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LEAD INDUSTRY REPORT 2012
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TABLE OF CONTENTS
FOREWORD MORTGAGE INDUSTRY A. 2011 Mortgage Lead Market Review i) ii) The Big Picture 2011 Mortgage Lead Volume and Conversion among Leads 360 Customers 1. 2. Methodology Insights a) b) B. i) ii) 2011 Mortgage Purchased Lead Volume 2011 Mortgage Purchased Lead Conversion Rates 3 4 4 4 6 6 6 6 7 8 8 9 9 9 11 11 11 11 11 12 12 12 13 13 13 13 14 14 14 15 15 15
2012 Mortgage Lead Market Expectations The Big Picture 2012 Mortgage Lead Volume Expectations 1. 2. i) ii) iii) iv) Methodology Insights
C. Mortgage Lead Provider Awards Volume Growth Award Qualification Rate Award Conversion Rate Award Methodology
INSURANCE INDUSTRY A. 2011 Insurance Lead Market Review i) ii) The Big Picture 2011 Insurance Lead Volume and Conversion among Leads 360 Customers 1. 2. Methodology Insights a) 2011 Insurance Purchased Lead Volume b) 2011 Insurance Purchased Lead Conversion Rates B. 2012 Insurance Lead Market Expectations i) ii) The Big Picture 2012 Insurance Lead Volume Expectations 1. Methodology 2. Insights
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TABLE OF CONTENTS
C. Insurance Lead Provider Awards i) ii) iii) iv) Volume Growth Award Qualification Rate Award Conversion Rate Award Methodology 17 17 17 17 18 19 19 19 21 21 21 21 22 22 22 24 24 24 25 26 26 26 26 27 28 29 32
EDUCATION INDUSTRY A. 2011 Education Lead Market Review i) ii) The Big Picture 2011 Education Lead Volume and Enrollment among Leads 360 Customers 1. 2. Methodology Insights a) b) B. i) ii) 2011 Education Purchased Lead Volume 2011 Education Purchased Lead Enrollment Rates
2012 Education Lead Market Expectations The Big Picture 2012 Education Lead Volume Expectations 1. 2. i) ii) iii) iv) Methodology Insights
C. Education Lead Provider Awards Volume Growth Award Qualification Rate Award Conversion Rate Award Methodology
Appendix i: Lead Provider Award Summary Appendix ii: List of Survey and Interview Participants Appendix iii: Report General Methodology About Leads360
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FOREWORD
In God we trust; all others must bring data.
W. EDWARDS DEMING
This is the second year we have brought data by publishing the Lead Industry Report. While the report isnt the last word in industry trends, as the preeminent sales and telephony platform for lead buyers, Leads360 is the fortunate custodian of an immense amount of outcome data from thousands of lead sources across even more lead buyers. We would therefore like to think of this report as a helpful, data-rich, point of departure for discussion about what is happening in the lead industry. During both the analysis of over 20 million leads and their outcomes across approximately 1,500 lead buyer databases and through conducting almost 90 surveys and in-depth interviews with lead buyers and sellers, we found good reasons for both optimism and pessimism in the lead industry based on what occurred in 2011. There is no doubt that consumers are rapidly switching almost all of their attention online when it comes to finding products and services they consume. The lead industry is a beneficiary of and catalyst for this trend. However, by the same token the lead industry still struggles to regulate itself in a highly effective manner. We have noted a decline in lead quality in several of the industry verticals that we cover this year. If this reduction in the effectiveness of the medium were to continue, then the demand for purchased leads would logically decrease. Indeed, we are in fact seeing a trend towards an increasing percentage of leads being self-generated by many of our larger customers. As yet, this is a fairly benign trend, however, if lead providers dont aggressively manage their supply chains and take proactive steps to monitor the quality of organically generated leads, this trend will likely increase. Despite these issues there are a multitude of lead providers that are doing things right and helping their customers to achieve spectacular conversion rates. Some of the examples of these companies are honored in our industry awards section that can be found in Appendix i of this report. And while 2011 was a tough year from a regulatory perspective in both Mortgage and Education, there is less on the horizon that would negatively impact the businesses of lead buyers in 2012 and beyond. Following a difficult year for many lead buyers and sellers, we head into 2012 more enthusiastic than ever about the prospects for growth, innovation and a renewed focus on quality in the industry. Happy Reading!
Nick Hedges
Jorge Jeffery
CEO & President
Senior Manager, Strategic Intelligence
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FOREWORD
MORTGAGE INDUSTRY
A. 2011 Mortgage Lead Market Review Another Challenging Year
The Big Picture
In last years Lead Industry Report, we predicted that originations would decline in 2011 and that refinancing would decline precipitously. We were half right. Originations1 saw another year of decline from $1.677T in 2010 to $1.3T in 2011 (MOR- Figure 1); that represents a 22% decline following a 16% decline in origination value from 2009 to 2010. However, refinancing remained relatively robust and actually grew as a percentage of applications from 67% in 2010 to 69% in 2011. This is far better than most commentators, including this author, had predicted for 2011. That said,
MOR- FIGURE 1: MORTGAGE TRENDS (2007 2012)
2007 Housing Starts (M) Total Home Sales (M) S&P/ Case-Shiller Index (%) 1-4 Family Mortgage Originations ($B) Refinancing Share - Applications (%) Refinancing Share - Originations (%) Refinance Originations ($B)
Source: Freddie Mac (2012) Economic Outlook; Leads360 Analysis
2008 0.91 4.14 -18.4 $1,600 48 50 $800
2009 0.55 4.24 -2.4 $2,000 70 68 $1,360
2010 0.59 4.03 -3.7 $1,677 76 67 $1,124
2011E 0.60 4.09 -3.0 $1,300 74 69 $897
2012F 0.68 4.31 -2.0 $1,100 71 65 $715
1.36 5.72 -8.4 $2,432 42 49 $1,192
in absolute terms, refinance originations were down from $1.124T in 2010 to $0.897T in 2011 a 20% decline. This was likely driven by a shrinking of the universe of potential consumers who have not refinanced their mortgages and remain eligible to do so. We also see a narrowing between the refi application percentage and the refi origination
MOR- FIGURE 2: ANNUAL AVG. 30-YEAR FRM RATE 18% 16%
7.4% 8.0% 9.2% 9.1% 8.9% 8.9% 9.6% 11.2% 16.6% 16.6% 16.0%
75 80
14% 12% 10% 8% 6% 4% 2% 0%
85
90
95
00
05
19
19
19
19
20
20
Source: Freddie Mac

