Startup Review

LowerMyBills.com Case Study: Adapting to new markets

written by Nisan Gabbay, posted on October 29th, 2006

Why profiled on Startup Review

LowerMyBills.com is one of the leading consumer focused lead generation companies. They were acquired by Experian in May 2005 for $330M in cash and were reported to be generating $120M in revenue and $26M in profit for fiscal 2005. LowerMyBills.com provides consumers with shopping comparison and bill payment for a variety of monthly consumer services and consumer finance products. LowerMyBills generates the majority of its revenue by selling mortgage finance and other loan application leads to lenders.

Interviews Conducted: Olivier Chaine, VP Web Operations, 2000 – 2003. Olivier left LowerMyBills to start SalesBuilder. Olivier wanted to offer other companies a similar platform for generating and converting sales leads, as the one he helped develop at LowerMyBills.

Key success factors

Built platform for rapid testing and optimization

LowerMyBills.com invested years and millions of dollars in building a platform that enabled them to rapidly test, iterate, and optimize their website content with their marketing campaigns. The business model is fairly easy to understand: attract consumers to the site (usually through online ad buys), collect lead information from the consumer, and sell the lead to lenders. The complexity arises in the myriad of variables that can be adjusted to improve the return on ad spend. The site layout and content can be adjusted to match the large variety of ad campaigns (different ad formats, different traffic sources, timing of campaigns, etc.). It can best be thought of as a hugely complex A/B test. This technology and business process platform is what enabled LowerMyBills.com to execute on its media campaigns on a daily basis.

Maintained a broad portfolio of consumer products

LowerMyBills.com started out by offering 18 different consumer products. This was a key success factor because it enabled them to discover the huge market for mortgage finance leads, even though this wasn’t the original intention of the company. The service was started with the intention of helping consumers lower their monthly service bills, and in the early days of the company it was the service for lowering telephone long distance plans that was most popular. As long distance service became commoditized, it was no longer important for consumers to discover competitive plans. Because LowerMyBills was constantly monitoring the performance and profitability of each category they were quick to realize the hot market for mortgage loans. Had they concentrated all their efforts into one category they would have missed this opportunity.

Team focused on daily execution

While day-to-day execution is important in any business, for Internet companies whose core business is acquiring and converting traffic, a maniacal focus on daily ad campaign execution is paramount. We saw this in the Advertising.com case study and we also see daily execution as a key success factor for LowerMyBills. LowerMyBills CEO Matt Coffin set the tone for the company by managing the team and resources of the company via a daily dashboard report. Ad campaigns were never let run without constant monitoring. LowerMyBills would do tests in small increments and pull non-performing campaigns every day.

Launch strategy

When LowerMyBills raised its first $4M of VC funding in December 1999, the plan was to raise another $30M shortly thereafter. This was to be invested in direct marketing campaigns. However, after a single $400K marketing campaign only generated $10K in revenue (and the VC financing option disappeared with the bubble), LowerMyBills went back to the drawing board. LowerMyBills.com spent its next 5-6 months testing site layout, content, and traffic acquisition techniques before scaling its marketing spend. From that point forward they built the company by continually testing small scale ad campaigns. LowerMyBills did not face a chicken and the egg problem because there were established channels for selling leads, thus, they only needed to figure out how to profitably attract and convert traffic into leads.

Exit analysis

LowerMyBills was acquired by Experian Interactive, a division of publicly traded Experian Group Limited (stock ticker EXPN), in May 2005 for $330M, plus performance incentives that could reach an additional $50M. This acquisition price represents a valuation of 2.8X sales and 12.8X profits. While much of the attention in the Internet M&A market has been placed on Google, Yahoo, and Fox, Experian has been a major, but under recognized player. Perhaps this is because their focus has not been on the sexier consumer Internet start-ups, but those with more of a business to business focus. In addition to LowerMyBills, Experian has acquired Pricegrabber (shopping comparison site for $485M), ClassesUSA (education lead gerneration - rumored $60M), MetaReward (loyalty marketing firm in 2003), and ConsumerInfo.com (in 2002), amongst other, smaller acquisitions.

Food for thought

LowerMyBills is a good example of a company that adapted from its initial business plan to find success in a different market. Although the company had some initial success helping consumers lower their monthly long distance bills, they eventually found the larger opportunity in one-time consumer financing events like home mortgages. In a previous case study, we saw that Flickr made a radical change from a multiplayer online game to a photo-sharing site. Craigslist evolved from a local events e-mail list into a classifieds site. In an upcoming case study we will see how Xfire adapted from a site where gamers bet against each other into a communication platform. These types of examples illustrate why VCs say that they don’t invest in ideas, they invest in teams. Good teams learn and adapt from what their users, customers, or market is telling them. While commitment to a vision or strategy is important, entrepreneurs cannot afford to be inflexible either.

A second thing I found interesting about LowerMyBills is that they tried a variety of different products, enabling them to discover opportunities in new markets. This is somewhat counter to traditional start-up wisdom that you should maintain laser focus on one product or opportunity. I’m not sure how I feel about this one. I don’t think that most start-ups can afford to experiment with different products. However, if it can be done with minimal investment, it seems like a valuable options strategy. Given the low costs of web development these days, we are seeing more Web 2.0 companies launching a variety of products. For example, the founders of Digg have also started a company called Revision3. The founders of podcast site Odeo have also diversified their product offerings. In addition to these two examples, I have also seen a number of other companies explicitly plan to test multiple products to see what sticks. I’ll plan to revisit this topic at a later date once I’ve developed more of an opinion. Will this become a new theme in the Web 2.0 landscape? If anyone has a perspective to add, please leave a comment below.

Reference Articles

“Interview with Ed Ojdana and Matt Coffin”, socaltech.com, May 2005
Has some good quotes on the motivation for the acquisition by Experian, but otherwise not very interesting.

“Experian Raises Profile By Buying LowerMyBills”, tiscali, May 2005
This was the best article I found covering the LowerMyBills acquisition.

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