As I think there are a number of people more qualified than myself to speak about lead generation (from a services perspective), I’ll post some comments from industry insiders throughout the day. If you think you have a solid understanding of this deal, please email me at ‘brian at comparisonengines dot com’ or comment below.
Jay Weintraub – Director at a leading lead generation firm…
I’m thinking it’s incredibly forward thinking (the purchase). I tested a similar service in the US – Whitefence. I think that the UK market is just a little more mature with respect to being able use the web for what has typically been very offline businesses. To me, true home services, the things we can’t live without – water, gas, cable, etc. are the holy grail of lead generation. At the end of the day, lead generation should be married with the idea of comparison shopping, i.e. consumers having choice and companies receiving interested consumers – all married to a marketplace environment. In other words, I am a huge proponent of connecting the principles of lead generation with “real services” not just arbitrage opportunities found in the current verticals.
“With the uSwitch acquisition (and having zero idea about the company) they pick up on two of the most powerful online trends: decision-focused advertising and international (the single greatest financial driver of Yahoo and Google has been international markets catching up to the sophistication of the US).”
Read Niki’s full post
1. Price of the deal…Scripps closed down aprx. 3.25%, and I think it’s because the analysts don’t know what to make of the acquisition. These are Media 1.0 types who were just starting to grok Shopzilla…a bit…and now Scripps throws a pure services lead generation company into the mix. Yes, lead gen for products and lead gen for services require the same expertise in SEM, but the user experience and backend are completely different.
Relative to the Shopzilla acquisition, yes, the deal looks expensive: 8x revenue, 24x segment profit vs. the Shopzilla acquisition at aprx. 4x revenue and aprx. 11x segment profit. BUT, the smart old school media companies have realized that online services are the future and the candidate pool for profitable, established companies is getting slim. And if Scripps can leverage its network for uSwitch and UpMyStreet the same way it leveraged its network for Shopzilla, this deal will not look expensive for that long.
2. This deal is not about synergies between Shopzilla and uSwitch, it’s about a REALLY hot lead generation market and a tough market for old school media. While Shopzilla and Scripps make up the foundation of Scripps’ Interactive Unit (I just liked the idea of the acronym SIU), that doesn’t mean we’re going to see Shopzilla moving into services in the US or uSwitch promoting products in the UK. Something like this could happen in the future (and probably will), but that wasn’t the reason for this deal and shouldn’t be something to be concerned about right now.
As Ken Lowe explained on the conference call, uSwitch in itself is attractive. “In bringing together uSwitch and Shopzilla we’re establishing Scripps as a serious interactive company with accountable marketing services to merchants and services providers. uSwitch is an excellent fit for Scripps as we build out our interactive division.”
Again, the price tag
might have been a bit is high, but look at this deal as a long term play in Scripps’ quest to build out the SIU (and the future of the company). With expected revenues of $200m this year, NexTag has realized the power of product lead gen (that is what a shopping comparison engine is) and services lead gen. IAC built up a powerful group of internet companies including the lead generation superstore, LendingTree. Experian made some great moves last year with the acquisitions of LowerMyBills, PriceGrabber, and Classes USA. Fox created FIM and purchased MySpace and a host of other content plays. NBC Universal, Disney, Knight Ridder, NYTimes & Co, Viacom…everyone is trying to figure it out as the growth of the core assets of Media 1.0 companies is stagnating. The lead generation space, on the other hand, is growing rapidly and making great money…I’m sure NexTag, Adteractive, QuinStreet, Oversee, and some others are not going to be independent/private for much longer.
David Rodnitzky – Search Marketing Director at a leading lead generation firm…
“My sense is that lead gen in Europe is a highly undeveloped industry at the moment, with Nextag being the only big-time player who has even attempted to build a market over there. And from what I know of Nextag’s experience, it’s been tough sledding. I’m sure there is tremendous growth opportunity though.”
“The fusion of comparison shopping and lead gen has also been a bit of a pipe dream to date. Obviously, Nextag has been successful with mortgage, but I would argue that that has not been the result of their comparison shopping site or capabilities, but rather because of very strong media buying skills (in particular, search and media). The problem with a lot of lead gen is that it is very much a “life event” business. Comparison shopping engines can, to a greater or lesser extent, monetize the lifetime value of their customer. So, if someone buys a book from Amazon via PriceGrabber, perhaps PriceGrabber can charge Amazon for both the profit made from the book and the future value of a potential new customer. If you think about the biggest lead gen verticals (mortgage and education in particular), most people only get 2-3 mortgages in their lifetime and only go to college once (and in my case, for six years). And unlike buying the latest New York Times best seller, this is not an ‘impulse purchase.’ Thus, no one browsing Shopzilla for a Cuisinart is suddenly going to see a mortgage tab and say “Hey, in addition to new kitchenware, I also need to refinance my house.”
“What I will say, though, that’s good about this acquisition is this: lead gen is here to stay and (as noted) is undeveloped in the UK. When I think about the history of Internet advertising, I see lead gen becoming more and more important. “In the beginning” there was subscription-based advertising – buy a banner for a year, no guarantee of impressions, clicks, or sales. Then the new new thing was CPM – guaranteed impressions, followed by CPC – guaranteed clicks, and now we are seeing CPA – guaranteed leads gaining prominence. I suppose the next iteration will be pure rev-share, but for now, CPA lead gen is growing fast and is a good market to be in.”
“So whether or not there are amazing ‘synergies’ or ‘fusion’ being generated here is questionable, but I do think this is probably an acquisition that will be profitable for Scripps sooner rather than later.”
Wall Street is wrong about Scripps – March 20, 2006
Stephen Imbler, NexTag CEO on the integration of various verticals being key to NexTag’s strategy – March 10, 2006
Scripps Buys uSwitch for $366m – March 16, 2006