FTC Inquiry, Lead Quality Concerns Chill Incentive Ad Market

Up until now, lead generation’s star as a major source of online ad revenue seemed to be on an unstoppable rise. Looking back over the past two years, internet marketing revenue from lead gen efforts almost doubled to $1.3 billion in 2006 from $753 million in 2005, making up 8 percent of total online advertising last year, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. But, as a WSJ article points out, increased regulatory scrutiny and increased skepticism regarding some practices associated with lead gen have caused the ad format to hit a wall.

While many companies have tried to tie lead gen marketing to reflect consumers evident online interests, a great deal of these efforts appear to rely on incentives (the IAB doesn’t differentiate between the various methods), such as offering web surfers a chance to win an iPod or a store gift certificate in return for releasing some personal information. This past spring, the Federal Trade Commission began looking into charges of false advertising related to lead gen. Now, some spooked marketers are abruptly pulling back its spending in this area. The impact on companies like independent digital ad shop ValueClick (Nasdaq: VCLK), which has admitted that it is the subject of an FTC investigation that started in May, has been immediate. The Journal notes that ValueClick’s stock has dropped off more than 40 percent since that point (the AP says that the stock climbed 10 percent Monday on a favorable analyst report). ValueClick shares dropped a little more than 19 percent in a single day of trading after the company reported higher Q2 profit that missed analyst expectations by a penny per share. Revenues were also down, with the company citing a fall off in lead gen sales, blaming the “cloud hanging over the industry” — not lead quality.

Aside from the FTC inquiry, some affiliate ad networks have stopped accepting incentive-based ads, as they found that consumers were mainly interested in the enticement of a free gadget, not the company’s advertised business.