• Archive for the ‘News & Analysis’ Category

  • For-Profit-Education: Sector Under Siege – Regulations Recap

    August 23rd, 2010
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    Under Siege

    For those interested and/or operating in education lead generation, you should definitely make sure you subscribe to Inside Higher Education’s daily newsletter. It’s all things education, and many days might go by without news or analysis regarding the for-profit sector, but when news does happen, they cover it perhaps the best. As a reader, what you realize, especially a reader with an internet marketing background, is something we have said before – the world of education is a complex one. And, like any major industry, only a fraction of the education world intersects with the lead generation world. That intersection involves by and large, for-profit-education institutions working with external marketing services firms to assist them in generating leads. The relationship between the two has grown significantly since its infancy a decade ago to a billion dollar per year relationship.

    The billions spent over the past decade have created countless internet advertising companies and a great deal of shareholder value for the for-profits. The relationship between the two – lead generators and the schools – has had its ups and downs, but any issues were their issues – price, transparency, quality, etc. The two sides have not had to worry about many external issues, and this is incredibly true of those in lead generation. I’m embarrassed to say that when I started generating leads for schools in 2002 (creating ads, landing pages, and hosting forms), I couldn’t explain how the schools got paid. I was more familiar with Title IX than Title IV let alone any legislation around the Higher Education Act. Today, I know a lot more than I did but not nearly enough.

    Included here is some of what has transpired in the world of online education over the past year. There will be some incomplete information and hopefully not too many mistakes. It is not meant to be the authoritative guide to all things edu lean gen. It is created mainly for those in the space who are as I was years ago – just thinking about their side of the business. Such a one-sided view of the world is the quickest way to see that world end. (If you haven’t already, you can view an earlier piece “Pondering the Future of the For-Profits” inspired by a fair but not flattering piece done by Frontline, which helps explain why those outside the sector can have a less than positive view of the space.)

    First, some must-know definitions:

    Higher Education Act – enacted into law in 1965. This complicated piece of legislation covers much more than student aid; but, it is the language around the dispersion of federal funds that impacts all of education and any school wishing to be eligible for funds. That language is covered in Title IV and why you will hear student financial aid referred to as Title IV funds.  The bill is reauthorized every four to six years. It was last reauthorized in 2008 by President Bush.

    Negotiated Rule Making – Negotiated rulemaking began in the 1980s, but wasn’t used extensively until the Negotiated Rulemaking Act of 1990 encouraged all federal agencies to use it to enhance the rulemaking process. On December 31, 2008, the Department of Education announced it would establish five negotiated rulemaking (negreg) committees to prepare proposed regulations under Title IV of the Higher Education Opportunity Act (HEOA). Source NASFAA

    Notice of Proposed Rule Making – More from NASFAA: Under negotiated rulemaking, the Department works to develop a Notice of Proposed Rulemaking (NPRM) in collaboration with representatives of the parties who will be affected significantly by the regulations. This is done through a series of meetings during which these representatives, referred to as negotiators, work with the Department to come to consensus on the Department’s proposed regulations.

    What you need to know from a procedural level:

    While the Department of Education is required by law to use negotiated rulemaking to develop NPRMs for programs authorized under Title IV of the Higher Education Act, and while the process of negotiated rulemaking is designed to bring together of the potentially affected parties to try and find agreement on new rules, there is no requirement that all parties come to agreement. Reaching consensus is how the reaching of agreement is referred in the negreg process.

    Key to understanding where we are today is the following from the NASFAA site:

    When negotiators fail to reach consensus, the federal agency is permitted to continue its rulemaking process without considering any of the input from negotiators. When negotiators failed to reach consensus last year, the Department drafted its own rules. In such cases, the Department says it tries to draft rules in accordance with agreements reached during the rulemaking sessions. But in some instances, the Department drafts regulations that some or all negotiators disagree with.

    The drama enveloping the current online education lead generation space has everything to do with the negotiated rule making process that is almost complete. All public meetings have been held, and the time for any further commenting has closed.

    Broad Issues & Key Concepts:

    Incentive Compensation – In 1992, Congress banned schools participating in federal student aid programs from paying commissions, bonuses, or other incentive payments to individuals based on their success in enrolling students or securing financial aid for them. Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. (Source Government Accountability Office)

    Safe Harbors – In 2002, the U.S. Department of Education (Education) issued regulations–commonly referred to as “safe harbors”–that allowed for 12 activities or payment arrangements that schools could use without violating the ban against incentive compensation. (Source Government Accountability Office). Number 10 deals with the internet. recognizes that the Internet is simply a communications medium, much like the U.S. mail, and is outside the scope of the incentive compensation prohibition. It permits a school to award incentive compensation for Internet-based recruitment and admission activities that –

    • provide information about the school to prospective students,
    • refer prospective students to the school, or
    • permit prospective students to apply for admission online. (Knutte & Associates)

    Timeline:

    1992 – Department of Education bans any form on incentive compensation with respect to enrollments. Strict definitions in place.

