The future is lead generation

In an era of social networking and free online media, how will digital companies make a living? Through lead generation, argues Attinger Jack Interactive Managing Director Alex Attinger.

If the recent New York Ad Tech expo is any guide, the future will be performance-based using payment-by-results - in a phrase: lead generation.

Walking around Ad Tech was a sobering experience; stand after exhibition stand featured performance-based businesses offering unbeatable deals on a CPA (cost per acquisition) basis.

And the risk to a client brand of employing one of these companies? Nothing.

The business model is payment by results: no results equals no cost, which equates to zero risk for the client.

What is online lead generation? Lead gen is when a client brand pays an online media agency on a per lead basis.

For argument's sake, take a leading financial brand offering a GBP5k loan.

The typical cost of a high-quality, fully vetted lead would be GBP80 or more.

Given the high margin on a loan, leads at GBP80 per unit are excellent value.

One thousand leads would cost GBP80k.

Millions of pounds of online budgets are now moving to lead gen.

Is it any wonder? Client brands are faced with the choice of either spending GBP80k a month on online advertising with no guarantee of results or spending the same money with a lead generation agency with 1,000 leads guaranteed.

It's simply no contest and this is the reason why online media in the US has become dominated by performance-based agencies.

But where lead gen really stands out is that ALL the costs and risk are borne by the media agency, not the client brand.

The media agency has to plan and pay for all the online media, operate and sustain its network of affiliates, all the while producing leads for its clients.

The client just wants the required number of leads and nothing more.

It's obviously a risky strategy for the online agency but if the agency really is an expert in media and knows online media in-depth, then it will be able to confidently buy media, take the risk and offer a client a performance-based model that rewards both parties well.

It demands absolute professionalism and a complete understanding of the business model - otherwise the risk becomes too great.

But as the US has shown, the future belongs to those agencies getting it right.

Lead gen is already huge in the UK financial sector, particularly in the mortgage, insurance and loan sectors - large online budgets are now being diverted to lead-generation agencies.

These agencies pay for the media themselves and simply guarantee finance houses a set quota of leads on a fee-per-lead basis.

Just as happened in the US, this is expanding into other UK sectors such as travel, property, health care and insurance.

The only sectors where online lead gen doesn't work very well are those product sectors with wafer-thin margins, for example, mobile phones.

For that reason, standard email marketing, online banner and skyscraper advertising will remain important.

However, expect the enormous online budgets being spent on these to decline and for lead gen to start taking prominence.

Payment by results is a huge risk and cost per acquisition is a dangerous animal because a digital company can't get it wrong.

But its advantage is that only the very best companies survive, by dint of their expertise and nothing else.

Digital companies, if they are good, should therefore have nothing to worry about.

And Clients? Well, their results are guaranteed and they're laughing all the way to the bank.

Alex Attinger is Managing Director of Attinger Jack Interactive.

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