1
1-4 Family Mortgage Originations
20
19
10
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13.2% 13.9% 12.4% 10.2% 10.2% 10.3% 10.3% 10.1% 9.3% 8.4% 7.3% 8.4% 7.9% 7.8% 7.6% 6.9% 7.4% 8.1% 7.0% 6.5% 5.8% 5.8% 5.9% 6.4% 6.3% 6.0% 5.0% 4.7% 4.5% 2012 Leads360, Inc. MORTGAGE
percentage between 2010 and 2011. This was good news for lead buyers, as it meant that there was a lower incidence of consumers tire kicking, but not closing loans. The primary reason for the three year bull-run for mortgage refinancing between 2009 and 2011 has been historically low interest rates as described in MOR- Figure 2. Despite low interest rates, there were several reasons that this was a bumpy year for the mortgage industry: 1. The economic recovery is underway, but has been slow going The U.S. economy showed slow expansion in 2011. According to the Commerce Department, Real GDP growth was 0.4% in Q1 but expanded to an anticipated 2% in Q42. This growth, however, struggled to trickle down to homeowners and homebuyers. Unemployment remained at historically high levels, ranging from 9.4% to 8.5% between the beginning and end of the year, and consumer optimism was generally low. Consequently, the Case-Schiller index recorded its fifth consecutive year of decline, representing ongoing slipping in the price of homes across the nation. Obviously, the impact of this economic malaise was that fewer people purchased new homes, while fewer homes were considered valuable enough to provide sufficient equity to meet tight lending requirements. None of these factors favored the mortgage industry, and therefore, the mortgage lead industry. 2. New regulations took effect in 2011 The new regulation with the greatest impact on mortgage lead buyers and sellers on April 1st, 2011 was Regulation Z of the Truth in Lending Act (TILA). This rule restricts the manner in which mortgage brokers and lenders can be compensated. It made it much more difficult for smaller brokers to run a profitable operation. It also led to a brain drain from the mortgage industry by some of its best sales people, who could no longer earn a reasonable salary. Further, it meant that smaller loans became less viable; thus making it really hard for lead sellers to sell leads representing loans valued at less than $200K. The consequences of a tough year for lead providers and buyers were the following: Lead providers made less money Lack of demand for lower loan value leads (which are typically easier to generate) led to some lead wastage and discounting Price-conscious lead buyers reacted to their narrowing margins by putting additional pricing pressure on the providers of leads A tightening of the supply of mortgage leads due to the shrinking pool of applicants who qualify for refinancing This led to some reduction in quality as some providers sought ways to generate leads through channels that they may not normally consider in order to produce volume 3. Rate table products promised much but A new format for lead generation appeared over the past couple of years and many, including the authors of this report, anticipated the model would gain fast traction. Rate table leads are mortgage leads that are distinguished by a product that
Commerce Department had not released actual Q411 GDP growth at time of press
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allows consumers to generate their own comparative rate quote by entering a few pieces of information about the loan they are looking for, then instantaneously providing back a list of mortgage providers and the rates they can offer for that consumers parameters. If the consumer is interested in taking the next step with that mortgage company, they can then provide their contact information or contact the provider directly. Several providers have developed products in this regard, including LendingTree, Google, Bankrate and QuinStreet. We continue to see that rate table ads produce significantly higher conversion rates than regular mortgage leads. However, many of these products struggle to produce a large enough volume of leads to make them viable in the minds of many lead buyers. Notably, at the time of press for this report, Google Advisor had suspended its mortgage product. Some speculate that this was due to the difficulty of obtaining the necessary licensing to operate in each state, while others opine that the volume of leads being generated made it an unappealing business to Google. We remain bullish on the concept of rate tables and anticipate that the concept will continue to grow along with any resurgence in the overall mortgage lead market.
Methodology
The quarter-over-quarter comparisons in MOR- Figures 3 and 5 were calculated using data entered by almost 500 mortgage clients into Leads360s lead management platform. These metrics focus on clients that had valid comparison information for the same quarter in each of the last two years. We calculated the changes in volume of purchased leads and conversion rate for each quarter in 2011 (Q4 2010 to Q3 2011) in relation to the same quarter in 2010 (Q4 2009 to Q3 2010) for the same set of clients. This methodology offset several factors: Leads360 has continued to benefit from significant growth in the number of mortgage clients joining its platform in 2011. Including all clients would have greatly increased the 2011 raw lead volume. Because lead volume changes from 2010 to 2011 would then reflect the number of new clients, rather than general trends in lenders purchased lead volumes, we excluded any client that joined us in 2011. Had we not analyzed the same set of clients each quarter, conversion rate changes from one year to the next would reflect disparities in conversion rates between the different sets of clients and would be less representative of actual changes from one year to the next. To accommodate for the lag between new inquiries and converted customers, our analysis included Q4 2009 and Q4 2010 instead of providing a straight overview of 2010 versus 2011. If we had compared Q4 2010 to Q4 2011, many leads from Q4 2011 that had not converted at the time of the data pull would not have been captured in the 2011 metrics. Lastly, in comparing a quarter of one year to the same quarter of the previous year, the impact of seasonality is minimized.
2011 Mortgage Lead Volume and Conversion among Leads360 Customers Insights
2011 Mortgage Purchased Lead Volume Growth in lead volume between 2010 and 2011 (see MOR- Figure 3) was far better than the declining picture seen between 2009 and 2010 (see Lead Industry Report 2010). Q4 2010 and Q1 2011 experienced significant increases in the volume of leads purchased. This was likely due to a couple of factors:
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1) Mortgage companies trying to close business prior to Regulation Z taking effect 2) The historically low rate environment witnessed in Q4 2010 (see MOR- Figure 4) However, in our opinion, much of the growth was driven by the first, rather than the second factor. We observed a moderate decline in leads purchased during the second and third quarters. We expect that much of this was driven by the new regulations as well as the general trend thatdespite low interest rateswithout an increase in the value of the housing market and consequent improvement in loan to value ratios, the eligible pool
MOR- FIGURE 3: SAME QUARTER VOLUME CHANGE IN LEADS PURCHASED BY MORTGAGE CLIENTS 2010 TO 2011 20% 13%
0%
-1% -9%
Q4 2010 Q1 2011 Q2 2011 Q3 2011
MOR- FIGURE 4: MONTHLY 30-YEAR FIXED RATE MORTGAGE RATES Q4 2009 Q3 2011
5.1% 5.1%
5.0%
5.0%
5.0%
5.0%
4.9%
4.9%
4.9%
5.0%
4.8%
4.7%
4.6%
4.7%
4.8%
4.8%
5.5% 5.0% 4.5% 4.0% 3.5% 3.0%
4.6%
4.4%
4.4%
4.3%
4.5%
4.6%
G AU
4.2%
FE B
JA N
JU N
JU L
JA N
FE B
JU N
OC T
DE C
OC T
NO
NO
SE
JU L
AR
AR
AY
AY
AU
DE
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
of both refinance and purchase mortgage customers continues to diminish severely. 2011 Mortgage Purchased Lead Conversion Rates Lead quality was down in 2011. This is fairly evident from MOR- Figure 5. The only quarter that out-performed the previous year was Q1. Again, the story here is likely to be mortgage companies pushing harder to close loans prior to Regulation Z coming into force. The third quarter saw a precipitous decline in conversion rates. Combined with a decline in the volume of leads bought, this speaks to an abysmal quarter for lead buyers and sellers.
0%
MOR- FIGURE 5: SAME QUARTER CONVERSION RATE CHANGE IN LEADS PURCHASED BY MORTGAGE CLIENTS 2010 TO 2011
4% -4% -8%
-31%
Q4 2010 Q1 2011 Q2 2011 Q3 2011
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SE
AP
AP
4.3%
Interestingly, we saw a much steeper decline in the conversion rates for home purchase leads versus refinance leads. We speculate that this phenomenon is largely driven by the fact that the aspiration to own a first home or upsize is still alive and well, but the poor economy continues to make this unrealistic for many.
B. 2012 - Mortgage Lead Market Expectations We Enter with Cautious Optimism

The Big Picture
The economy is finally showing some significant signs of growth- not only in terms of GDP growth, but also more significantly, in areas that directly impact the mortgage market; namely, employment and house prices. December 2011 saw the 15th consecutive month of gain in employment level. Existing home sales are increasing and the inventory of unsold home sales is at a six-to-seven month supplyand as of January 2012at its lowest level since 20063. Additionally, consumer sentiment is beginning to tick upward. According to a report by the Mortgage Bankers Association (MBA), 80% of American households reportedly believe that it is a good time to buy a home. These indicators bode well for the market for home purchase mortgage leads, especially if interest rates remain low. The refinance lead market is even more keenly impacted by interest rates. We anticipate that rates will increase in 2012, but slowly. There appears to be a commitment from the Fed, as of December, to continue a quantitative easing process by keeping the federal funds rate between 0% and 0.25% while continuing to reinvest in mortgage-backed securities to support the segment. However, we believe that regardless of the Feds policies, as the demand for mortgages begin to increase, the rate charged by lenders will start to edge back up. We therefore largely agree with the prediction by the Financial Forecast Center that fixed rate 30-year mortgage rates will increase steadily over the course of the year, particularly from the second quarter onwards, but will likely remain below the 5% threshold (see MOR- Figure 6). Overall, we should expect to see a significant switch in the percentage of purchase loan originations versus refis.
MOR- FIGURE 6: 2012 FORECAST 30-YEAR FIXED RATE MORTGAGE RATES (SOURCE: FINANCIAL FORECAST CENTER)
4.92% 4.87% 4.93%
DE C
4.2% 4.0% 3.8% 3.6%
4.11%
4.15%
4.4%
4.21%
4.27%
4.6%
4.39%
4.51%
4.8%
4.63%
4.73%
5.0%
SE P
AR
AY
4.81%
O CT
JA N
AP
JU N
FE
JU L
AU
www.deptofnumbers.com (2012)
OV
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Other important regulatory factors that may impact 2012 will be: 1. The Consumer Finance Protection Bureau The relatively newly created bureau is likely to flex its muscles in 2012, now that it has a new Head to run it and a need to justify its original creation by the current administration. The bureau has been testing new forms of mortgage disclosure and one might expect these to be put into practice in 2012, having the likely impact of further eroding lenders profitability. 2. HARP 2.0 The recent changes to HARP allow underwater borrowers to participate in refinancing. Most expect the impact of HARP to be fairly moderate with, at most, a million loans originated under the program. 3. Election Year Uncertainty An easy vote-winner for presidential candidates this year will be to act tough on the financial services industry. In that environment, there
Methodology
No one can predict exactly what will happen in 2012. However, as the largest lead management software provider, we do have access to a very significant percentage of lead buyers and to every major lead vendor and technology leader in the mortgage vertical. The information presented in this report was largely drawn from daily interactions with our lender clients and business partners, from industry research, and from analysis of client data in our own system, which provided us exclusive insight into 2011. For further insight into 2011 and more complete 2012 projections, we conducted extensive interviews and secured survey responses from many mortgage partners and clients specifically for the purpose of this report. The following section on 2012 Mortgage Lead Volume Expectations is a summary of insights gathered from the survey responses collected from our mortgage clients.
is some risk of regulatory whirlwinds being created around the mortgage industry. Although theyll likely blow over following the election, it is likely that such uncertainty will not encourage medium sized mortgage institutions to invest in expansion activities, such as building up sales teams and purchasing large volumes of leads.
2012 Mortgage Lead Volume Expectations Insights

