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FTC And The Real Future Of Lead Gen

Written on
February 14th 2008
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While the student loan industry has seen better times (see our coverage here), not all news from around the lead generation landscape carries such gloom, certainly not in the eyes of ValueClick, who yesterday announced a settlement with the Federal Trade Commission around their lead generation practices. The settlement stems from a probe launched in May of last year, which being a public company they had to disclose in an 8-k filing. ValueClick stated the FTC is specifically “investigating certain…websites which promise consumers a free gift of substantial value, and the manner in which the company drives traffic to such websites, in particular through email.” And, in the settlement reached, it shows that the focus of the investigation never wavered, i.e. the use of email to drive consumers to their incentive promotion sites. As reported in the release, “ValueClick agreed to a settlement payment of $2.9 million without an admission of liability or conceding that the Company violated any laws. In addition, the Company and the FTC have agreed on the standards that will govern its lead generation business. The settlement is based solely on the past practices of the Company’s Hi-Speed Media division and not WebClients or any other ValueClick subsidiary.” While large, $2.9 million is actually a small price to pay for the profitability of their incentive promotion business, which by some accounts earned them north of $100 million in profit for 2006. As for the reference to the inquiry stemming solely on the actions of their Hi-Speed Media division, that closes the loop on the 9 month old statement regarding the investigation into email marketing, with Hi-Speed being the company ValueClick purchased prior to their much larger $140 million acquisition of WebClients.

You might say the FTC is on a roll with respect to companies and their marketing practices. In late November of last year, the FTC announced another settlement surrounding the profitable yet contentious incentive promotion arena, this time with incentive pioneer Adteractive. As stated in the FTC’s release, “A large online advertiser that drove traffic to its Web sites using spam e-mails with misleading subject lines has agreed to settle Federal Trade Commission charges that it failed to disclose that consumers have to spend money to receive the so-called “free” gifts it offers.” The company, Adteractive, agreed to pay $650,000, also a small price compared to the profits made over the course of their marketing and powering incentive promotion offers. Similar to ValueClick, this investigation focused on email marketing and the promoting of incentive offers, but unlike ValueClick, the Adteractive suit didn’t make mention of lead generation practices. Rounding out the big three, The Useful now named World Avenue, also found itself at the center of an investigation, not from the FTC but from the Florida Office of the Attorney General, who notched another $1 million payday after doing the same with Azoogle Ads just before the Adteractive settlement. It was a low hanging fruit for the company long headquartered in Florida that became perhaps the most prolific of all incentive promotion marketers. Hard to say if there will be any additional settlements announced, as a few other players have done almost as well in the marketing of the “free” offers, but the AG might find it more difficult to extract high ticket payouts from them.

The settlements, specifically the word choice often used in the releases and articles, brings up a broader issue - how to properly describe the type of direct marketing activities in which companies like ValueClick’s WebClients and The Useful engage. With respect to ValueClick, we see no incentive promotion but reference to lead generation, e.g., “has completed its previously-announced initiative to consolidate its lead generation activities into the Company’s WebClients division,” or with an article covering The Useful investigation where it describes the company as “lead-generation firm World Avenue USA.” Are these really lead generation firms? When someone says lead generation, companies like LowerMyBills, Quinstreet, University of Phoenix, The CollegeBound Network, LeadPoint, and countless others come to mind, but not ValueClick and The Useful. The latter specialize in a type of marketing, leveraging a promotion to aid in customer acquisition, but they shouldn’t qualify as lead generation companies. In their quest to monetize a user who enters their paths, they do try and generate leads for a select number of companies, but their business offers leads only as a consequence as opposed to being the core marketing activity. Take Education Dynamics on the other hand, whose Recruitment and Prospecting division, and in much the same vein as Vantage Media, Quinstreet, The CollegeBound Network, works on behalf of the higher education institutions to drive interested students. Their ads relate only to education, use no unrelated incentives (actually no incentives) at all, and they receive compensation for leads generated to the particular school the user selects. The same is true of any number of companies across the ever increasing spectrum of verticals.

We harp on the semantics, because at some level an entire industry is at stake. Incentive promotion is a fantastic marketing vehicle and a powerful tool for leveraging user intent for a good or service and leveraging ads to help the user fulfill the intent, but it’s not leads. Users who come to these sites do not have the same intent or interest that users going to an education lead gen site, student loan, car service, and so on, do. If users come to associate lead generation with incentive promotion, billions of dollars of value goes out the door. Lead generation as a subset of customer acquisition has the ability to revolutionize the way companies and potential customers meet. It is, in one sense, the yellow-pages with intelligence and accountability, offering merchants a pay for performance model to meet qualified customers and end users the chance to connect with companies that can fulfill their exact needs instead of just pointing at one and calling. Combined with other customer feedback data, mapping, and other Internet only value-adds, it will continue along its path of being invaluable to both constituents, but not if incentive promotion gets lumped with it. As direct marketers, again, we love and respect the role of incentive marketers, but we also need to help promote awareness and increase the sustainability of another form of customer acquisition that has a much larger reach and end-value, especially in the quality of the customers it produces.

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Reader Comments.

Very interesting thoughts as to whether or not they qualify as a “lead generation company” depending on what their core focus is. Another way I might look at it is through their revenue model. Does lead generation account for a sizeable portion of their revenue, or is it merely a supplement?

I would hope that good ROI tracking and marketing metric systems can regulate out such practices rather than government intervention. Leads that came about b/c of some promise for a piece of electronics equipment typically convert at a much lower rate, making their effective value less than those where no such promise was made, but rather the lead opted-in or is specifically seeking out a service. Hopefully the market can dictate this rather than the FTC, but we’ll see I suppose.

Posted by LSM | 3:51 pm on February 15, 2008.

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