    2002 – Pendulum swings the opposite way. Safe harbors outline 12 specific rules where schools would not violate the ban against incentive compensation.

    2010 – ???

    Expected Decisions:

    Judging by the negotiators selected by the Department of Education during the recently concluded negotiated rulemaking process, it can be concluded that the negotiations had a definite bent towards a more traditional view of education, one that does not view favorably education as a business.  In other words, the deck was stacked against the current business operations of the for-profit schools. There were 14 issues being tackled as part of this neg reg process. Consensus was reached on nine. That left the Department of Education to specify the rules. The Department has published several Notice of Proposed Rule Making, giving a view into what the final rules will state. Those where consensus was not reached included two issues most important to the for-profits:

    Elimination of Safe Harbors – The Department of Education will in all likelihood remove the 12 safe harbors which helped specify actions that would not violate the ban on incentive compensation. Gone is the carve-out for internet based activities.

    Gainful Employment – For schools to be eligible for Title IV funds, they must (among other things), train students for “gainful employment in a recognized occupation.” Congress nor the Department of Education has prior to this attempted to define gainful employment. Until now. Students at for-profits are taking out tens billions per year in student financial aid. You want them to pay it back. Makes sense. This definition, more than anything, has had investors nervous. What happens if the proposed rule makes it almost impossible for for-profits (who serve a traditionally different socioeconomic group than traditional not-for-profits) to meet the definition’s guidelines?

    On July 23rd, 2010, the Department of Education released its proposed regulations to define gainful employment. It looked to be less onerous than initially feared. “Under these proposed regulations, the Department would assess whether a program provides training that leads to gainful employment by applying two tests: One test based upon debt-to-income ratios and the other test based upon repayment rates.”  Stocks rallied. On August 16, 2010, the data the Department planned on using for the second test, repayment rates, came out. Using those numbers, many of the large for-profits would not meet the criteria to be eligible for Title IV funds. Stocks tanked.

    Per the NPRM:

    Based on the program’s performance under these tests, the program may be eligible, have restricted eligibility, or be ineligible. A program that meets both of these tests, or whose debt-to-income ratio is very low, would continue to be eligible for title IV, HEA program funds without restrictions, while a program that does not meet any of the tests would become ineligible. A program that meets only one of the tests would be placed in a restricted eligibility status, unless it has a high repayment rate.

    Under certain circumstances, the proposed regulations would also require an institution to disclose the test results and alert current and prospective students that they may difficulty repaying their loans.

    Let’s say that last part again, with emphasis added, “Under certain circumstances, the proposed regulations would also require an institution to disclose the test results and alert current and prospective students that they may difficulty repaying their loans.”

    Where we’re headed:

    Greater Transparency – We’re entering a world where students must be told much more in advance. Whether on the landing pages or on the phones, big warning signs may be present. Regardless, students will be made aware of vital data that they must request today, e.g., total cost, placement rates, and median loan debt.

    Fewer Leads? – This is the multi-hundred million dollar question. If a school’s program doesn’t fulfill the eligibility requirements for financial aid, they won’t be accepting new students. No new students, equals no leads. Corinthian’s Everest College Phoenix Online will no longer purchase leads beginning September 1st, 2010.

    Legislation vs. Regulation – Everest College Phoenix’s decision had less to do with the proposed / expected rules and everything to do with an issue not discussed – accreditation. Schools must also be accredited as part of their eligibility. The specific for accreditation are not governed or determined by the Higher Education Act.  The standards used by accrediting bodies has been the subject of not infrequent scrutiny. We are entering another period of such scrutiny, lead not by the Department of Education but by Congress, namely Senator Harkin, the ranking member of the Senate Committee on Health, Education, Labor, and Pensions. Senator Harkin has had to hearings looking into the business and practices of for-profit-education. His goal is to create reform that would outlast an administration change. Regulations, such as those being proposed and enacted by the Department of Education could be changed if a new administration comes into power. Not so with legislation.

    Where does that leave us?

