Lead Gen the Dirty Word
Talking to a company the other day, something interesting was said. They said, we have given up the word lead generation. “We don’t use it internally and we don’t use it when talking to clients.” When asked how they make their money, they said to us, “lead generation.” Let’s repeat that. You aren’t a lead generator. You don’t work in lead generation, even though you make your money through lead generation. In some ways it makes sense. A company can make its money from banner ads but not be an ad network just like a company can make its money from paid search but not be a search company. We can’t say that applies here. To even the untrained eye, they look and act like a company in lead generation. So what’s the problem?
Another lifetime ago, i.e., 2007, Valueclick (surely someone reading actually remembers them) found themselves facing an investigation from the FTC over their lead generation practices. The interesting thing was that it wasn’t really their lead gen business facing scrutiny. It was their incentivized marketing business facing scrutiny. They drew the ire of the government not because they wanted to connect consumers with businesses but over potentially false and misleading claims over the bait used to hook a consumer. At that time, lead gen wasn’t a dirty word. It was a pretty clean word. It was certainly cleaner than our $100mm+ Free iPod division. Judging by the reaction of the unnamed company above, we’re not so sure anymore.
It’s not just the company above. We see more and more companies trying to find ways to speak about their business using words other than lead generation. Many in the online education space will go to great lengths to let you know that they are not lead generators. They are in the inquiry business. Others say they are in the introduction business. Yet another talks about their prospecting business. Anything but leads. The question again is why? What has changed in the past several years to make the lead gen business still an attractive one from a revenue standpoint but less attractive from a brand standpoint. One of the answers not surprisingly is money. Another is talent.
The money side is nuanced and tricky. Lead gen businesses have been very profitable, so the money issue has less to do with their actual ability to make money and all to do with how outside forces judge them. Just take a look at Zillow and Quinstreet. The latter earns five times as much money per year and almost infinitely more profit since Zillow wasn’t profitable at its last earnings announcement. But Zillow still leads the market cap comparison. The same comparison applies with those funding lead generation businesses and those acquiring. Because people can make money quickly there is an assumption that either the businesses aren’t defensible and/or they are just a type of arbitrage. All of which means less money flowing in to fund innovation and less money being spent buying innovators, thus causing a slightly vicious cycle. To raise money and/or to exit, a company makes money from leads, ala Zillow, but it tries to distance itself from leads.
Money is not the only group that takes issue with leads. Talent does too. The brave lead generators based in the Bay Area will tell you that when competing with companies like Facebook, Zynga, Twitter, et al, you aren’t going to attract an engineer with the words lead generation. The environment today has in some ways given the control to the coder not the one paying the bills. They expect not just to work but to work on something that they actually like. Good for them but a challenge for those building businesses that don’t rely on unlimited funding. As a result, the companies in the lead gen world must hire B talent, overpay for those for whom direct compensation matters, or spin their business to sound like something else.
What will it take to change things? There is always a focus on product over revenue on building a platform and not just a business. It worked for Zillow. The other thing? The economy. When tech companies are doing well, i.e., those with ideas and not so much revenues, when brand dollars are fueling a revolution in spending, performance based models always suffer. The same is true here. It’s not sexy to be good. The patient ones have been through this before and realize that perceptions of the business go through these cycles. It might not be sexy to make money today, but it’s going to insure that this group is around when the funding dries up.
