MediaAlpha is one of the rare recommendations among platforms that specialize in playing with traffic.
The Pioneer in Car Insurance Comparison and Referral: Confused.com
Company Overview
Established in 2002
Specializes in Car Insurance Comparison and Referral Platform
A wholly-owned subsidiary of Admiral Insurance Company in the UK
Business Logic
Users visit Confused.com to compare car insurance rates
Those who meet certain criteria stay and enjoy discounts or services offered by the platform
Those who don't are referred to other insurance companies, with Confused.com earning a commission in the process
Global Footprint
Admiral Insurance has replicated Confused.com's successful model in multiple countries
Spain: Rastreator.com
France: Lelynx.fr
The United States: compare.com
This model isn't exclusive to Admiral; the UK-based BGL Group also employs a similar strategy
UK: comparethemarket.com
Netherlands: hoyhoy.nl
France: LesFurets.com
Takeaways
Confused.com stands as a trailblazer in the world of car insurance comparison and referral. Not only has it carved out a niche in the UK market, but it has also expanded its successful model globally through its parent company, Admiral Insurance. Meanwhile, the UK-based BGL Group has also adopted a similar approach, further fueling the growth of the car insurance comparison and referral market. These platforms provide users with convenient comparison tools and effective referral services to insurance companies, creating a win-win situation for all parties involved.
In the United States, the innovation in the car insurance comparison and referral sector has evolved into various forms, with Google Compare, which was once incubated by a major platform, Everquote founded in 2011, and the recently listed MediaAlpha being the most typical examples. However, the fates of these three entities are starkly different: one has fallen, one struggles to survive, and one is taking off.
Let's dive into the fascinating world of car insurance in the U.S. and explore how these players have shaped—and continue to shape—the landscape.
Google Compare
Google Compare, once a promising venture backed by a tech giant, aimed to revolutionize the way consumers shop for car insurance by offering a one-stop comparison platform. But despite its impressive backing and initial momentum, Google Compare couldn't sustain its growth and eventually faded into obscurity. Its demise serves as a reminder that even the most well-funded ideas can fail to resonate with consumers if they don't meet their needs effectively.
On the other hand, Everquote, founded in the wake of Google Compare's rise, has been striving to carve out its niche in the competitive market. While it has made some progress, Everquote faces significant challenges in attracting and retaining users, as well as in generating sustainable revenue. Its struggle highlights the difficulties of establishing a successful business in the car insurance comparison space, where competition is fierce and consumer loyalty is hard to come by.
And then there's MediaAlpha, the newcomer that has recently gone public and is showing signs of rapid growth. Unlike its predecessors, MediaAlpha has found a unique way to differentiate itself in the market. By focusing on providing high-quality leads and data insights to insurance providers, MediaAlpha has built a strong reputation in the industry. Its successful IPO and subsequent rise in valuation indicate that investors believe in its potential to continue thriving in the car insurance comparison and referral sector.
In conclusion, the fate of these three players in the U.S. car insurance comparison and referral market serves as a testament to the dynamic nature of the industry. While some ideas may falter, others will rise to take their place, driving innovation and progress in the sector.
Here's a captivating translation tailored to American reading habits, focusing on the car insurance sector:
In 2015, Google ventured into the U.S. market with its car insurance comparison incubator project, Google Compare, in partnership with Coverhound. Starting with car insurance comparison, the platform later expanded to include comparisons of financial products like credit cards and loans. Prior to this, in 2012, Google had already dipped its toes into the UK market by acquiring BeatThatQuota, a car insurance comparison company, and conducting pilot operations there.
Regrettably, just a year after its launch, Google decided to shut down its Google Compare project, despite its website being online for just over a year. What were the reasons behind this decision? Considering that the U.S. car insurance industry isn't highly concentrated, with the top three players holding less than 40% of the market share, and given the high degree of freedom in product offerings and pricing, how could Google, with its vast traffic, advanced technology, and willing insurance partners, end up closing the project?
While the exact reasons remain unknown, there are some guesses circulating in the market. Firstly, the leading car insurance companies might have resisted Google Compare. Secondly, the price comparison and referral business could have potentially cannibalized Google's original advertising business. Lastly, Google might have wanted to focus on more cutting-edge innovations.