    By November 1, 2011, the final rulings will be released which will go into effect July 2011. The next milestone could take place any day, or we might have to wait until November. As marketers, we can’t control whether students will repay their loans, but we can influence it. We must be vigilant in stopping any who continue to allow misrepresentations to occur. Not only are they potentially illegal, but they will flood the system with garbage and have already put in jeopardy the future of online education lead generation. It’s a question of potentially earning less money versus earning no more money. Which will it be?

    ranking member of the Senate Committee on Health, Education, Labor, and Pensions
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  • New FTC Rules for Debt Relief Services Turn Up the Heat on Lead Generators and Affiliate Marketers

    August 2nd, 2010
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    This is a Guest Post by Jonathan L.  Pompan, Esq.,  Venable LLP, Washington, DC

    Less than two days after the close of LeadsCon East 2010, on July 29, 2010, at the White House, with Vice President Biden at the podium, the Federal Trade Commission (the “FTC” or the “Commission”) announced its long-awaited amendments to the Telemarketing Sales Rule (“TSR”) targeting the sale of “debt relief services” (the “Final Rule” or the “rule”). The new rules will require lead generators and affiliate marketers to re-evaluate marketing methods and exercise additional due diligence when evaluating business relationships.

    Under the Final Rule, virtually all debt relief service providers that promote their services through inbound or outbound telephone calls, including calls arising from lead generators and online advertising, will be subject to a host of new and existing requirements under the TSR – most notably, a ban on advance fees before services are provided and a renewed emphasis on companies that provide “substantial assistance.”

    The FTC’s stated goal for the new rule is to curb deceptive and abusive practices in the telemarketing of debt relief services. The revisions to the TSR were inspired largely by advertising for debt settlement services that promised extraordinary results that consumer’s never achieved despite paying significant fees. As a result the FTC, state Attorneys General, and other state regulators brought enforcement actions in the debt relief space because, to use FTC Chairman Jon Leibowitz’s words, “many of these companies pick[ed] the last dollar out of consumers’ pockets – and far from leaving them better off, push[ed] them deeper into debt, even bankruptcy.”

    The rule defines the term “debt relief service;” ensures that, regardless of the medium through which such services are initially advertised, telemarketing transactions involving debt relief services will be subject to the TSR; mandates certain disclosures and prohibits misrepresentations in the telemarketing of debt relief services; and, most significantly, prohibits any entity from requesting or receiving payment for debt relief services until such services have been fully performed, accepted and documented to the consumer.

    A few other highlights of the rule:

    1. under the TSR it is illegal to provide “substantial assistance” to another company if you know they are violating the rule or if you remain deliberately ignorant of their actions (in the case of debt relief services the FTC made clear this may expressly apply to lead generators, back-office processors, and “dedicated account” providers, among others);
    2. strict parameters are established regarding “dedicated accounts” utilized to set aside funds for settlement and settlement company fees;
    3. there are very specific and strict guidelines for the types of substantiation necessary before certain marketing claims can be made; and
    4. the rule can be enforced by the FTC, the new Bureau of Consumer Financial Protection, state Attorneys General, and through private litigation, including class actions.

    The Final Rule is likely to cause debt relief providers – primarily for-profit debt settlement companies – to have to transition to new business models and to develop compliance programs that reflect strict advertising and marketing requirements. It also will impact the activities of lead generators, affiliate marketers, back-office service providers, payment processors, banks, and others that provide substantial assistance to debt relief providers, even if they do not sell or provide debt relief services directly to consumers.

    In short, according to the FTC, those who provide such “substantial assistance” will now be required to review the policies, procedures and operations of debt relief companies to ensure they are complying with the Final Rule, or risk violating the law themselves. The FTC warns businesses, “[i]f you work with debt relief companies, review their policies, procedures and operations to make sure they’re complying with the Rule. Willful ignorance isn’t a defense.”
    While the agency has lead generators in its sights, providers of debt relief services that use lead generators to obtain leads also are directly in the line of fire. At the July 29 press conference, Chairman Leibowitz promised “aggressive” enforcement of the new debt relief rules.

    As a result of the FTC new rule for debt relief services, all providers, advertisers and marketers of debt relief services – including, lead generators – should carefully review their operations, policies and procedures, including advertising and marketing (e.g., websites, inbound telephone scripts, print, radio, television and Internet advertisements, customer relationships, etc.) in light of the new rule.

    The Final Rule will be published in the Federal Register shortly, and is available now on the FTC’s website. The provisions of the Final Rule will take effect on September 27, 2010, with the exception of the advance fee ban provision, which will take effect on October 27, 2010. Importantly, the advance fee ban does not apply retroactively, so it does not apply to contracts with consumers executed prior to October 27, 2010. In addition, the FTC has issued guidelines for complying with the TSR, including the new debt relief rules.