Despite an improving macro environment, as one can see from MOR- Figure 7, lead buyers are on the whole quite skeptical that the volume of leads they buy will increase in 2012, with about two thirds of our survey respondents indicating that they would buy less or the same number of leads in 2012 versus the year before.
50%
MOR- FIGURE 7: BUYERS EXPECTATIONS FOR THEIR OWN 2012 PURCHASED LEAD VOLUME
100%
19% 19%
INCREASE SIGNIFICANTLY INCREASE SLIGHTLY
On the whole however, mortgage lead buyers are not predicting they will decrease their marketing activities. What they tell us is that they are switching their marketing mix and becoming much more selfsufficient about generating their own leads from their websites and online advertising activities (see MOR- Figure 8), on the next page.
0%
24%
SAME AS 2011
DECREASE SLIGHTLY
29% 10%
DECREASE SIGNIFICANTLY
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MOR- FIGURE 8: 2012 EXPECTATIONS FOR LEAD SOURCE USE 0% LEAD PROVIDER OWN WEBSITE AND SELF-MANAGED SEO ONLINE ADVERTISING AND SEM TRADITIONAL MEDIA/OFFLINE ADVERTISING AD AGENCY CORPORATE PARENT DIRECT MAIL PROGRAMS REFERRAL PROGRAM OTHER 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
DECREASE SLIGHTLY
SAME AS 2011
INCREASE SLIGHTLY
INCREASE SIGNIFICANTLY
Many lead buyers talked about firm plans to use both social networks and mobile platforms to acquire customers in 2012 and explained that the move to self-reliance was in part a response to disappointment in the quality and volume of leads provided by their lead provider partners in 2011 (see MOR- Figure 9). Although price is always going to get a mention, it is telling that it receded into the background as an issue among lead buyers following their 2011 experience. Many lead providers, on the other hand, discussed tangible programs to improve both quality and volume in 2012. Hopefully this will not prove too little too late and buyers will regain their faith and reliance upon lead provider-driven leads.
MOR- FIGURE 9: BUYER OPINION: WHAT MORTGAGE LEAD PROVIDERS NEED TO IMPROVE MOST
QUALITY 41%
VOLUME 36% PRICE 18% 5% FILTER FLEXIBILITY

0%
C. Mortgage Lead Provider Performance Awards
50%
100%
As the largest software company in the lead management sector, Leads360 has access to the most comprehensive set of multi-buyer, multi-vertical lead data sets in existence. We have also invested considerable time and energy normalizing our back-end data so that we have a clear picture of contacts, qualifications, and conversions across our thousands of client installations. Last year, we decided to use our data to deliver the inaugural Lead Provider Performance Awards. Since we do not have a complete data set for the entire industry, our results are indicative of excellence rather than the final word. However, the awards were extremely well received in an industry where individual operators are usually secretive but gain immensely from collective knowledge. We have therefore been encouraged to provide our performance
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awards for a second year. We have chosen to present awards based on the following metrics: 1. Volume Growth growth in the absolute volume of leads sold to the same set of clients between 2010 and 2011. 2. Qualification Rate percentage of leads that were contactable and that qualified for the Leads360 lead buyers products and/or services. 3. Conversion Rate percentage of leads that generated revenue for Leads360 customers.
Methodology
It should be noted that some lead providers were excluded from this analysis. The exclusions fell into two broad categories: 1. Small volume lead providers if a lead provider accounted for a highly insignificant percentage of our lead pool we excluded them since we felt that our findings might be unrepresentative. For the mortgage industry, we determined that this cutoff should be less than 3,500 leads in a year. This necessarily biases our findings a little against very small volume lead sources. 2. Companies we felt were not fairly comparable We excluded some categories of lead provider, such
Among mortgage lead providers, congratulations go to:
as call verified leads (aka hot transfers), because we did not feel that their product was equivalent to that of data leads. Another example is rate table products. We excluded these from our awards based on how most rate table products work (as the majority of leads received are selfqualified by the consumer, and therefore, are significantly different from the majority of leads generated by the lead providers that were considered for recognition). Another important factor to note is that these are awards for providers, not products. Multiple providers requested that we call out their products separately, for instance, if their preferred product is designed to perform much better than their standard product. We decided not to do this since some lead providers identify different products when they post leads to our platform and some do not. This factor, it could be argued, works against the biggest lead providers since they tend to have a portfolio of products and get pulled down by high volume, lower quality products in their portfolio. We are willing to reconsider this stance in future reports if lead providers collectively improve the identification of product information in the data that they post to Leads360.
Volume Growth Award

1. LeadPoint 2. LowerMyBills 3. Adchemy
Qualification Rate Award

1. Affiliate Media Networks 2. LeadPress, Monster (tie) 3. FreeRateUpdate
Conversion Rate Award

1. FreeRateUpdate 2. Monster 3. LeadPress
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INSURANCE INDUSTRY
A. 2011 Insurance Lead Market Review A Bad Year for Lead Quality
The Big Picture
Against all odds in 2011, the property and casualty (P&C) industry, which dominates insurance lead generation, grew by an estimated 3.1%4 in net premium. Such growth was an impressive feat given the perfect storm of adverse conditions impacting the industry. The most obvious industry roadblock was the continuation of the countrys economic woes. Through the first three quarters of 2011, GDP grew at a faint 1.2%. Home sales were down 6.2%. Conversely, according to Edmunds.com, vehicle sales rose a surprising 10.8% over the same period, which helped bolster new P&C insurance sales. On top of this already sputtering economy, the U.S. suffered from natural disasters that caused an unprecedented $38.6B in property and casualty losses5, yielding an estimated $75B in economic losses. In addition, the vast number of consumers impacted by natural disasters focused on submitting claims rather than submitting inquiries for competitive options, buying new homes or starting new businesses. Finally, online insurance lead providers drew heavy criticism for poor quality leads, adding more economic challenges for lead buyers already fighting to stay in the black. Despite the P&C industrys growth in the face of such adversity, lead buyers continued to face challenges in the following key areas: 1. Affiliate generated leads tainted industry lead supply Lead providers struggled to meet the growing demand of lead buyers in 2011, and as a result, relied too much on external affiliates to fill the gap on the lead supply shortage. In some cases, upwards of 40% of a lead providers leads were generated from affiliates. This is a powerful tactic for lead providers because it allows them to generate supply in a flexible manner. However, this practice may also result in an influx of poor quality leads, since it is harder to monitor any wrongdoing that may be occurring. Almost undeniably, this is what occurred in the insurance industry in 2011. The blending of poor affiliate leads with higher quality proprietary leads muddied the overall pool. As one lead provider put it, This strategy [blending good with bad quality] may lend itself well to sellers in other industries, but it doesnt lend itself well to lead providers. More recently, by beginning to implement robust lead verification services that enable lead providers to analyze lead information in real-time to identify and reject bad leads, most lead providers have made it clear it has become a top priority to weed out bad affiliates. Many of these lead verification services were implemented in Q4 2011 and have already started to positively impact overall lead quality. We also saw bigger carriers begin to insist on verification and the right to reject leads not meeting an adequate threshold of quality. Calls for this type of option will undoubtedly strengthen if the lead generation industry is unable to adequately regulate quality itself. We anticipate lead providers will continue and expand upon this practice in 2012. 2. Coopetition drove down contact and conversion rates A common practice for insurance lead providers is to sell leads to one another in the event that there are not enough prospective buyers. This practice, which we refer to as coopetition, enables a lead provider to maximize the monetization of leads by selling all of the leads legs. In insurance, a lead provider typically has the right to sell a lead up to eight times much higher than in most other industries.
4 5
Council of Insurance Agents and Brokers (CIAB). http://www.iii.org/articles/2011-first-nine-months-results.html A.M. Best Company, Inc. (2011-12-02). U.S. Property/Casualty Catastrophe Losses Climb to $38.6 Billion for the First Nine Months of 2011
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Coopetition has been problematic in several respects. For one, consumers become inundated with phone calls from all of the purchasers of the lead, which creates a poor customer service experience and, in the long term, ensures consumers are likely to think twice before filling out an online lead form. The overall consequence of selling more legs is also that, numerically, the conversion rates for any given lead go down. On a positive note, almost every lead provider interviewed indicated there are plans to significantly reduce or eliminate this practice in 2012. We believe a reduction in coopetition will significantly improve both the consumer experience and conversion rates for lead buyers. However, finding fewer buyers for the same lead will mean that insurance companies will ultimately need to prepare to pay more for the leads they buy. 3. Market consolidation continued, further limiting options for lead buyers The acquisition frenzy of 2010 continued into 2011 with Bankrates purchase of AgentInsider. It has become quite clear that Bankrate and AllWebLeads are here to stay. Both are vying for market dominance. Bankrate now owns three of the four largest lead providers, including Netquote, InsureMe and AgentInsider, but the race for the lead market position will be tight. Its too early to tell whether continued acquisitions among industry giants will have a positive or negative effect on the industry. After an intense round of market consolidation in 2010, we anticipated a price increase in 2011. Surprisingly, that did not occur. As we enter Q1 2012, less than ten major lead providers remain, and those that are left are making heavy investments in lead verification services and technology to improve overall lead quality. Given this progress, we expect to see both an increase in lead quality and in price as we move forward in 2012.
Methodology
The quarter-over-quarter comparisons in INS- Figures 1 and 2 were calculated using data entered by over 900 insurance clients into Leads360s lead management platform. These metrics focus on clients that had valid comparison information for the same quarter in each of the last two years. We calculated the changes in volume of purchased leads and conversion rate for each quarter in 2011 (Q4 2010 to Q3 2011) in relation to the same quarter in 2010 (Q4 2009 to Q3 2010) for the same set of clients. This methodology offset several factors: Leads360 experienced a significant increase in insurance clients joining its platform in 2011. Including all clients would have greatly increased the 2011 raw lead volume. Because lead volume changes from 2010 to 2011 would then reflect the number of new clients, rather than general trends in agencies purchased lead volumes, we excluded any client that joined us in 2011. Had we not analyzed the same set of clients each quarter, conversion rate changes from one year to the next would reflect disparities in conversion rates between the different sets of clients and would be less representative of actual changes from one year to the next. To accommodate for the lag between new inquiries and converted customers, our analysis included Q4 2009 and Q4 2010 instead of providing a straight overview of 2010 versus 2011. If we had compared Q4 2010 to Q4 2011, many leads from Q4 2011 that had not converted at the time of the data pull would not have been captured in the 2011 metrics. Lastly, in comparing a quarter of one year to the same quarter of the previous year, the impact of seasonality is minimized.
2011 Insurance Lead Volume and Conversion Among Leads360 Customers Insights
2011 Insurance Purchased Lead Volume INS- Figure 1 shows that following a precipitous decline in quality, illustrated in INS- Figure 2, lead buyers didnt take long to respond
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by scaling back lead purchasing. Additionally, during the same period, we suspect natural disasters may have played a part in lead buyers throttling down lead spend to enable them to attend to their customers. 2011 Insurance Purchased Lead Conversion Rates Conversion suffered a major setback in 2011, largely attributable to leads being sold too many times, an open door policy for affiliate generated leads without adequate quality controls, and the absence of lead verification services. With sweeping changes and big promises by lead providers to remedy the aforementioned issues, we are cautiously optimistic about a turnaround of conversion rates.
0%
INS- FIGURE 1: SAME QUARTER VOLUME CHANGE IN LEADS PURCHASED BY INSURANCE CLIENTS 2010 TO 2011 22% 10%
-4% -18%
Q4 2010 Q1 2011 Q2 2011 Q3 2011
B. 2012 Insurance Lead Market Expectations 2012 Must be a Rebound Year

