Pay Per Call

This compelling new advertising mode, born of the success of pay per click, depends heavily on the economics and logistics of VoIP.

By Gerry Blackwell | Posted Sep 26, 2005
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eBay's blockbuster $2.6-billion acquisition of Skype put the spotlight on a new and potentially important application for VoIP—pay per call, an innovative advertising model inspired by the success of pay-per-click Internet advertising. How eBay will use Skype or Skype technology to exploit the growing market for pay per call (PPCall) services remains unclear. What is clear is that VoIP is a key enabler for PPCall.

Pay per call extends the trend, begun with pay per click, towards performance based advertising. Under pay per click, which Google and others have made the dominant model in Internet advertising, advertisers only pay when someone clicks on an ad and goes to the advertiser's Web page for more information. With PPCall, they only pay when a customer calls them on the phone.

PPCall can be and is being used in conjunction with push-to-talk or click-to-talk buttons on Web pages and ads, but it can also be used in offline advertising—yellow pages listings, newspaper ads, even billboards. A service provider, who typically also provisions the telephone number, tracks activity on that number or on a push-to-talk button and charges for each call the client receives.

Much of the appeal, says analyst Greg Sterling of The Kelsey Group, is to small and local advertisers who may not have a Web site that allows them to close sales online, or who may simply be more comfortable dealing with customers on the phone. The Kelsey Group (TKG), a Princeton, New Jersey-based research and consulting firm, specializes in local and small-medium business advertising markets.

"Certain classes of advertisers want to drive traffic to a Web site," Sterling says. "But others, whether because of hours of operation or location or other reasons, don't. Some folks, such as lawyers and mortgage brokers, just want to get that consumer on the phone."

Also, with pay per click, the advertiser knows the customer has seen his information, but unless the customer proceeds directly to making a purchase at the advertiser's Web site, he doesn't know what impact the advertising ultimately had. Did the customer later visit or call the store? "Pay per call closes the loop for advertisers in a way that pay per click can't," Sterling says. It also eliminates the possibility of pay-per-click fraud—service providers inflating the number of hits on ads or automatically generating bogus hits.

"Because the world has started down that [performance-based] path [with pay per click], traditional advertising is now going to be forced to show a return on investment and deliver it," says Joe Siegrist senior vice president of technology at push-to-talk and pay-per-call vendor eStara Inc.

The Kelsey Group published a groundbreaking study of the nascent pay-per-call market in June. Calls, Clicks & SMEs: Driving Leads from Web to Phone, co-authored by Sterling, predicts that revenues in the U.S. alone will grow to between $1.4 and $4 billion by 2009, although this is based on "very, very little real data," he admits. The market is just getting going now. He estimates revenues for 2005 will be less than $100 million.

Demand is definitely strong, though, Sterling says. In a survey of qualified small business advertisers, 71 percent told TKG they would rather pay for calls than clicks. "A lot of small businesses want to be on the Internet because a lot of consumers are online looking for information," he says. "But they want phone calls. They're just a lot more confident dealing with phone calls."

There are at least two different kinds of players in the emerging pay-per-call market—back-end system and service providers such as eStara and VoiceStar that sell to companies that have direct relationships with advertisers, and firms that sell directly to advertisers, such as pioneer Ingenio Inc. and Jingle Networks Inc., with its free (to consumers) directory assistance service.

What role does VoIP play? It's crucial for eStara, Siegrist says. eStara, a leading push-to-talk (P2Talk) service and technology vendor, has also developed a hosted pay-per-call service, mainly as an adjunct to its P2Talk offerings. Pay-per-call customers include Verizon's SuperPages and Amazon's A9 online yellow pages services. eStara claims to be the only entirely VoIP-based P2Talk provider.

VoIP is vital to PPCall for a few reasons, Siegrist says. First, it lets PPCall vendors provision local inbound numbers in real time. If you're a small business in Houston and want to blitz the Cleveland market with advertising next week, you need a Cleveland call-back number so prospective customers there can call you without incurring long distance charges. And you need it right away.

With VoIP, the number is local to Cleveland but terminates in Houston, and calls can be easily logged by the PPCall service provider as they traverse the Net. This network architecture also means service providers can report results over the Internet in real time.

eStara can provision in real time because it has relationships with VoIP vendors that allow it to draw from pools of available and re-usable local inbound numbers. In the past, they would have had to wait for a telephone company to issue a number. And charges from the telephone company for a line that terminated in a different exchange were prohibitive.

In fact, VoIP has changed the entire cost structure. Without it, Siegrist says, it would not be possible to offer the kinds of PPCall services eStara does. "[Using VoIP] means we can push this at a much smaller cost per number for tracking than [with telco services]. The telcos offer remote call forwarding, but they'll quote $40 or $50 per line, plus usage. That makes it impossible to justify the cost for tracking except for your most profitable pay-for-performance calls."

So VoIP is important for PPCall and the eBay move confirms this, Siegrist says, but he stops short of conceding any particular advantage to eBay in the emerging market as a result of acquiring Skype. Most targeted advertisers need phone numbers that work on the public switched telephone network (PSTN), he notes. Most Skype users only use the service to make calls between computers. Skype does offer SkypeIn service, which provides users with local PSTN numbers in some markets, but it doesn't have anything like the coverage eStara does, Siegrist claims.

He believes—or perhaps wants to believe—that Skype will only help eBay within the context of its existing business model. eBay sellers and store owners could use Skype with P2Talk buttons to allow prospective customers to call them for more information, for example. And eBay could offer advertisers on its sites PPCall services to track Skype calls from P2Talk buttons on their ads.

But companies like eStara can offer advertisers a much more compelling value proposition, Siegrist says. They can use PPCall to track response to ads in any medium, not just the Internet. And on the Internet, they can track "the entire universe of calls"—PC-to-PC calls from P2Talk buttons as well as PSTN calls. It can even offer P2Talk customers trackable PSTN numbers they can post on an ad with a P2Talk button so a consumer who doesn't have a soft phone or doesn't feel comfortable using a P2Talk button can just dial the number.

"We think [eBay is] going to use [Skype] mainly for internal communications," Siegrist says. "They're going to be providing this for people with eBay stores. That's going to be the area they focus on—they want the additive effect [from Skype] of making [the eBay] community better. They're not going to focus on it for the broader market."

This may be wishful thinking. Sterling agrees eBay will probably initially focus on using Skype to enhance its existing business model. Advertising is already a key part of that business model, though. "eBay is a place where there is a huge concentration of consumers that ads can be served against," he notes. And eBay doesn't just offer advertising services within its own domain. It is one of the biggest buyers of Google keywords on behalf of its advertising customers. eBay could, for example, offer PPCall services with Skype-enabled P2Talk buttons on Google ads, Sterling suggests.

Siegrist believes that eBay is unlikely to move into the online telephone directory market—a key sector for PPCall and eStara in particular—because other companies, such as its customers A9 and SuperPages, already have dominant mind share among prospective users. But Sterling notes that Google is already making a play of sorts in the local directory market with its Kijiji free online classified ad service. It could conceivably offer Skype-enabled P2Talk and PPCall tracking as a premium for-fee service on Kijiji.

In fact, eBay could use Skype as at least one piece of the puzzle to "go entirely outside the context of its existing business model" and offer PPCall services in the larger market, Sterling says. If the Skype acquisition demonstrates nothing else, he says, it shows that eBay has "a lot of cash," which could be used to fund such initiatives.

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