    For a detailed summary and analysis of the FTC’s Final Rule, see the article: FTC Issues Final Rules for Debt Relief Services: Landmark Changes for Service Providers, Advertisers and Marketers of Debt Relief Services, available at www.venable.com/ccds/publications.
    * * * * * *
    Jonathan Pompan is an attorney in the Washington, DC office of Venable LLP. Mr. Pompan’s practice focuses on advertising and marketing regulation and enforcement, as well as working with debt relief service providers.  For more information, please contact Jonathan L. Pompan at 202/344-4383 or jlpompan[at]venable.com.
    This article is not intended to provide legal advice or opinion and should not be relied on as such.  Legal advice can only be provided in response to a specific fact situation.

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  • Innovation Ads – Innovating No More

    July 2nd, 2010
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    It is being reported that Innovation Ads has closed and ceased operations in the online lead generation space. Emails from now former employees went out to their former clients, saying “I’m not sure if word has gotten to you yet, but yesterday, Innovation Ads closed, and terminated all of it’s employees.” The emails unfortunately also delivered some bad news, namely that companies are now saddled with potential losses because of presumably now unpayable invoices.

    Innovation Ads has long and colorful history in the space. I was unaware that Capital Source Finance of Chicago was the majority owner. Founded in 2002, the company was acquired by Seaport Capital in 2006. The press releases stated, “This was a strategic move carried out by Seaport Capital in order to compliment its earlier acquisition of Direct Response Media, Inc. (DRMI), a full-service agency specializing in direct response television. Seaport Capital has created Think Media, a holding company that will preserve the autonomy of Innovation Ads and DRMI, while creating the opportunity for collaborative direct marketing endeavors between the two entities. This heavy-weight amalgamation of unique talent promises to be the premier direct marketing solution for advertisers.” Whatever it was, kudos should go the investment bank. The majority owner of Innovation Ads now, according to those closer to the company, is not Seaport but Capital Source Finance of Chicago.

    Prior to the acquisition, Innovation Ads did not have a reputation for high quality… this according to feedback from the schools. More recently, though, it seems as though the company had turned the quality corner and for some schools was starting to be seen as a preferred vendor. Those we talked to (on the buy and sell side) liked dealing with them.

    A big question looms around the future of UMUC (University of Marlyand University College) from whom Innovation ads was the Agency of Record. I suspect there are some pretty excited other firms who would like to take over the relationship with such a marquee brand.

    Best of luck to the team there. We wish them well.

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  • BrokersWeb.com Expanding into the Auto Insurance per-Click Marketplace

    June 24th, 2010
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    Looking at Quinstreet’s market cap recently, you might presume something is wrong with the business. They are trading almost one-third off of their peak and almost twenty percent below their IPO. Yet, stock analysts who cover the sector estimate nothing but continued growth. Some of this selling of the stock is a result of perceived exposure to the Department of Education’s ongoing process to overhaul portions of the Higher Education Act. It’s a complex topic that is even more complex the further one is from an educational institution. The uncertainty and complexity hasn’t helped education institutions, most notably the for-profit education companies and those who service them like Quinstreet.

    The online education business might comprise the largest segment of Quinstreet’s business, as it was their primary line of business. But, education does not represent their fastest growing segment, financial services does. For those with some familiarity with Quinstreet’s business, financial services means SureHits, the auto insurance click marketplace the company acquired several years back. The SureHits business differs fundamentally with the cost-per-lead approach of Quinstreet’s online education business and with the cost per lead approach favored by a large number of other marketing services firms in insurance such as Netquote, InsWeb, and AllWebLeads.

    Outside of the obvious, namely that vertical click marketplaces charge on a click basis, vertical marketplaces have other differences that many advertisers favor. An advertiser in a vertical click marketplace owns the conversion experience. A common complaint of lead aggregators is that buyers do not know from where the leads come – what was said in the steps of the funnel up to their acquiring the name. In the click marketplace, they own the ad, the landing page, and are responsible for the conversion. The ultimate cost per lead could end up much higher than through a lead aggregator, but it is the only option for many brands who have policies against leads. The marketplace is all about control, and judging from SureHits success, there is something to be said for vertical marketplaces as an alternate vehicle in the quest leads. But, they are not for everyone. If you do not have expertise in online advertising, you will find yourself spending a lot for little in return.

    This week brings news of a new entrant into the vertical click marketplace for auto insurance – BrokersWeb. Those in the health care space most likely know BrokersWeb by their HealthCare.com brand and their additional owned properties HealthInsuranceFinders.com, HealthCare.org, MedicareSupplemental.com, MedicareSupplement.com, and LifeInsurance.org. In addition to owned properties, they also have robust network of highly-targeted website distribution partners. (HealthCare.com purchased the BrokersWeb assets in Q3 2008 and has grown them 5x since – primarily through partner distribution). As you can see from the domains, the company goes deep into the health care vertical, and it is my understanding too that they are the only solution for those niche health insurance sub-categories, i.e. Medicare Supplements, Group Health Insurance and Dental Insurance. Prior to this week’s auto insurance launch, life insurance was the most recent, launching in 2009 and buoyed significantly by the organic traffic coming through the highly ranked LifeInsurance.org.