The Big Picture
Following a year mired by poor quality, lead providers are promising sweeping changes for 2012. The most notable changes are a significant reduction in affiliate generated leads, the elimination of coopetition, and the implementation of robust lead verification services. One lead provider said, We are completely moving away from coopetition. Its no longer a viable strategy. If we dont have the distribution, we need to make that our problem and not that of our competitors. At a more macro level, although detrimental to the industry giants in 2011, last years rise in natural disasters may benefit the supply side of the lead generation market. Natural disasters triggered a rate hike that will eventually push consumers to re-evaluate their insurance coverage, particularly by shopping online. More online shoppers equate to more leads, which creates more volume for insurers.
0%
INS- FIGURE 2: SAME QUARTER CONVERSION RATE CHANGE IN LEADS PURCHASED BY INSURANCE CLIENTS 2010 TO 2011
-8% -12% -16% -26%

Q4 2010 Q1 2011 Q2 2011
-10%
Q3 2011
Innovation trends to pay attention to in 2012 are clicks and mobile. Lead providers are further capitalizing on consumer traffic by displaying links at the end of a lead generation form that link directly to a carriers site. A click is generated anytime a consumer clicks the link. While relatively new to insurance, there is a growing trend around major carriers partnering more closely with lead providers to drive traffic to carrier sites utilizing click networks. Its too soon to tell if clicks will eventually outpace leads, but industry feedback supports the belief they will play a much bigger role in 2012. Mobile and social media will also play a more significant role in generating leads. All lead providers interviewed for this report indicated they are actively searching for innovative ways to engage
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consumers through mobile devices and social channels. Prices for leads will also increase during 2012. Lead buyers are asking for better quality leads that are sold fewer times. This equates to an increase in the expense of generating leads, along with a reduction in revenue per consumer completing an online form. The most viable way for insurance lead providers to react to these pressures is by increasing price per lead. Given that the industry has undergone a fair amount of consolidation on the supply side, this is the most likely outcome. Overall, we should expect to see a significant increase in lead quality and lead prices. Other important factors that may impact 2012 will be: 1. Corporate implementation of conversion enablement technologies In many ways, 2011 was the year corporate entities of insurance carriers experienced an aha moment and realized Customer Relationship Management (CRM) and similar systems are relatively ineffective at managing leads. Leads360 saw many carriers endeavor to integrate conversion enablement technologies, such as lead management systems and automated dialers into their company-wide systems architecture. This is great news for everyone in the lead supply chain. More lead buyers will realize higher conversion rates, likely resulting in lead providers selling more leads. Integration will likely be the game-changer. Carriers who successfully integrate these technologies with other proprietary systems will see material lifts in conversion rates compared to their counterparts. 2. Emergence of rate table lead generators With consumer expectations always on the rise, the insurance industry is beginning to see an emergence of rate table lead generators such as Coverhound.com. These providers aim to add more value to consumers shopping for insurance online by providing immediate gratification in the form of insurance quotes. Zillow proved this model works in the mortgage industry. It will be interesting to see if this holds true in the insurance industry.
Methodology
No one can predict exactly what will happen in 2012. However, as the largest lead management software provider, we do have access to a very significant percentage of lead buyers and to every major lead vendor and technology leader in the insurance vertical. The information presented in this report was largely drawn from daily interactions with our client agencies and business partners, from industry research, and from analysis of client data in our own system, which provided us exclusive insight into 2011. For further insight into 2011 and more complete 2012 projections, we conducted extensive interviews and secured survey responses from many insurance partners and clients specifically for the purpose of this report. The following section on 2012 Insurance Lead Volume Expectations is a summary of insights gathered from the survey responses collected from our insurance clients.
2012 Insurance Lead Volume Expectations Insights

Given the quality issues troubling lead buyers, only 16% indicated they plan to increase purchased lead volume in 2012 while approximately 50% intend to decrease their purchased lead volume (INS- Figure 3). Alarmingly, a resounding 27% said they would be significantly decreasing their purchase volume. Data reflects that the 3% who endeavor to significantly increase purchasing in 2012 are buyers who have had greater success in working and converting purchased
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leads. Theoretically, this small percentage of lead buyers is the fittest for long-term industry success. The positive ROI these specialized and skilled buyers will continue to realize will likely create a vast divide between companies that buy more leads and those that buy less, especially if the improvements in lead quality promised by lead providers come to fruition. The companies that buy fewer leads will then be forced to employ alternative methods for lead generation, including harnessing the power of social networking and targeted online methods to drive organic leads. Evident in INS- Figure 4, lead buyers indicated they will be expanding their marketing portfolio to include significantly more self-generated leads. Referrals represented the largest share of self-generated leads, which dovetails well with the networking nature of the insurance industry. It will be critical for lead buyers to embrace lead management systems that provide a systematic approach to referral generation. Second to referrals were website and SEO generated
INS- FIGURE 3: BUYERS EXPECTATIONS FOR THEIR OWN 2012 PURCHASED LEAD VOLUME
100%
3% 13%
SAME AS 2011 50%
33% 23%
DECREASE SLIGHTLY
DECREASE SIGNIFICANTLY 0%
27%
leads. There appears to be a growing perception among lead buyers that search technologies and social networking have narrowed the gap between small business and giant online marketers, who dominate the online ecosphere. Through social and targeted means, such as blogging/vlogging, small lead buyers are aiming to drive more organic traffic and lessen dependency on purchased leads.
INS- FIGURE 4: 2012 EXPECTATIONS FOR LEAD SOURCE USE 0% LEAD PROVIDER OWN WEBSITE AND SELF-MANAGED SEO ONLINE ADVERTISING AND SEM TRADITIONAL MEDIA/OFFLINE ADVERTISING AD AGENCY CORPORATE PARENT DIRECT MAIL PROGRAMS REFERRAL PROGRAM OTHER 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
DECREASE SLIGHTLY
SAME AS 2011
INCREASE SLIGHTLY
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Once again, lead quality stole the show, as shown in INS- Figure 5. Going forward, it will be critical for lead providers to increase quality or risk losing customers. Survey respondents expressed that they would be willing to pay a higher price in exchange for a material lift in overall quality, even if that means less volume. There is also a greater emphasis on quality given the emergence of new, viable methods for generating organic leads. Despite what most would consider a setback year for lead providers in 2011, we are cautiously optimistic there will be an increase in lead quality in 2012, based on the sweeping changes promised by lead providers.
INS- FIGURE 5: BUYER OPINION: WHAT INSURANCE LEAD PROVIDERS NEED TO IMPROVE MOST
QUALITY 77%
C. Insurance Lead Provider Awards

