Borrell Associates, Inc

I addressed the GeoDomain Expo last Saturday in San Diego and was struct how disconnected these local entrepreneurs were with the concerns of traditional media. They are people like Dan Pulcrano, who owns a few dozen primo domains such as SanFrancisco.com, Chicago.com, and Dallas.com, and guys like Mike Mannix, who with his wife runs Albany.com and Saratoga.com.

After I gave an inspirational lunchtime speech encouraging them to think big and to not squander their Park Place and Boardwalk properties, I sat in my hotel room and listened to a domain auction out on the lawn near Mission Bay. Minneapolis.net went for $6,250, BrooklynJobs.com went for $8,000, and LasVegasLights.com went for $4,500. But there were no takers for Longhorn.com (the opening bid was $35,000) and Carlsbad.com, a community near San Diego.

It struck me that these wide-eyed, generally inexperienced entrepreneurs are holding the deeds to small goldmines. They possess a prime slice of land but lack the experience and finesse to tap them.

It also struck me that no traditional media players were in attendance.

If only there were a way to match the two.

We’ve just completed some research on churn rates for Search Engine Marketing resellers, and it sure looks like this red-hot industry is about to implode.

First off, companies like Yodle and Local.com saw gangbuster growth last year with their “direct” programs selling SEM to advertisers. Yodle saw 700% growth, surpassing $20 million, and Local.com saw 71%, approaching $40 million. Even Yellowbook.com, a big reseller of search advertising, saw triple-digit growth last year (113%), surpassing $200 million in interactive sales.

So what’s the problem? It’s become a gold rush. There’s a whole cottage industry of what I suspect to be former Amway salespeople peddling SEM through some of the resellers like WebVisible, Marchex and ReachLocal. They’re damaging the industry by selling “buckets of clicks,” driving up the pricetag to advertisers to make their profits and disregarding the fact that click fraud runs anywhere from 17% to 28%.

Churn rates look to be at least 50% for some of the best, and close to 90% for many. Advertisers are dropping like flies because they’re being sold clicks, not results, or aren’t getting the level of care they need. If the industry doesn’t take this bull by the horns and force some reform, the resellers could ruin an otherwise viable lead-generation channel.