    Auto insurance may not seem like a logical next step for a company with deep health expertise, but from a market perspective, it is the exact right choice. Everyone who drives needs it, i.e. a large overall market, relatively high natural churn so advertisers must spend to grow, and those insured with one company can switch to a new carrier with less friction than cell phone. Plus, there are a lot of major brands spending for direct access to customers – perfect for a vertical click marketplace. As such, it’s a logical next step for a company with an operating history in vertical click marketplaces. Like any entering, there is still the classic chicken and egg scenario of having enough buyers and sellers. Distribution partners will want high CPC’s, and advertisers will want to see quality before coughing up the high CPCs. It’s a slow process, and simply saying, we’re doing it doesn’t mean both sides will come. Luckily, there is enough latent demand from both that BrokersWeb stands a good chance of speeding up this process in order to become a viable player, and they are kicking off the launch with several high profile players on each side at launch. This includes top-tier bidders such as GEICO, Esurance and The Hartford on the advertiser side and AutoInsurance.com and OnlineAutoInsurance.com on the distribution side. We wish them luck as it’s always good to see growth in the space.

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  • Pondering the Future of the For-Profits

    May 24th, 2010
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    Education lead generation has for lack of a better word been on a tear – an absolute bull market in an otherwise bearish economy. Lead volumes alone do not tell the full story. They tell of the success of lead generation and of the school’s growth, but they do not tell about the broader perception of the industry.

    Historically, marketing and the market could operate quite separately. If a marketer, it helped to understand the market you served, but not being a vertical expert didn’t stop you from generating leads in a particular category. Generally, those with greater vertical expertise scaled larger than those who did not. The vertical expertise enabled them to talk shop with their clients and create more effective ads because they understood the nuances. That vertical expertise also meant a greater awareness of the issues surrounding the industry. Except, until now, that hadn’t been an issue. Vertical expertise was really about talking shop not as a means for staying out of trouble.

    The landscape is dramatically changing; yet, it feels like too many people in a position to influence enrollment (namely those who touch consumers) do not appreciate the seriousness of the situation and the scrutiny under which the industry has come. The average affiliate, responsible for 10% to 25% of all leads, does not see the connection between their actions and the 70 Billion dollar / year education industry. They view the world only in terms of conversions. From their perspective, the industry doesn’t extend beyond their ability to generate a lead. Their job is the lead. The advertiser’s job is after that, and if the advertiser doesn’t empower them to create conversions, they take matters into their own hands.  They say to themselves, “What’s the big deal,” and “No one will really care.” They then create misleading ads like this one.

    Cops-ad

    Even we, who have been following the more developments closer than the average person (namely the 2008 Higher Education Opportunity Act and subsequent negotiated rule making process), find making sense of the processes, time lines, institutions, and acronyms confusing. Ads like the above, the countercyclical success of the for-profit industry, and the re-examination of government funds has lead to the every so-often re-examination of the for-profits.  Almost every major publication has run a piece on the topic, but this same complexity that makes it tough for us to summarize makes it just as tough for others to as well, especially if education is not their focus. The pieces, though, are becoming more frequent, and one in particular came out that initially had those who lean towards for-profit education growth nervous.

    Frontline, the documentary series on PBS, ran an expose titled, “College, Inc.,” a piece that given the generally tone of most public broadcasting seemed as though it would turn out as a roast of the for-profit sector. It wasn’t quite roast, but for those who care enough to understand the issue but need to see something, this is for you. The Frontline piece (6 segments online) is just under an hour long in total and worth every minute. Watching it and reading this post from Higher Ed Watch, will help any marketer understand those with misgivings about the for-profit space. If I could, I’d make this required viewing for any lead seller, especially those for whom education is not their primary focus. Below is Part 1.

    Perhaps the best quote in the piece comes from a former Director of the University of Phoenix who from the sound of it made millions during his tenure through mostly equity growth. He quips, “What makes education so special” and compares the spending and profit margins of schools to perfume. Not his best moment. And he says what most marketers know – that they must advertiser; to succeed, the schools “have to get people’s attention.” If you believe education should not be a business, you’re reading into that as a prime example of a system that is broken.