As the largest software company in the lead management sector, Leads360 has access to the most comprehensive set of multi-buyer, multi-vertical lead data sets in existence. We have also invested considerable time and energy normalizing our back-end data so that we have a clear picture of contacts, qualifications, and conversions across our thousands of client installations. Last year, we decided to use our data to deliver the inaugural Lead Provider Performance Awards. Since we do not have a complete data set for the entire industry, our results are indicative of excellence rather than the final word. However, the awards were extremely well received in an industry where individual operators are usually secretive but gain immensely from collective knowledge. We have therefore been encouraged to provide our performance awards for a second year. We have chosen to present awards based on the following metrics: 1. Volume Growth growth in the absolute volume of leads sold to the same set of clients between 2010 and 2011. 2. Qualification Rate percentage of leads that were contactable and that qualified for the Leads360 lead buyers products and/or services. 3. Conversion Rate percentage of leads that generated revenue for Leads360 customers.
PRICE 10% VOLUME 10% NO ANSWER 3%

0%
50%
100%
Among insurance lead providers, congratulations go to:
Volume Growth Award

1. AllWebLeads 2. InsuranceAgents 3. QuoteWizard

1. AllWebLeads 2. InsuranceAgents 3. InsureMe
Conversion Rate Award

1. InsuranceAgents 2. AllWebLeads 3. InsureMe
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Methodology
It should be noted that some lead providers were excluded from this analysis. The exclusions fell into two broad categories: 1. Small volume lead providers if a lead provider accounted for a highly insignificant percentage of our lead pool we excluded them since we felt that our findings might be unrepresentative. For the insurance industry, we determined that this cutoff should be less than 3,500 leads in a year. This necessarily biases our findings a little against very small volume lead sources. 2. Companies we felt were not fairly comparable We excluded some categories of lead provider, such as call verified leads (aka hot transfers), because we did not feel that their product was equivalent to that of data leads. Another example is rate table products. We excluded these from the qualification rate awards but included them in the conversion rate awards based on how most rate table products work (as the majority of leads being received are self-qualified by the consumer). Another important factor to note is that these are awards for providers, not products. Since some insurance providers only sell one type of product, we considered it unfair to compare a specialized health insurance lead provider, for example, to a lead provider that provided leads to our customers across multiple insurance products and services. Therefore, specialized lead providers did not qualify for award consideration.
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EDUCATION INDUSTRY
A. 2011 Education Lead Market Review Fundamental Changes for EDU Lead Buyers and Sellers in 2011
The Big Picture
2011 will be remembered as a year of great change, turmoil and uncertainty for US-based private sector education lead buyers. The year started with a bang as the Association of Private Sector Colleges and Universities (APSCU) sued the federal government to stop regulations aimed at school advertising perceived as deceptive, enrollment-based compensation for admissions staff, and requirements for states to authorize federal loan eligibility for post-secondary schools. In February, the APSCUalong with other associations representing career schools led an effort to have Congress change or eliminate the pending Gainful Employment (GE) regulations. In April, Maryland became the latest state to pass its own set of strict regulations on for-profits. In response to growing pressure, a number of the larger school chains that make up an estimated 17% of all students at private sector schools, together under the banner of the Coalition for Educational Success, sought to stave off the growing anti-for-profit wave by announcing the formation of a committee to create guidelines to improve transparency and disclosure at their member schools. Undeterred by the Coalitions efforts, 10 state Attorneys General announced a joint investigation into possible violations of consumer protection laws by some of the larger private sector school chains. In June, PBS Frontline ran a story where recent veterans described being short-changed by private sector schools. This story stirred the media and political pots for several weeks, as ABCs series of investigative pieces had done in 2010. Major Regulatory Changes July saw the release of the long-anticipated regulations. As predicted in last years Lead Industry Report, these revised regulations ultimately had less impact than those originally proposed. Nonetheless, many felt the rules were too restrictive in some areas, but overly-vague as to which recruiting activities were approved and which were forbidden. Many schools considered the GE provision draconian and APSCU filed suit against the federal government to block the rule from taking effect. The new rules around recruiting misrepresentation caused much consternation among schools and the education vendor ecosystem of call centers, enrollment services, agencies and lead providers. Schools are now responsible for every claim made to any of their prospective students by any of their vendors. While policing their primary lead providers marketing copy may not be onerous, accessing the content used by providers affiliates and providers affiliates affiliates is very difficult. Instead, larger schools required their providers to sign indemnity clauses to pay damages to the school if leads sold by the provider or any of the providers affiliates turn out to be noncompliant and cause harm to the school. Additionally, schools are turning to marketing compliance vendors (more on that below). Details on all the new regulations can be found at the APSCU website: www.career.org. The larger the school chain, the more likely they seemed prepared for the new rules, so July 1 was either a non-event for them or a day to flip the switch on new processes and practices. Enrollments plunged at most of the larger school chains soon after, as these schools became more conservative in their recruiting approaches. In September, the Coalition for Educational Success foundation released its guidelines that it had been working on since April, the Standards of Responsible Conduct
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and Transparency. Predictably, the report was widely hailed by private sector EDU advocates and largely dismissed by their detractors. Surprisingly, the reaction of two vocal critics of these schools, U.S. Sen. Dick Durbin (D-IL) and Stephen Burd, editor of Higher Ed Watch, was generally positive. Lead Providers Adapt The year also seemingly saw fewer reports of bad behavior by lead providers than what came to light in 2010. Perhaps our prediction in last years Lead Industry Report was true: that the new regulations made schools more demanding on their lead providers. Alternatively, maybe providers policed themselves to stay in the good graces of their client schools. Another storyline from 2011 was that the supply of good leads was down, though demand for good leads did not decrease. Supply volume decreased, according to those we interviewed, because the providers had eliminated less trustworthy affiliate sources, mostly from vendors that call or email purchased lists. One well-regarded lead provider put it this way: Am I willing to bet the future of my company on this affiliates lead compliance? If they are in violation of the regs, the school I sell those leads to could sue me out of business [because I signed the indemnification clause]. Every lead vendor we asked said their schools asked them to sign indemnification clauses. As a matter of survival, most every provider did sign off, though we are aware of one provider that would not do so and consequently lost a couple of client school chains. Providers responded to the decline in incoming lead volume in several ways. Some increased their spending on paid search. Others put a serious effort into improving their SEO results and changed their marketing approach. For example, one lead provider said they changed their online ads from a financial pitch (Going to school is likely to help you make more money) to a motivational one (Get a better job by going to school). A few providers countered the loss of traffic to their portals caused by a decrease in email affiliates by increasing their participation in ad networks. Still others took steps to avoid compliance issues associated with low-quality leads by calling inquiries generated by less trustworthy affiliates. Obviously, call verified leads are more valuable to a school than those that are not verbally confirmed, so this additional step while costly can greatly improve the lead quality of pay-per-lead (PPL) sources. EDU Vendor Growth in 2011 Notably, a few agencies and software vendors rolled out products or services that help schools and providers monitor the compliance of their leads. This field will surely grow as the regulations true intent and restrictions crystallize. As schools gain a clearer understanding of what is acceptable, and what is not, the more valuable rules-based services will become. 2011 also saw tremendous growth in the number and size of the schools that use Leads360, a fact that is likely tied to the new Department of Education (DoE) rules. Now more than ever, schools need more and better ways to manage inquiries. The new regulations proscribe strict penalties for admissions departments that make false promises. Controlling the message through templatized emails and text messages, and maintaining an audit trail through call recording are critical to maintaining compliance.
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Gainful Employment rules are designed to ensure that students can complete school and get good jobs. The first step of GE compliance is to only enroll the right students. Leads360 clients use the Prioritization feature to dynamically place students who are the best fit for the schools programs at the top of each admissions counselors enrollment queue and put those least likely to succeed at the bottom.
Methodology
The quarter-over-quarter comparisons in EDU - Figures 1 and 2 were calculated using data entered by over 70 education clients into Leads360s enrollment management platform. These metrics focus on clients that had valid comparison information for the same quarter in each of the last two years. We calculated the changes in volume of purchased leads and enrollment rate for each quarter in 2011 (Q4 2010 to Q3 2011) in relation to the same quarter in 2010 (Q4 2009 to Q3 2010) for the same set of clients. This methodology offset several factors: Leads360 has continued to benefit from massive growth in the number of education clients joining its platform in 2011. Including all clients would have greatly increased the 2011 raw lead volume. Because lead volume changes from 2010 to 2011 would then reflect the number of new clients, rather than general trends in schools purchased lead volumes, we excluded any school that joined us in 2011. Had we not analyzed the same set of clients each quarter, enrollment rate changes from one year to the next would reflect disparities in enrollment rates between the different sets of clients and would be less representative of actual changes from one year to the next. To accommodate for the lag between new inquiries and enrolled students, our analysis included Q4 2009 and Q4 2010 instead of providing a straight overview of 2010 versus 2011. If we had compared Q4 2010 to Q4 2011, many leads from Q4 2011 that had not enrolled at the time of the data pull would not have been captured in the 2011 metrics.