Let's think about this logically:
If Google's car insurance comparison feature were truly effective and could directly connect to insurance companies' systems to complete quotes and transactions, it would undoubtedly be a huge blessing for drivers. However, from a business perspective, Google's ultimate goal might be to capture all the commissions in the car insurance market, turning car insurance into a commodity solely differentiated by price. Under this trend, Google might encourage drivers to switch insurance companies every year, as new customer commissions are typically higher.
This goal, however, clashes significantly with the objectives of most car insurance companies:
Firstly, car insurance companies emphasize claims service and value-added services, which could be greatly diminished in the comparison process.
Secondly, car insurance companies strive to increase renewal rates and are reluctant to pay marketing fees for renewing customers.
Thirdly, the Chief Marketing Officers (CMOs) and marketing teams of car insurance companies might feel helpless, as traditional advertising methods could become meaningless, and even their jobs could be at risk.
Therefore, car insurance referral services aimed at "transparent and real price comparisons" are bound to fail due to "resistance" in more mature markets. The same applies to the Chinese market, where without the participation of large insurance companies like PICC, CPIC, and Ping An, even BAT (Baidu, Alibaba, Tencent) would struggle to succeed in this field.
Everquote
Everquote, a website dedicated to car insurance comparison and referral, was founded in 2011. After seven years of tireless effort and perseverance, the company successfully went public in 2018. Currently, its car insurance referral business accounts for about 80% of its revenue.
What sets Everquote apart from Google Compare, the most notable difference, is that it doesn't offer "real price comparisons" but focuses on "genuine referrals."
After filling out a lengthy list of information (such as vehicle model, household size, and the last time car insurance was purchased), users are presented with a recommendation list. However, when they eagerly click on "View My Quote," they don't immediately see price information. Instead, they are redirected to the company's car insurance purchase page to continue filling out information.
The only silver lining is that previously entered information is automatically prefilled, but users still need to complete 5-10 more fields before they can finally see the actual quote. Calling Everquote a "genuine referral" site is indeed spot on.
The company's core business revolves around distributing traffic—it attracts users to its website for car insurance inquiries by placing ads on platforms like Google and Facebook, and then redirects this traffic elsewhere. A crucial question arises here: how effective is the company's advertising? Can it, as a marketplace advertiser, outperform car insurance companies in both efficiency and profitability?
In this traffic distribution business model within the car insurance sector, the two most pivotal metrics are:
Quote Volume: This directly reflects the company's ability to attract users and prompt them to inquire about insurance.
VMM per Quote (Variable Marketing Margin per Quote): This represents the net profit earned per inquiry after subtracting advertising expenses from revenue per inquiry. It serves as a gauge for the company's earnings from each inquiry.
From the company's recently disclosed annual report, we notice that the Quote Volume has been increasing annually, potentially due to expanded advertising efforts and the introduction of multiple products (such as car insurance, health insurance, home insurance, etc.). However, the VMM per Quote has fluctuated, averaging around $3.50 for the past three years.
While the VMM per Quote reached $3.75 in the third quarter of 2020, indicating a slight upward trend, when we recalculate using sales expenses instead of advertising expenses as the basis for the new VMM per Quote, we find that it has actually declined compared to 2019. This suggests that the company's unit efficiency hasn't significantly improved; rather, there have been slight variations in how costs are accounted for.
Furthermore, throughout the seven years of financial reports available (2013-2019), the company has never achieved profitability. This revelation underscores a critical point: even when the traffic redirection model is mature and the efficiency of each insurance quote is relatively predictable, the company still needs to invest heavily in research and development (R&D) and administrative expenses to support two key initiatives: first, expanding its product categories, and second, broadening its partnerships with insurance companies.
The growth rate of these backend expenses has nearly kept pace with, and even surpassed, the growth rate of the Variable Marketing Margin (VMM) per quote. Consequently, the company has consistently struggled to turn a profit.
So, when will this cycle finally be broken?
Perhaps when the company's newly launched Medicare traffic redirection effort generates significantly more commissions? Or when the company diversifies into products beyond insurance, thereby reducing the advertising expenditure per quote? Alternatively, could it be when the company establishes itself as a monopoly in the insurance comparison and traffic redirection space?
Currently, these scenarios seem rather challenging to achieve.