    Some other facts from the piece:

    • The typical for-profit schools spends double on marketing than what it does on teaching
    • For-profit education is not cheap; a degree costs 5x a typical community college and 2x state schools. The degrees are not far off from the typical private liberal arts school, leading to the comparisons of what you get for your money.
    • The for-profit sector has a lot of financial backing; they have investors who expect certain returns, the implication being that they must not only grow fast but charge as much as possible
    • Sector also has to spend a lot because they have to add a lot of students per year to keep pace with all that theylose
    • Not mentioned but worth mentioning is if this were an other big ticket item, there wouldn’t be as much sensitivity, but it’s education so talk of sales tactics and business growth will unsettle many people
    • The sector represents 10% of the total higher education student body but consumes 25% of all student aid, i.e. a much larger than average reliance on tax dollars, and roughly 20bn loans are generated each year to the for-profit
    • Regional accreditation is key, and the financial community values that alone at $10mm; regional accreditation is what enables a school to qualify for student loans. It’s the key for unlocking federal funds.
    • The criticism is that accreditation is treated like a tax badge, able to be bought indirectly when a struggling not-for-profit agrees to go for-profit.
    • One school charged 30k for a 12 month program for nursing without the students ever stepping foot in a hospital; they are suing as no one will hire them
    • The for-profits might be 10% of all college students, but one person estimates it is responsible for 44% of all student defaults
    • Mandate by Obama – by 2020 America will have the highest percentage of college graduates. Community colleges can’t fulfill that. The for-profits will have to play a role
    • It’s all about student loans. They aren’t like other loans. If you default on a federal student loan you are “hounded for life.” It’s the “most collectible debt” – non dischargeable in bankruptcy, wages can be garnished, tax refunds intercepted, you can be sued in court and ineligible for other federal benefits. In other words, it’s a serious thing when agreeing to one, and 20bn are being generated each year. The should go to only people qualified and with an understanding of what they are getting into. When marketers use language
    • Outstanding student loans equal the nation’s credit card debt, 750bn. We got into a credit crisis among other reasons when people were given credit who were at risk from the start of paying it back. That’s the issue here with student loans, especially from the for-profit sector; could it contribute.
    • “You can’t be afraid of going into business because of regulation risk, “Jack Welch, who invested in a for-profit and lends his name to one of the graduate degrees.

    As Secretary of Education Arne Duncan says, there is nothing inherently wrong with for-profits providing education. The focus now is on making sure the practices are honest and that the students and especially taxpayers are getting value for their investment. High pressure tactics, deceptive actions, and dishonesty is what the Department is challenging in a very serious way. Again, we will see just how serious the challenge is and if the new rules suggest he believes that nothing is inherently wrong.

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  • News Brief: Quinstreet Files for IPO

    November 20th, 2009
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    quinstreet logo

    A name known to many but a company still unknown below the surface, Quinstreet announced plans to raise $250mm in an IPO and trade under the symbol QNST.  Having had their founder and CEO, Doug Valenti, on a panel at LeadsCon, it was a first opportunity for many of us to get a feel for their operation. There are volumes to be said on this, and a more detailed post is coming. If only we were part of the ex-Quinstreet list serv. Overall, a tremendous day for online lead generation, and we should all congratulate and thank Quinstreet, as a successful IPO will help list the entire industry and practice. Not everyone likes them, but for now, we should all root for them.

    Here is what I wrote on my personal blog:

    The day many of us have been waiting for (including Quinstreet) has arrived – the Quinstreet IPO. After years of speculation and some unanticipated market twists, Quinstreet announced its intention to go public, filing their S-1. For a company that has been incredibly secretive closed lipped, the S-1 is an amazing look under the hood of one of the most intriguing companies in the online lead generation space. It details their acquisition history, and while many of us knew about their acquisitive nature, none would have expected it to include more than 100 purchases with at least four eight figure deals. The Quinstreet today is no longer an education lead generation business. They are a roll-up and have been a source of liquidity for countless smaller publishers who sites earn revenue through lead generation. And, today they are a diversified play with some large client concentration but only 50% of the business being edu.

    Much more to be said on the topic.

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  • Subscription Service Upsells – In The Line of Fire

    November 11th, 2009
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    Ask just about anyone in the online customer acquisition space to define an “upsell,” and instead of blank looks, out 10 people you survey, you’ll get roughly 10 similar answers. It’s business practice as old as just about business itself and a crucial way for many businesses to make additional revenue. Extra value meals? An upsell. Care to start with an appetizer folks? Upsell. Look around they are everywhere offline and not surprisingly, online too. The market is sufficiently large that multi-hundred million dollar per year companies exist specializing in helping a wide variety of sites, from lead gen sites to branded commerce sites make more. The lower the margin business you run, the more you rely on upsells. A classic example comes from the online lead generation world. When email was a more viable option for generating additional revenues, many companies would run their ads at almost break-even to a loss, just so they could get address and mailing revenue.

