Why tenancy fees are bad news for customers

by Saul on 09 February 2011  |  0 comments
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Increasingly, big media companies expect financial comparison sites like lovemoney.com to pay them a fee in exchange for large volumes of traffic. What does this mean for customers?

Here at lovemoney.com we call it "MPD". It means Partner Distribution and it is the process of operating comparison and product tools for third parties. We have provided these services for over ten years, both as The Motley Fool and as lovemoney.com, and today is a service we still offer to multiple partners of varying size.

Recently, this marketplace has began to shift. The primary player was always moneysupermarket, who used partner distribution to great effect in the mid 2000's, to distribute their brand, drive search value (by way of the links), and increase their distribution numbers. It worked very well, especially with newspaper sites which tended to have high page ranks and frequently would tie in their offline (in the newspaper) financial listing offerings.

As time went on though, the market began to take a turn, partners wanted more. This manifested as more bespoke front end designs, the search engine optimization (SEO) benefits, and a more attractive set of commercials.  The days of moneysupermarket paying distribution partners less than 50% of the value of their traffic were over.

The problem, though, is that there are few partners out there who represent really strong volume, especially to a website the size of moneysupermarket.

There were however a raft of other businesses desperate for distribution partners, however small the volume of traffic on offer. Demand from these businesses led partners to price their services higher and higher until the dreaded tenancy fee began to rear its ugly head!

A tenancy fee is when a distribution partner asks for a set fee for the "inventory" they are offering. We have always said that tenancy fees are a wholly bad idea, and we have never done a distribution deal where they are present.

Why we think tenancy fees are a bad idea

1. You have to make sure you make back the tenancy fee. Often, this means you have to work harder at making the traffic pay. This frequently leads to shortcuts and commercial decisions which weaken the strength of the content and tools on a site.

2. It destroys transparency about the value of the traffic. Both sides become guarded on metrics. And if you end up overpaying or underpaying, problems will arise.  

3. It can lead to improper and unethical conduct. If a partnership is based solely on commercials, and a large chunk of those are upfront, the stakes to winning the pitch become higher often with false promises and "underhand activity" at play. Not good.

The benefits of tenancy fees

Tenancy fees do have their benefits though, for both sides.

For the partner they lock in guaranteed revenues, good for cash, good for results, and (if you believe the argument) good for locking in their own marketing.

For a price comparison site, they also represent a degree of exposure control, albeit tainted by a guaranteed exposure level.

The white knights of white labelling

What we have seen more recently has been a shift away from tenancy due to the two white knights of white labeling: proposition and stability. About time we say!

Here is the thing... Financial Services are part and parcel of everyday requirements for most people. So if you own a media property or retail outlet you can legitimately be offering financial services.

But you need to understand that with financial services comes great responsibility (a little like Spiderman), because when your customers trust you with their money, you have a different type of relationship with them than before.

Put quite simply, you have to do a good job, otherwise you will undermine your relationship with those customers, and they will not come back.

Put the product first

Recently, we have heard people talk about the product first, and commercials second. This is a good thing, always start with as strong a product vision as possible, and then strong commercials will follow.

Let’s imagine I run a major media company, and I have hundreds of thousands of customers. The first question I’d ask a price comparison site would be: "Will the financial services you offer my customers fit well with the values of my business and what my customers expect?" Not: “Will you pay me £10K a month for the privilege of powering my financial services?”

Partners need to work harder

Poor deployment of financial service provision means we end up coming full circle to where we started – concluding that there are not enough distribution partners around with large amounts of traffic from people who want financial services.

But in fact, it may simply be the case that the customers of distribution partners are not naturally associating that company with financial services. They are not certainly not likely to go there looking to take advantage of these services.

So there is no point in dropping a price comparison table on a page and expect to see traffic. You need to think about the relationship you have with your customers and how you will communicate with them when talking about their finances, it needs to be engrained not tagged on.

Our stance

On a business level, we would prefer to see a world without tenancy fees for the provision we do for our clients.

We are very proud of our third party work, and correctly so. For bespoke services and the highest level of service, I don’t think we can be bettered.

But no matter what the deal, if tenancy fees are involved, we will not pitch, and not because of the business connotations of not wanting to pay.

When we hear tenancy fees, it normally means that the distribution partner is thinking of short term gain, and not about integrating the product correctly for their customers, and that will ultimately mean it will not work on traffic or commercials.

The customer is always king. Forget about that and it just won't work.