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Going Once, Going Twice…

Two years ago, I moderated a panel of executives from several of the third-party online lead vendors. The main topic was how to improve the current lead-buying model.

Two years ago, I moderated a panel of executives from several of the third-party online lead vendors. The main topic was how to improve the current lead-buying model.

Of the panel, I wrote in an earlier column, “One thing is clear. All of the panelists agree the process with which their sites move online car shoppers to the dealers needs to evolve to the next level. And that means improving the quality of leads dealers receive.”

I also quoted President Mitch Golub as saying, “It’s a 12-year old business model in which the price per lead has not changed in eight years.”

Guess what. Not much has changed in the last two years. Dealers sign a contract with a lead provider and get whatever leads are available for the appropriate franchise. Often those leads are sold to multiple dealers or get passed from one lead provider to another. Dealers have little to no control over which leads they receive.

But providers often will spice up a lead mix for their good dealer customers, if they complain when closing ratios decline.

A new venture between R. L. Polk & Co. and the Detroit Trading Co. might destroy the current model. It promises to create a transparent model in which leads are bought and sold in an auction-based format.

The Detroit Trading Co. was created in 2004 by Don Campbell along with other investors. Campbell is the father of Mark Campbell, the founder of StoneAge/, which was sold to Autobytel Inc.

In 2006, the firm created the Detroit Trading Exchange (DTX), a trading hub for automotive-finance leads. Executives claim the exchange handles more than 2.5 million annual transactions and has more than 250 customers, including every major lead aggregator. While the automotive-finance platform strictly is for aggregators and media companies, the new venture will focus on providing new-car leads for dealers.

Polk, meanwhile, launched a lead-scoring product last year that scientifically assigns a numerical value from one to 10 for Internet leads. The higher the number, the higher probability the lead will sell, according to Polk officials.

Once a lead is placed on the exchange, it runs through Polk’s algorithms and then is assigned a value. The process is close to instantaneous, so there’s no downtime for the lead.

Dealers will establish a list of criteria (i.e. lead source, numerical value, vehicle model) for leads they want to bid on, including the price they are willing to pay.

DTX says the process may be complicated for some dealers, so they’ve created Detroit Trading Services to help them with the bidding process – a fact that won’t make third-party vendors happy because it will compete with them.

“We know some of our current customers might get upset,” says Campbell. “But what we’re trying to do is to seed the exchange and get dealers up to speed on it.”

There doesn’t seem to be a downside for dealers. They get to choose which leads to buy and what they are willing to pay for them. They get to see the original source of the lead and have better intelligence with Polk’s scoring system as to whether the lead will sell.

The effect on the lead aggregators remains to be seen. The exchange potentially could create a true open market for leads, in which dealers aren’t the only buyers. Manufacturers and lead providers likely will buy, too. Savvy vendors could offer to help their dealer customers with the bidding process, thus creating a new revenue stream.

For the exchange to work, Polk’s scoring system has to stand the test time. Many executives from third-party providers have expressed skepticism to me about that.

Polk claims a 45-day test of leads on the exchange shows a direct correlation between a lead’s value and its propensity to sell. Leads valued as a 10 had a closing ratio of 37.6% while leads scored as a one closed only 7.5% of the time.

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