    What’s another business known to run at extremely low margins? The travel industry, especially those offering airline tickets. Now, with most online travel agencies (Orbitz, Expedia, etc.) waiving fees on purchases, they make next to nothing. It’s why their affiliate programs pay out something like 4% of revenue on good day. The airlines themselves, aren’t exactly doing wonderfully themselves. So, it’s no wonder each has various ways of upselling users who convert. If you’ve booked on Expedia, in addition to being asked if you need a hotel or car, you will find yourself scrolling through countless activities available in your destination city. I can’t blame them. Those actually make them money unlike that flight you just bought. Frequent purchasers of tickets and ad junkies, will recall another upsell as well.

    Here is the image of my recent booking for LeadsCon Las Vegas being held Tuesday, February 23 and Wednesday, February 24.
    Itinerary

    Notice something on the far right hand side? It’s a $50 cash back incentive.
    Upsell

    For years, I can remember seeing a button like this one after I make a purchase on a variety of sites, especially airline sites. And, it’s this button that has come under fire, with a press release being issued by the U.S. Senate Committee on Commerce, Science, and Transportation. The release is below, but title tells enough, “Chairman Rockefeller Requests Information from Web Retailers in ‘Mystery Charges’ Investigation.” Read the list of companies who received a request for information, and those in our space will quickly connect the dots, or in this case,the button. The list reads like a who’s who of Adaptive Marketing and Webloyalty’s biggest customers. The key to their success and the publishers is something that the direct marketing industry refers to as Card on File. You’ve just made a purchase. They now have your credit card details. That makes an upsell easier and more rewarding because a purchase related upsell, generally a subscription service, is more lucrative than a data/form based one.

    Here’s how it looks today. Click on the button, which has disclaimer language underneath, and you go here, to Reservation-Rewards. This site is not run by the airline/online travel agent. It is run by Webloyalty, a company that specializes in running subscription services, with their largest acquisition channel being online upsells. This is the same company and type that you would have seen offering these same subscription programs as an insert into your credit card bill. Sending an email telling someone to get $50 their next purchase and hoping they convert doesn’t work nearly as well as someone who just purchased.
    Reservation-Rewards

    Scroll to the bottom of the page, and here is what the conversion process looks like.
    webloyalty-terms

    Mystery charges? In this exact case it’s no mystery, but I can remember not too long ago where the distinction between offer and signup didn’t have this level of differentiation. The button didn’t have the full disclaimer and the sign-up process for the consumer didn’t require additional opting-in. Webloyalty and Adaptive Marketing have faced these issues before, especially related to their telemarketing practices when calling on behalf of credit cards and others with card on file. They’ve weathered the storm, but the results of this investigation could impact the online lead generation space as well. Given how little the broader world understands this type of upselling, it’s not hard to imagine them generalizing.

    Regardless of the outcome, it’s a gray area. The companies doing card on file upsells in the past haven’t been angles. Since then, though, their practices are effective, but they haven’t been scandalous. The unfortunate truth is that I’m sure they do receive a higher than desired (by an outside governing body’s point of view) rate of people signing up who later didn’t recall doing so. Why would they? It’s an impulse purchase from a generic name. That’s the nature of the beast. That’s human nature, and there comes a point where you can only ask the companies to do so much and need to start demanding that the consumers take more responsibility. I’m sure I’d feel differently if the situation were reversed and I was paying $49.99/month+ and having difficulty canceling.

    Copy of the release:

    Chairman Rockefeller Requests Information from Web Retailers in “Mystery Charges” Investigation
    WASHINGTON, D.C.—John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, continued the Committee’s investigation into controversial “post-transaction” online business practices by sending letters yesterday to 16 e-retailers that appear to be involved in these practices.
    Since May 2009, the Committee has been investigating three e-commerce companies—Affinion, Vertrue, and Webloyalty—to better understand their business practices on the Internet, which have been the focus of criticism by consumer advocates and have generated thousands of complaints by individual consumers.  Chairman Rockefeller continued this investigation yesterday by sending information request letters to sixteen companies that have apparently allowed Affinion, Vertrue, and Webloyalty to present membership club enrollment offers to their online customers and have agreed to pass their customers’ credit card or debit card numbers to Affinion, Vertrue, and Webloyalty.
    A list of the companies that received a request for information is included below:
    1-800-FLOWERS.com, Inc.
    AirTran Holdings, Inc.
    Classmates.com, Inc.
    Continental Airlines, Inc.
    FTD, Inc.
    Fandango, Inc.
    Hotwire, Inc.
    Intelius, Inc.
    Movietickets.com, Inc.
    Orbitz Worldwide, Inc.
    Pizza Hut, Inc.
    Priceline.com, Inc.
    Redcats USA, Inc.
    Shutterfly, Inc.
    US Airways Group, Inc.
    Vistaprint USA, Inc.
    News & Analysis, Press Releases
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  • Google Comparison Ads – What It Really Means

    November 3rd, 2009
    Comments

    After two years of development, a teaser beta in the UK last year, and a potential lawsuit seeking to derail its US release, Google’s internally groundbreaking initiative that allows (for now) mortgage banks to buy not just clicks but a request for contact has launched. Called Google Comparison Ads, the product signals a huge directional shift inside of Google (one towards vertical development of their core search monetization) and a potential huge disruption to the online lead generation world.