MediaAlpha taking off
Founded in 2014 and listed at the end of 2020, MediaAlpha is a B2B technology company specializing in traffic distribution, rather than a direct-to-consumer insurance lead generation platform. Currently, about 60% of the company's revenue comes from auto insurance business, but it has also expanded its reach into health insurance, life insurance, travel, education, and other industries.
So, what exactly does MediaAlpha do?
In a nutshell, when insurance companies invest heavily in online advertising to attract users to their websites, some users inevitably leave due to ineligible conditions or unfavorable prices. Can these "almost-lost" traffic be repurposed and sold to other industry peers?
That's precisely what MediaAlpha does! They place a small comparison feature, redirect link, or phone number at the bottom of web pages to handle these "abandoned" traffic. And it's based on the distribution of such "abandoned" traffic that MediaAlpha has successfully built a platform. On this platform, both buyers and sellers are auto insurance companies, and what they trade is the traffic of potential customers.
How did they manage to pull this off? After all, auto insurance companies are eager to acquire customers; how could they easily give up business and sell it to their competitors? The answer lies in data analytics. Let's ask ourselves a question: Do you believe in the power of "big data"?
By analyzing A auto insurance company's historical database, including all demographic attributes of buyers, auto insurance purchase and claim records, website browsing behavior, and all possible third-party data, MediaAlpha can accurately predict the likelihood of a customer (or a customer group with similar characteristics) purchasing insurance from a specific auto insurance company.
For instance, consider customers who reside in a particular area, earn less than $50,000 annually, and haven't filed any claims in the past two years. These folks are die-hard fans of GEICO (with an over 85% chance of purchasing GEICO's auto insurance) and have less than a 5% chance of opting for Insurance Company A. For Insurance Company A, such traffic is practically "wasted."
Yet, Company A has already shelled out money for this traffic (whether it's paid traffic from Google, Facebook, or Everquote). Since the money's already spent, why not resell it, earn a bit of ad revenue, and essentially reduce marketing costs?
According to MediaAlpha's founders, this practice can help companies recoup 20% to 30% of their marketing costs. For auto insurance companies, it's a no-brainer.
Moreover, the customer purchase probability rankings provided by data analytics can also guide frontend page design. If a customer has a high probability of purchasing from the company, there's no need for those "little ads." But if the probability is extremely low, it might be best to place those "little ads" more prominently and make them larger.
Based on such data analytics and business logic, MediaAlpha's auto insurance business platform currently boasts over 380 sellers (auto insurance companies) and 500 buyers (auto insurance companies), with more than 95% being loyal, long-time customers.
Now, whether you believe in the big data logic above or not, at least American auto insurance companies have embraced it, tried it, paid for it, and profited from it. MediaAlpha's platform has made it a reality.
The company's operational efficiency is truly impressive:
Firstly, its platform is divided into an open platform and a private platform. The open platform accounts for 70% of transaction volume, and the transaction volume disclosed by the company actually equates to its revenue. As for the private platform, which offers one-on-one technical services, its revenue accounts for about 5% of transaction volume.
Secondly, on the open platform, for each successfully referred customer (Referral), the company charges a fee of 9.30,with8.00 paid to the traffic seller, leaving the company with a gross profit of $1.30. The stability of this gross profit lies in the fact that as long as the traffic sellers trust the data analysis and are willing to provide traffic, the company can continue to earn this profit.
Furthermore, the company currently employs fewer than 90 people, and its middle and backend management expenses (excluding additional option expenses) remain almost unchanged. This means that as the business scales up, as long as stable gross profit growth exceeds middle and backend expenses, the company can achieve steady net profit. In fact, the company has been profitable since 2018.
If Google Compare or Everquote are platform-level upgrades originating from the UK's Confused.com and targeting the C-end market, then MediaAlpha is another homage to Confused.com, evolving into a platform-level product targeting the B-end market.
On the technical front, the company doesn't need extensive development, as all modules are standardized. When expanding its client base among auto insurance companies or life insurance companies, the company doesn't have to persuade clients as much as Everquote does. The only concern is the growth limit of transaction scale. The company expects its transaction scale to grow by 25% in 2020 and maintain steady growth in the future, rather than experiencing explosive growth.
This is mainly due to the nature of its business, namely the definition and control of "imminently lost traffic" by insurance companies, as well as the strong service attributes of health insurance (Medicare) and life insurance products (which differ from auto insurance, which is more like a commodity).