E-Commerce Doubles Down on Pay Per Call

Despite the huge growth that Internet search has shown this year, it still remains a cold, impersonal affair. That's why a lot of search-related companies are getting serious about a simple but increasingly accessible technology known as pay per call.

Unlike the pay-per-click model in many Internet searches -- in which an ad's cost is calculated by the number of people who click on it -- pay per call lets shoppers talk to retailers through a voice-over-Internet-protocol (VoIP) program by clicking on a phone icon next to a search result. The retailer pays more for a call than for a click, since the likelihood of a sale is expected to be much higher. After all, any salesperson knows that a human voice capable of answering a question or warming up a consumer's cold feet can increase overall sales.

Nobody imagines that every Internet search is going to wind up in a phone call or that the online transaction that Amazon (AMZN) and eBay (EBAY) have polished into a relatively painless process will go away. Instead, the promise of pay-per-call ads lies in opening up new areas of online advertising that have yet to reach their potential -- local and small businesses, high-end luxury retailers and service providers such as lawyers, restaurants and home repair businesses.

"Pay-per-call advertising and click-to-call solutions will become critical components of Web-based businesses downstream -- making them must-have offerings for leading Internet players," Marianne Wolk of Susquehanna Financial Group, wrote in a research note. "We believe Yahoo! (YHOO) and Google (GOOG) are positioning themselves to be leaders in pay-per-call advertising as local Internet search becomes more widely spread."

Wolk estimates that free PC-based phone calls combined with pay-per-call applications "should foster a $4 billion [to] $5 billion market in local and small business advertising over the next several years."

That compares with a market that is currently valued at $100 million, she says. (Susquehanna has no investment banking relationship with companies mentioned in this story.)