    Google Comparison Ads Ad

    In classic Google style, the announcement came via one lone blogger and their Inside AdWords blog. I’m still convinced that posts for the Inside AdWords blog are re-written by a specially trained team in Japanese culture who know how to say one thing but mean something very different. Taken at face value, the words sound pleasant, almost complimentary, but translated into their real meaning, they would come across quite differently. The Comparison Ads announcement is no exception. The post, like almost any focusing on improvements to the algorithm speak about value to the user and a more qualified lead for the advertiser. What they are really saying is that the vast majority of those spending money today don’t do a good job. Not surprisingly, those within the online lead generation space have had a lot to say, and the voices represent some of Google’s longest, biggest spenders who can tell you that it was hard enough to spend effectively on Google without actually having to compete with them.  Both sides, not surprisingly, have many valid points.
    google-comparison-ads-results

    (Photo credit: DoublePositive Blog)

    Google Comparison Ads for mortgage is what every mortgage lead generator should have built but didn’t. (Read excellent non-partisan overview of the product from Nick Hedges of Leads360, who like LeadCritic, has hands-on mortgage industry experience.) And, it is because they didn’t build it that Google did. Saying that they should have built it doesn’t tell the whole side of the story. Should doesn’t mean could, and could is what separates Google from the aggregators whose results they displace. Dealing with Google is like dealing with the IRS. If they want something done, it gets done. Ignore the complexities involved with the actual quoting, and let’s focus on the buyers of the leads. Want lenders to buy anonymous leads, e.g., ones without the user’s real phone number? Want lead buyers to be ok with that phone number being tracked and the number deactivated after a while? Good luck being any other company who tries the same. It takes a Google to do it. Comparing others to Google or having them held to Google’s standards is itself a slight double standard.

    Concerns about Google’s global positioning aside, we have an immense amount of respect for what was built, because it forces everyone to elevate their game and keep delivering a better product. This will cause some pain now but that Google speaks about leads is only a long-term benefit for lead generation. And not only do we respect the product, but we really respect the people who built it as they have lead generation and mortgage lead generation in their DNA.  First choice for many would be to not have Google enter, but since they did, at least the product was created by someone any in the industry would trust.

    As Google (indirectly) said in their announcement post this is just the beginning. Here are our takeaways on what Comparison Ads means:

    1. This is not about mortgages – a point we made when covering the Moretech / Lending Tree suit which blew the lid off the Google lead gen product, mortgages is the first vertical. But, it’s not even about verticals so much as Google’s stance on the way form-based lead generation is conducted today. There is a reason a landing page with a form can never get a 10 quality score. Forms themselves aren’t bad, but Google doesn’t like them to be the first and only goal. The user doesn’t click on an ad for “Compare Rates” because they want to see a simple thank you page and hear the phone ring. They want information, and if we can’t do it, Google will.
    2. It still has to monetize – Google can’t lose money on their inventory just because they want to deliver a certain experience. If Google Comparison Ads do not help Google make more money, they will not continue to receive the premium placement. The same holds true for the lead buyers. They don’t hate the current ecosystem and so long as they spend money, don’t count out the current aggregation marketplaces.
    3. It won’t work for everything – comparison ads work for things that can be compared; it requires standardized data and a more of a commodity product. Loans in general are a great fit as are credit cards and insurance. We weren’t the first to say or think that Bankrate got lucky by being taken private. Almost all verticals can use improvement, but the type of game changer created for mortgage isn’t as applicable to many service based industries.
    4. Lead generation is not Google’s DNA – this platform works amazingly well for mortgages and financial products. But, not only is it no sure thing for many others, outside of a really small team, Google doesn’t get lead generation. The companies who do, and those who can add a marketing services + aggregation function, still have lots of growth ahead. Buyers aren’t going to stop wanting face to face meetings, hand holding, and golf outings. Comparison Ads is a game changer but not a category killer.
    5. It’s just one spot – Google can’t capture every click and every conversion. They won’t stop taking money from others, and they aren’t marketers. That leaves many chances for others to continue to spend and capture those users who, as we all know, don’t actually want to do any work. They just want to fill out a form.
    News & Analysis
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  • LeadsCon
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