2011 Education Lead Volume and Enrollment among Leads360 customers Insights
2011 Education Purchased Lead Volume EDU- Figure 1 shows a jarring drop in leads purchased in Q3 2011 when compared to the same quarter in 2010. The institution of the new DoE regulations can likely explain this. Overall, Leads360 client schools bought 33% more leads in the fourth quarter of 2010 when compared to the same quarter in 2009. The increase year-over-year was still significant in the first quarter of 2011, but the drop-off began in the second quarter, perhaps in anticipation of the regulations taking effect in July, and deepened in the third quarter, once the regulations were in place.
EDU- FIGURE 1: SAME QUARTER VOLUME CHANGE IN LEADS PURCHASED BY EDUCATION CLIENTS 2010 TO 2011 33% 19%
0%
Lastly, in comparing a quarter of one year to the
-7% -24%
Q4 2010 Q1 2011 Q2 2011 Q3 2011
same quarter of the previous year, the impact of seasonality is minimized.
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2011 Education Purchased Lead Enrollment Rates It is critical to note that the rates in EDU- Figure 2 do not directly reflect Leads360 clients enrollment rates. Instead, the percentages reflect the change in enrollment rate when comparing Q1 2010 to Q1 2011, Q2 2010 to Q2 2011, etc. The increase in enrollment rate year-over-year is noteworthy and can be attributed to two factors: 1. As detailed above, lead providers improved their quality as the new regulations were issued. 2. New Leads360 features that improve enrollment rates were released in 2011. Of all the verticals at Leads360, EDU clients were the most enthusiastic adopters of the new dialer and text messaging products, and the benefit they reaped is reflected in their improved enrollment rates year-over-year.
0%
EDU- FIGURE 2: SAME QUARTER ENROLLMENT RATE CHANGE IN LEADS PURCHASED BY EDUCATION CLIENTS 2010 TO 2011 65%
8%
8%
10%
Q4 2010
Q1 2011
Q2 2011
Q3 2011
B. 2012 Education Lead Market Expectations Lead Buyers and Sellers to Find Their Footing in 2012
The Big Picture
It is still unclear how the July 2011 regulations will impact lead buyers and lead providers in 2012. The regulations will most immediately affect schools in the middle of the year, when the Department of Education cracks down on first-year violators. Initial punishment will be short of school closings; schools that fail all three DoE metrics (the repayment rate, debt-todiscretionary income ratio, and the debt-to-total earnings) will have to institute improvement measures and provide warnings to prospective students in the form of a three-day waiting period before they can enroll. These offenders will surely see a decrease in enrollments. Nearly every school and provider we spoke with believed that any effort by Congress to further regulate the private sector school industry would be blocked by the Republican majority in the US House. However, many expressed concern that federal departments could legislate through regulation, as they did on July 1, 2011. The greatest unease was reserved for changes to the 90/10 rule to require more revenue to come from non-DoE sources (i.e., changing to 80/20), and over fears that veterans funds will be tied into 90/10 or fall into a similar rule. A minority of those interviewed was alarmed that students without a high school diploma or equivalent will no longer qualify for Pell Grants. In the past, these students could obtain the Grants by passing the Ability to Benefit test. Schools that cater to that type of student will have to seek those revenues elsewhere, or ask the students to replace those grants with additional loans. Regulations and Lead Providers in 2012 The elimination of less reliable lead sources should improve quality in 2012, though larger school chains will struggle to maintain significant enrollments if the trend of fewer interested school prospects continues. Most lead providers stated lead
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prices increased as volume decreased in 2011. However, a prolonged decrease in quality lead volume - coupled with schools need to get more highly qualified leads to stay within the new regulatory guidelines - will inevitably lead to even higher prices for inquiries as 2012 progresses. Providers of low quality leads will no longer be able to hide behind their price as a business plan. Fewer schools will be willing to stake their future on unreliable leads, realizing they could be shuttered if regulators make a significant finding. Furthermore, fewer first-tier lead providers will be willing to bet their business on aggregating these lower quality vendors whose messaging they cannot directly control. These factors will combine to drive the lowest-quality providers out of the market, with their portals consolidated among the top-tier providers. In addition to honing their organic results, the providers we interviewed said 2012 would bring an increase in spending on banner advertising to drive traffic to their portals. Unlike affiliate networks, they like that they can directly control the advertising copy. Similarly, some providers expect more schools to bring their online advertising entirely in-house, where advertising copy and placement can be entirely under their control. Schools and lead providers we spoke with agreed that the rule changes around incentive compensation will make third party call center enrollment services more difficult. One lead provider specializing in call-verified leads wondered, rhetorically, Now that call-verified leads that are transferred to a school are legally part of the schools recruiting efforts, are we still allowed to get paid for successful transfers? Or does that break the incentive pay rules? Who really knows? All parties involved would like more clarity on the updated incentive compensation regulations. To monitor their own advertising efforts and those of their affiliates, some lead providers said they are hiring compliance staff. Even providers with existing compliance personnel said they planned on increasing the size of their compliance teams. One provider hired 12 new compliance professionals in 2011. Additional headcount must be paid for, however. Providers will either decrease their margins or it will be yet another factor that may lead to price increases. Impact of Schools Trial Periods We believe the try before you buy recruiting concept will expand in 2012. A few larger school chains have instituted a trial period where students can attend the school for several weeks and decide whether its right for them before having to pay. Inevitably, more chains will follow and institute this example, as it is a positive experience for the student and for the schools image, as well as in the spirit of the Foundation for Educational Success guidelines. Moreover, it helps with compliance of the new regulations because a high proportion of the dropouts of this trial period are hypothesized to be those who will not graduate or will graduate but not be successfully employed. The trial concept has major implications for lead providers in 2012. On the plus side, schools will have to replace every student who drops out of the trial. For example, a school with a target enrollment of 9,000 students and a 10% trial dropout rate must buy enough leads to enroll 10,000 trial students. However, students who drop out of trial programs will have generated educational expenses during their trial but will have brought in no revenue to their school. To offset
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some of this added cost, some schools may look for a way to pay less for those leads after the fact (a negative for lead providers). Scoring to Become More Important Finally, as the importance of program completion and graduates employability grows, 2012 will enlighten second tier schools with what the top schools already know: using scoring models in admissions can improve GE compliance. This should lead to a broader adoption of the concept and should push enrollment management system vendors to automate prioritization and distribution of inquiries based on score. Schools new to scoring will have to do something with that score, and most CRMs and SISs are unprepared to act on that information. Leads360 clients can use a score to distribute the inquiry to the most appropriate admissions advisor, prioritize the inquiry in each admissions advisors queue, and proactively drive a communications strategy based on the score.
Methodology
No one can predict exactly what will happen in 2012. However, as the largest lead management software provider, we do have access to a very significant percentage of lead buyers and to every major lead vendor, agency, and technology leader in the education vertical. The information presented in this report was largely drawn from daily interactions with our client schools and business partners, from industry research, and from analysis of client data in our own system, which provided us exclusive insight into 2011. Additionally, for further insight into 2011 and for a more complete assessment of 2012, we conducted extensive interviews and secured survey responses from many EDU partners and clients specifically for the purpose of this report. The following section on 2012 Education Lead Volume Expectations is a summary of insights gathered from the survey responses collected from our education clients.
2012 Education Lead Volume Expectations Insights

EDU- Figure 3 illustrates that lead buyers at schools have tepid purchasing expectations in 2012, with 80% planning on buying the same amount or less than they did in 2011. EDU- Figure 4 provides more specificity. Leads360 client schools are looking to cut back on external sources (lead provider, traditional media, and advertising agency), while focusing on what they can do for themselves (SEO, SEM, and referral). This could be an attempt to rein in costs while also improving quality, since referrals and selfgenerated leads tend to have the highest enrollment rate, while being the cheapest leads to generate.
EDU- FIGURE 3: BUYERS EXPECTATIONS FOR THEIR OWN 2012 PURCHASED LEAD VOLUME
100%
10% 10%
SAME AS 2011 50%
As expected, EDU- Figure 5 details how the majority of lead buyers suggestions for improvement centered on quality. As mentioned earlier in this report, the new DoE regulations proscribe serious ramifications for noncompliant marketing practices as well as for schools that fail to graduate students who can obtain good jobs.
0%
40%
DECREASE SLIGHTLY
40%
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EDU- FIGURE 4: 2012 EXPECTATIONS FOR LEAD SOURCE USE 0% LEAD PROVIDER OWN WEBSITE AND SELF-MANAGED SEO ONLINE ADVERTISING AND SEM TRADITIONAL MEDIA/OFFLINE ADVERTISING AD AGENCY CORPORATE PARENT DIRECT MAIL PROGRAMS REFERRAL PROGRAM OTHER 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
DECREASE SLIGHTLY
SAME AS 2011
INCREASE SLIGHTLY
Lead quality is, therefore, a primary concern for lead buyers because noncompliant inquiries can seriously impact a school unlike other Leads360 clients, schools think of quality as an issue of compliance AND of conversion. This does not mean that current lead quality is poor. EDU- Figure 2, shows quite the opposite: lead quality improvements were at least partially responsible for enrollment rate increases realized by Leads360s clients. However, expectations of quality have been raised due to the new regulations.
EDU- FIGURE 5: BUYER OPINION: WHAT EDUCATION LEAD PROVIDERS NEED TO IMPROVE MOST
C. Education Lead Provider Awards

