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Lead Gen: The Fraud Paradox

Written on
Oct 28, 2011 
Author
DM Confidential  |

DM CONFIDENTIAL – If I told you that a company was running a business doing 90% fraud and billing more than $10,000 a month, what would you think? In many ways, it’s unintentionally a trick question. Those in the performance marketing space would answer, yes, they could believe it. Not only could they believe it, but they would point to a half dozen relationship or more that do just this.

Such an answer goes completely counter to what someone not as connected to the space would say. They would think, no way. Not today, maybe a year ago. Maybe two years ago, but not today. The world is too sophisticated for such a thing to happen.

Instead it’s the opposite. The world, namely the fraudsters, are so sophisticated that it can happen. As one lead buyer quipped, “I’m shocked at how much fraud there is, and that it is still a viable industry.”

This is not the first time that we have written about fraud, and it’s not the first time we’ve written about its brother from another mother, compliance. Compliance is the ongoing battle to not run into legal hurdles. The downsides of non-compliance are huge expenses. Fraud is the ongoing battle to insure data integrity.

It is like Chinese water torture for a lead buyer. What is fraud really? The problem is that fraud can be and usually is real data. It’s more insidious than click fraud, because it engages and wastes human capital.

Data fraud is zero intent traffic. The person’s whose information is entered didn’t do it, and they have no desire to be contacted. They will pass validation software and could even score well as a lead, but the only customer they will turn into is an angry one.

Talk to any buyer or offer owner, and you will find that fraud is never far from their mind. One problem is that while everyone has it, there isn’t any standard by which to compare. Given that we spoke of indices in another article, it seems only fitting that we came across this new index below.

It’s from a leading fraud monitoring company, Fraudlogix. What it tells us is that the average company not using fraud verification has 15% of their leads coming from fraud. If they run a $100,000 per month operation, they are looking at losing $15,000. At $1.5 million per month, they are looking at $150,000 per month in lost revenue.

A Two-Part Story

The Fraud Paradox is what those who contemplate minimizing their fraud go through. They look at the above data and do the math. Then they decide that losing 15% of their business is a little more than they can stomach, but it’s not just 15% of revenue, it’s an equally higher percentage of profit.

Given all the headache that fraud causes downstream, it would seem, despite the drop, a no-brainer decision. It isn’t, because ead markets are not optimized. If a seller cuts out 15% of absolutely non-performing traffic, they do not see a 15% bump in prices to make up for the lost revenue. They could argue for a greater than 15% bump given that there are labor savings as well.

The fact is that they won’t see any bump. So, their incentive for using fraud monitoring is limited only to a last resort, where they will lose the business entirely.

The second part of the Fraud Paradox is what happens after someone actually starts to implement fraud monitoring. (The someone in this case is almost always an aggregator, and fraud monitoring, like compliance, only works when the landing pages of where the data is collected is tagged.) When someone starts to implement fraud monitoring, the fear of losing business has them only use the service sparingly… at first.

It then becomes like a radar detector for a car. They start to realize that instead of living in fear, they can actually start to open up their marketing efforts to more sources. The net result – virtually everyone who uses these services sees an uptick in their business over time.

An Ecosystem Shift

Fraud monitoring highlights the adage of taking one step back to take two steps forward. That it exists in the lead world is perhaps not such a bad thing as it is a complement to the maturity of the market.

The question with fraud, though, is not whether people should practice safe lead gen. It’s what will happen to change the ecosystem entirely so that running the business, not managing fraud, becomes the opportunity. It’s a question we’ve asked before, and according to one person, the answer lies in something that those in the performance space have not needed to embrace — venture-backed disruption.

We might either see the space continue as is, like search did, or we will see it upended. In this case, it’s not clear exactly what upending really means. It seems more a general observation that we’ve only touched the surface of what should be done, and hopefully we will be free to do so going forward.

Cross-published at the DM Confidential blog.





DM Confidential is a leader in the Affiliate marketplace. The DM Confidential Newsletter and web site is focused on the online marketing industry. To read more from DM Confidential visit: www.dmconfidential.com

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