Here’s the official Google AdWords blog post on the subject.

We’ve used a number of lead aggregators — companies that essentially sell quote requests to a pool of potential service providers. BuyerZone, and Resource Nation are two examples. These companies typically derive much of their traffic and leads from natural and sponsored search.

Often, the math works in their favor, allowing them to out-compete individual service providers in sponsored search. For example:

Say the Service Provider has a CPA (cost-per-acquisition) target of $75 for their search leads. That’s a level where they know they will be profitable. If their site converts 5% of search traffic to a lead overall, they could pay ~ $3.75/click in sponsored search.

The Aggregator however will take the leads they generate and re-sell them to anywhere between 3-7 individual Service Providers for typically $15 to $35. If they can sell these leads to six providers at $30ea, they’ll be able out-bid those same providers.

6 x $30 = $180 revenue/lead
assume 100% gross revenue return target, and 5% conversion rate

The aggregator can spend $4.50/click, while expecting to earn $9/click. To the Service Provider they are still getting leads significantly below their $75 target.

The Aggregators also often out-convert Service Providers because they have such a clear and simple goal and benefit proposition — complete this form and you’ll get six quotes from qualified providers.

You can see the impact conversion rates (and closing rates) have on the economics of this situation. It may be in your best interests as a service provider to pay a little more for that exclusive lead, knowing that you’ll close a larger portion of them.

Now, it looks like Google is going to get into the lead gen process themselves–which has the potential to totally disrupt the existing market, with the greatest potential losers being the Lead Aggregators.

Should be interesting to watch.