As the largest software company in the lead management sector, Leads360 has access to the most comprehensive set of multi-buyer, multi-vertical lead data sets in existence. We have also invested considerable time and energy normalizing our back-end data so that we have a clear picture of contacts, qualifications, and conversions across our thousands of client installations. Last year, we decided to use our data to deliver the inaugural Lead Provider Performance Awards. Since we do not have a complete data set for the entire industry, our results are indicative of excellence rather than the final word. However, the awards were extremely well received in an industry where individual operators are usually secretive but gain immensely from collective knowledge. We have therefore been encouraged to provide our performance awards for a second year.
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We have chosen to present awards on the basis of the following metrics: 1. Volume Growth growth in the absolute volume of leads sold to the same set of clients between 2010 and 2011. 2. Qualification Rate percentage of leads that were contactable and that qualified for the Leads360 client schools programs. 3. Enrollment Rate percentage of leads that became enrolled students for Leads360 customers. This year we have two main categories of awards in education, one for lead providers and one for agencies. We know how important and yet distinct both entities are in the education enrollment ecosystem. We have also added a new category for lead providers owned by agencies. We wanted to include them, but didnt want them double-counted now that we have agency-specific awards. To not mention them would be unfair to their parent agencies, but to treat them as independent lead providers would be unfair to lead portals that lack a parent agency that is encouraged to use their leads. Further, leads generated by agencyowned portals are largely sold to their parent agency, but they are also sold directly to schools. For these reasons, we decided to capture the performance of the portals without rolling them up to the parent agencies and to recognize the top two all-around performers based on the same three metrics: growth, qualification and conversion. Among mortgage lead providers, congratulations go to:
Volume Growth Award

Education Lead Provider 1. ClassesUSA 2. Neutron Interactive 3. myFootpath Education Agency 1. Kelly/Brady Advertising 2. Gragg Advertising 3. enCircle Media

Education Lead Provider 1. CareerBuilder 2. MindStreams 3. CollegeBound Network Education Agency 1. PlattForm Advertising 2. enCircle Media 3. Datamark
Methodology
It should be noted that some lead providers were excluded from this analysis. The exclusions fell into two broad categories: 1. Small volume lead providers if a lead provider or agency accounted for a highly insignificant percentage of our lead pool we excluded them since we felt that our findings might be unrepresentative. For the education industry, we determined that this cutoff should be less than 1,000 leads in a year. This necessarily biases our findings a little against very small volume lead sources. 2. Companies we felt were not fairly comparable We excluded some categories of lead provider such as call verified leads (aka hot transfers) because we did not feel that their product was equivalent to that of data leads. With the exception of the lead providers owned by agencies, another important factor to note is that these awards are for providers and agencies, not individual websites or products. Results for providers with multiple brands under their names were aggregated to represent the parent provider or agencys overall performance.
Enrollment Rate Award

Education Lead Provider 1. MindStreams 2. CareerBuilder 3. Beeline Web Education Agency 1. EducationDynamics 2. enCircle Media 3. Datamark
Lead Provider Owned by an Agency Award

1. Education ConnectioN (EducationDynamics) 2. Beauty Schools Directory (PlattForm Advertising)
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APPENDIX i: LEAD PROVIDER AWARD SUMMARY

Leads360 has over 1,100 lead source integrations in place as of today, of which almost 1,000 are with lead providers that are actively posting leads to Leads360 clients. We are confident that this largely covers the entire universe of lead providers in most major verticals. We also receive over 25 million leads per year. Therefore, it is a significant achievement to be one of the award recipients listed below. We would like to offer congratulations to all of the awardees.
GROWTH
1. LeadPoint MORTGAGE 2. LowerMyBills 3. Adchemy 1. AllWebLeads INSURANCE 2. InsuranceAgents 3. QuoteWizard LEAD PROVIDER 1. ClassesUSA 2. Neutron Interactive 3. myFootpath 1. Kelly/Brady Advertising AGENCY 2. GraggAdvertising 3. enCircle Media LEAD PROVIDER OWNED BY AN AGENCY
QUALIFICATION RATE
1. Affiliate Media Networks 2. LeadPress, Monster (tie) 3. FreeRateUpdate 1. AllWebLeads 2. InsuranceAgents 3. InsureMe 1. CareerBuilder 2. MindStreams 3. CollegeBound Network 1. PlattForm Advertising 2. enCircle Media 3. Datamark
CONVERSION RATE
1. FreeRateUpdate 2. Monster 3. LeadPress 1. InsuranceAgents 2. AllWebLeads 3. InsureMe 1. MindStreams 2. CareerBuilder 3. Beeline Web 1. EducationDynamics 2. enCircle Media 3. Datamark
EDUCATION
1. Education Connection (Education Dynamics) 2. Beauty Schools Directory (PlattForm Advertising)
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27
APPENDIX ii: LIST OF SURVEY AND INTERVIEW PARTICIPANTS

We would like to thank all of our customers and partners that helped us compile this report. They include:
LEAD BUYERS
Five clients that wish to remain anonymous + Arbor Mortgage Baker Insurance Group Bank of Internet BMP Insurance Body Therapy Institute Brookline College CalUniversity Carrington Mortgage Certys Financial Chicago Bancorp Daymar Colleges Group LLC DigitalSignals Dow Insurance Associates, Inc. Eckelkamp Insurance Agency Envoy Mortgage Fajardo Insurance Group First Choice Bank First Commonwealth Mortgage First Internet Bank Gateway Bank Mortgage Gearhart Insurance Inc. Howard Law PC iLoan Innova College Jones International University Kirk Fuqua State Farm Laura Harris Agency, Inc. Lisa Calabresi Allstate Agency Manns Insurance Agency Mark Wong State Farm Nancy Brockman Allstate Agency Peoples Mortgage Performance Training Institute Pima Medical Institute Pinnacle Career Institute Real Estate Connection Service Residential Finance Corp Roman Financial Group RoundPoint Mortgage Russell Brown Agency Ryan Whiten State Farm Safe ID Lock Salvatore Sam Mezzio Agency Signpost Southern Fidelity Mortgage Southern Funding Alliance Speer Insurance Services Sumner College Terry L Johnson Insurance Inc. The Bryant Agency The Orchard Insurance Agency The Sullivan Agency United Pacific Mortgage US Buildings Volunteer Mortgage Inc. Wyndham Capital Mortgage
LEAD PROVIDERS
Two partners that wishes to remain anonymous + All Star Directories AllWebLeads Ampush Media Bankrate Bills.com ClassesUSA HometownQuotes InsuranceAgents LeadPoint LendingTree LowerMyBills Plattform Advertising QuinStreet QuoteWizard RateElert ReallyGreatRate The Wisdom Companies TriAd Media Solutions
It is important to note that responses to survey and interview questions were in no way associated with the lead provider awards, which were completely based on Leads360 system data.
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2012 Leads360, Inc.
APPENDIX ii
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APPENDIX iii: GENERAL METHODOLOGY

