative!