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.)
And while Google and Yahoo! dominate the pay-per-click market, this new market for online advertising is wide open. No one controls it yet, but everyone's lining up for a piece of this potentially meaty pie. In the past six months, Google launched Google Talk, Yahoo! bought VoIP provider Dialpad, Microsoft ( MSFT) bought Teleo, AOL launched TotalTalk and eBay bought Skype. InterActiveCorp ( IACI) and Verizon ( VZ) are also said to be staking a claim in the nascent market. Of course, most of these companies have VoIP ambitions beyond pay-per-call advertising. But in the past few weeks, Yahoo! and Google have gone further, revealing trial programs for pay-per-call advertising. First, reports emerged that Yahoo! is working with pay-per-call pioneer Ingenio. Then Google, through its increasingly common tactic for unofficial announcements, posted a
"click-to-call" FAQ on its Web site. The Google FAQ sketches out the clearest picture of how the technology will likely work: After entering a search for, say "mortgage broker" or "plumber," some of the sponsored links will include a phone icon. Clicking on it will allow the searcher to either "Connect for Free" via Google Talk or to enter a phone number that the advertiser will call back. Google shields any entered numbers from the advertiser and vows to delete it from its own servers after a nonspecific period of time. The advertiser's phone number will reside on the caller's computer in an encrypted cookie. Google also says it will foot all phone charges, even for long-distance calls. Call backs to a mobile phone, though, will still be charged to the phone plan. Googling for the number instead.)
But the move away from costly call centers has taken its toll on online retailers as well. More than half of online shopping carts that customers fill with goods are abandoned in the online shopping aisles forever, according to Forrester -- not exactly the most efficient way to close a sale. Whether big companies find the pay-per-call ads a means to increase their overall sales or just an unnecessary and costly drag on their call centers remains to be seen. For small, local businesses, especially those that have held off on building up a Web presence, it could open the door to new customers. With the growing popularity of recommendations made on social sites like Yelp! and Tribe.net, the click-to-call feature could give mom-and-pop shops a needed bit of leverage against the major retailers. Susquehanna's Wolk points out that, in addition to eliminating the abandoned shopping carts, the model could offer benefits to retailers large and small: better tracking of customer calls and areas of concern, shortening customer wait times, and a bit more personal attention to those lonely online shoppers. Personal attention on the Web. What a radical concept.