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I think this news that Google will be soon moving into the lead aggregation business is interesting.

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.

What does it say about Yahoo!’s sponsored search system that they could not make a profit from the 10MM visits/month that GeoCities sites were receiving before they pulled the plug last week?

I was reading this post yesterday, and it made me want to estimate how much the GeoCities sites were really costing Yahoo.

I tried to make some order-of-magnitude estimates of how much the hosting of these domains was costing Yahoo. Was it really a cash drain?

Hosting:
7.5 million hosted sites.
5 Megabytes of data/site (this is probably way high)

That’s 37.5 TeraBytes of data to store.
Using the highest tier Amazon S3 pricing (we know it would be cheaper than this) of $0.15/Gigabyte, that’s $5,625 in storage/month.

Bandwidth:
10 MM Visits/month.
Assume an average of 3.5 pages/visit (probably high).
Assume 100k transferred/page (also probably high).

That’s 3,500GB transferred/month.

Again using the highest S3 data transfer price of $0.17/GB, we’re looking at $595/month.

Add the per/request fees of $0.012/1000 requests. We’ll assume there were 15 objects/page, 35 million page views, that’s another $6,300 in request fees.

So, looking at storage and bandwith costs of serving the GeoCities requests we’re talking about somewhere on the order of $12,520/month. That doesn’t seem like a lot of money just to keep the geocities pages alive. To cover those costs you’d need to generate just 3.6 cents out of every 1,000 pageviews! It seems like some contextual links could have covered that?

I’m making a lot of assumptions, and to be conservative I’ve tried to estimate on the high side of things. They’ll also need to maintain some of their own infrastructure, or outsource the actual serving of the sites–but I’d think they probably have that down to a science. Yahoo would also likely need at least some staff to manage and support the service, and some staff to plan and manage marketing campaigns to your GeoCities audience. These salaries would far outweigh actual hosting costs—but still, seems like they could have made it work.

Ways they could have made money from that traffic:

1. Cross Sell other Yahoo! properties from the GeoCities pages. Use a small top-of page banner of some kind.
2. Serve their own PPC contextual ads on the Geocities pages
3. Remarket Yahoo’s hosting services to the Geocities site owners (they made a small effort in this regard at the end, but you could continue to market to your 7.5 million site owners month after month.
5. Add AdSense to the GeoCities sites — Heh, heh, just kidding but it would work

So, what do you think? What am I missing?

In the end they probably just decided the revenue upside was just not worth the effort. But it makes me wonder what other Yahoo! properties are in exactly the same situation.