Thoughts on Tech, Deals, and Markets

Competitive Advantage in Lead Gen: Part III

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In my last post, I made the point that efficient media buying is very hard.  It’s not a coincidence that businesses that do it well consisently post EBITDA margins of 20-30%.  But media buying is only one piece of the monetization challenge.  The next piece I’ll cover is conversion and optimization.

When a lead gen company buys a pair of eyeballs, they drive it to a targetted landing page.  If they want to survive, they need to make the user convert.  Every landing page is a huge, multivariate optimization problem.  Good lead gen companies don’t just run a few tests now and then.  They are constantly testing.  To buy traffic and not use it for a test is to lose money.  Like managing PPC, this conversion testing piece requires significant technology.   Once again, the magnitude of this challenge is illustrated by the large number of venture-backed startups working on it.

In addition to the conversion problem of maximizing the number of users who fill out a given form, there is an additional optimization problem–what do you do after the user fills out the form?  In many verticals, a lead gen company has the opportunity to get the user to fill out another form or collect additional monetizable data.  That can dramatically enhance monetization, creating a big edge over competitors.

Similar to traffic buying, it often takes millions to get enough data to figure out what works in conversion and optimization.  A smaller player might never have a large enough sample to learn the optimization drivers that a larger company exploits.    What if an edu lead for a teaching program generated in the afternoon can often convert into a lead for a nursing program, while in the evening it converts more efficiently into a lead for an accounting program?  The rule of thumb in optimization is that your intuition will fail you.  You can only figure out the optimal conversion solution using endless loops of testing-and-learning.  If you have technology and scale to crunch the data and figure that out, you have a robust competitive advantage.

Written by sandykory

January 29, 2009 at 2:13 pm

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  1. […] Competitive Advantage in Lead Gen Part III […]


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