This week Google was sued by Lending Tree, a company whose website enables consumers looking for mortgages and other loans to connect with lenders. LendingTree alleges that Google is planning to launch an online loan exchange of its own and that it will use technology provided by one of LendingTree’s vendor. The problem: LendingTree alleges the vendor is contractually forbidden from working with LendingTree competitors, which LendingTree clearly believes Google is.

For its part, Google says that it’s simply “working on a small ad unit test that will run against a limited number of mortgage-related search queries in the U.S.” So while we don’t yet have enough in the way of hard facts to evaluate the merits of LendingTree’s claims, the lawsuit raises an interesting question: what if Google gets into the lead gen business?

Right now, Google’s sole cash cow is pay-per-click advertising. In a sense, its AdWords program is a kind of lead generation program: Google refers potential customers to its advertisers and gets paid by the click. In some highly-competitive markets, such as those for mortgages, the amounts advertisers are willing to pay Google for each click are quite remarkable.

Even though the amounts advertisers are willing to pay for each click in markets like mortgage lending are nothing to sneeze at, Google could potentially make significantly more money by becoming a true player in the lead gen business. While it’s too early to estimate what Google might realistically make with a LendingTree-like service, it’s clear that Google is serious about doing whatever it can to add to the bottom line. Moving the needle isn’t easy for a company of Google’s size but incremental gains can add up.

In my opinion, this isn’t just about the money, however. It’s also about remaining competitive as online search evolves. With Bing Travel and Cashback, Microsoft has demonstrated some of the virtues of having a vertical search strategy. Bing Travel utilizes technology Microsoft obtained when it acquired Farecast in 2008 for $115m. Farecast’s former CEO and now Bing Travel general manager described part of the strategy as capturing consumers “higher in the funnel“. If providing a better experience for consumers dictates that Google make dedicated efforts in specific verticals and it can take advantage of a lead gen business model at the same time, it just might have to.

The question, of course, is how hard Google can step on the toes of its advertisers before they push back. In the mortgage space, many of Google’s advertisers are themselves middlemen in the business of generating leads. If Google disintermediates their market by building an online loan marketplace of its own, Google would be competing head on with its own customers. Maybe this would prove to be worthwhile, but it could also backfire. It would certainly cause advertisers in other markets to raise their eyebrows. Could Google eventually turn on them too?

In the end, this all might prove to be nothing more than conjecture. But the question of how far Google can expand its tentacles without upsetting advertisers and regulators is one that I suspect will continue to keep coming up because LendingTree certainly isn’t the only company out there that has fears about what Google could do to its business.

Photo credit: Casey Serin via Flickr.