Approach and Data
Proprietary Leads360 Client Data The metrics in this study were generated from Leads360 client data spanning over 20 million leads across approximately 1,500 databases and all associated performance data from eight consecutive quarters. To ensure that our insights were based upon statistically significant data, not all Leads360 clients were included in the study. Clients were selected based on size, volume of leads, tenure, etc. Data was thoroughly cleaned and normalized to present accurate and relevant results while preserving the anonymity of our clients and the validity of the analysis. Particular care was taken to ensure that each client had an equal contribution to certain metrics, regardless of size. Given the wide ranges particular metrics can span, presenting the median value was the calculation of choice for those metrics. For example, when calculating the percentage change in leads purchased for any given quarter compared to the same quarter the previous year, the first step was to calculate the percentage change at each individual client level (in effect normalizing the data). Since this value could take on the range of -100% on the negative side to thousands of percent on the positive side, we chose to calculate the median of this percentage across all clients and present this value as the most representative assessment of the percentage change in leads purchased. Applying this process ensures that no single outlier client unduly influences certain metrics due to size in absolute terms (a very large number of leads, for example) or in relative terms (a very large percentage change, for example). Client Surveys and Provider Interviews Much of the qualitative insight shared in this report would not have been possible without the remarkable contributions made by 19 of our strongest business partners across all verticals. They each provided 20 minutes to an hour of their valuable time to participate in an interview with Leads360 staff. During each interview, our partners confidentially shared their professional opinions on their respective industries, in many cases also providing specific information about their companys plans for 2012. For some of our larger partners that provide leads for multiple verticals, we conducted two or three separate interviews to capture the expert opinion of the most appropriate staff member for each vertical at the company. For more quantitative and qualitative data on what we might expect in 2012, we also relied heavily on the insight provided by our large client base through the use of surveys. We were fortunate to secure 69 survey responses from a variety of clients across multiple verticals, with the vast majority of the responses coming from the mortgage, insurance, and education sectors. A handful of clients that operate across two distinct verticals submitted different surveys for each part of their business. Leads360 is extremely grateful to each respondent for sharing his or her insights. We hope that they will in turn find this study of value to their business. A note should be made that the Leads360-specific data of clients that chose to respond to the survey or participate in the interviews may or may not have been included in our analysis based on qualification parameters determined for each question.
Awards Criteria
As a neutral third party who does not generate leads, Leads360 took as many reasonable precautions as possible to maximize
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the fairness of the award selection process. The award recipients were entirely determined from the results of the comprehensive analysis of client data. Given the data available to Leads360, the following measures were taken in an effort to award the lead providers that seemed the most worthy of recognition: The qualification and conversion (enrollment) rate awards are for lead providers performance over the last year, not for the improvement in those metrics compared to 2010. Therefore, unlike other metrics in this report that were generated using Leads360 system data for the purpose of the awards, qualification and conversion (enrollment) rates included only one years worth of data, 2011 (Q4 2010 through Q3 2011). Additionally, to minimize the negative impact of some buyers lack of accurate tracking of qualified and converted leads in their Leads360 databases, we chose to eliminate from the study all leads purchased by clients whose overall qualification and conversion (enrollment) rates fell below a certain threshold. Like last year, calculated qualification rates were rounded to the nearest whole percent and conversion (enrollment) rates were rounded to the nearest tenth of a percent to determine awardees. We identified a minimum volume requirement for lead providers to qualify for the awards. For the mortgage and insurance verticals, the minimum volume requirement was 3,500 leads. For education, the minimum volume was 1,000 leads (because it is a smaller market with fewer clients and a large number of secondary providers). We chose these minimum volume requirements because we did not consider it fair or statistically valid for small lead providers, who may have been evaluated using only about a hundred leads, to potentially beat larger providers who may have been evaluated using hundreds of thousands of leads, particularly since tenths of a percent can separate the winners. It is important to note that high quality lead providers may have been excluded from this study for multiple reasons. Although most lead providers would likely meet the minimum volume requirements if all Leads360 data were used in this analysis, different factors described above prevented us from using all data, such as circumstances where lead provider information was missing or indecipherable in the clients database. Lead buyers are always encouraged to fully utilize the system to properly identify providers and accurately track qualification and conversion (enrollment), not only for the added accuracy of our analysis and award presentations, but also for the myriad of benefits that have been proven to result from complete data sets. Lead providers also stand to benefit greatly from their clients optimal system usage and should therefore promote detailed data tracking whenever possible. The categorization of lead providers products and services also played a factor in qualifying lead providers for these awards. For example, lead vendors that were determined to be significantly different than most other lead providers in each vertical were either put in different categories, as was the case for agencies and lead providers in education, or were determined to be out of scope for inclusion in these awards, as was the case for companies that primarily provide call verified leads, for example. In regard to insurance, specialized niche providers were also excluded from our awards because we may have only had data for one specific type of product, such as health or life, which generally performs better. We considered that it would be unfair to compare a specialized health insurance lead provider, for example, to a lead provider that provided leads to our customers across multiple insurance products and services.
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2012 Leads360, Inc.
APPENDIX iii
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Our awards are designed to highlight lead providers that deliver outstanding results for Leads360 clients. Our experience shows us that some lead providers will be surprised and disappointed not to be awardees. Thus, we would like to provide some information as to why this might have occurred, since it is company policy to not provide any raw or aggregated data associated with this report, beyond what is published. If lead providers dont achieve recognition in these awards, it doesnt necessarily mean they are unable to perform at the same level as the winning providers for the following reasons: Our data is confined to lead buyers who use Leads360. For some providers, that may not equate to a significant number of companies. The lead buyers included in the analysis for this report may not be a good representation of the total universe of lead buyers for a particular provider (i.e. we may have all of their best or worst performing customers). Our metrics are dependent upon lead buyers accurately assigning the correct milestone status (qualified and converted) for each lead in our system. No one does this 100% correctly, and where we noted significantly poor practices, we removed the lead buyer from the report. However, this exclusion activity involved judgment that further limited the sample size of the analysis.
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2012 Leads360, Inc.
APPENDIX iii
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About Leads360
Leads360 is the market-leading consumer sales platform, proven to deliver smarter, more efficient sales processes and increased conversion rates for companies that sell to consumers. With unmatched expertise, drawn from managing over 40 million prospects for more than 10,000 clients, Leads360 is the platform of choice for the largest and most successful consumer-focused sales organizations. Leads360s Software-as-a-Service (SaaS) solution meets the needs of the most demanding sales organizations, from distributed call centers with thousands of users to highly focused small businesses with a handful of users. Leads360 enables companies to capture, distribute, analyze, nurture, and convert sales leads using a customizable workflow and fully integrated inbound and outbound dialing technology. Dial-IQ, Leads360s intelligent inbound and outbound telephone system, creates prioritized call queues, routes inbound call traffic and powers high-speed multi-line dialing with sophisticated logic and highly configurable business rules. Leads360 serves as the single systems integrator and primary interface for the sales process, incorporating all lead sources, third-party data and services providers, verification and quoting technologies, telephone systems, and, once the sale is made, Customer Relationship Management (CRM) and ERP systems. Leads360 supports existing integrations with thousands of lead sources and hundreds of third-party technology providers. Leads360 also offers professional services including training and process consulting to help customers design and implement highly effective best-practice sales processes. Whether your prospects are generated online or offline, if you want to turn more prospects into customers, visit www.leads360.com.
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2012 Leads360, Inc.
ABOUT LEADS360
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2012 Leads360, Inc.

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LEAD INDUSTRY REPORT 2012

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Leads360, Inc.

CEO & President

Senior Manager, Strategic Intelligence

2012 Leads360, Inc.

2008 0.91 4.14 -18.4 $1,600 48 50 $800

2009 0.55 4.24 -2.4 $2,000 70 68 $1,360

2010 0.59 4.03 -3.7 $1,677 76 67 $1,124

2011E 0.60 4.09 -3.0 $1,300 74 69 $897

2012F 0.68 4.31 -2.0 $1,100 71 65 $715

1.36 5.72 -8.4 $2,432 42 49 $1,192

14% 12% 10% 8% 6% 4% 2% 0%

Source: Freddie Mac

1-4 Family Mortgage Originations

2012 Leads360, Inc.

2012 Leads360, Inc.

5.5% 5.0% 4.5% 4.0% 3.5% 3.0%

2012 Leads360, Inc.

B. 2012 - Mortgage Lead Market Expectations We Enter with Cautious Optimism

4.2% 4.0% 3.8% 3.6%

2012 Leads360, Inc.

2012 Mortgage Lead Volume Expectations Insights

INCREASE SIGNIFICANTLY INCREASE SLIGHTLY

2012 Leads360, Inc.

VOLUME 36% PRICE 18% 5% FILTER FLEXIBILITY

C. Mortgage Lead Provider Performance Awards

2012 Leads360, Inc.

Among mortgage lead providers, congratulations go to:

Volume Growth Award

Qualification Rate Award

Conversion Rate Award

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Leads360, Inc.

B. 2012 Insurance Lead Market Expectations 2012 Must be a Rebound Year

-8% -12% -16% -26%

2012 Leads360, Inc.

2012 Insurance Lead Volume Expectations Insights

2012 Leads360, Inc.

INCREASE SIGNIFICANTLY INCREASE SLIGHTLY

SAME AS 2011 50%

2012 Leads360, Inc.

C. Insurance Lead Provider Awards

PRICE 10% VOLUME 10% NO ANSWER 3%

Among insurance lead providers, congratulations go to:

Volume Growth Award

Qualification Rate Award

Conversion Rate Award

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Leads360, Inc.

Lastly, in comparing a quarter of one year to the

same quarter of the previous year, the impact of seasonality is minimized.

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Leads360, Inc.

2012 Education Lead Volume Expectations Insights

INCREASE SIGNIFICANTLY INCREASE SLIGHTLY

SAME AS 2011 50%

2012 Leads360, Inc.

C. Education Lead Provider Awards