After Early False Start, Pay-Per-Call is Back on Track

By Greg Sterling

In 2005, as an analyst at The Kelsey Group, I co-authored a report that projected pay-per-call advertising would grow to somewhere between $1.4 to $4 billion by the end of 2009. While the pay per call market clearly did not materialize at the rate expected, there are indications that it is back on track.

The widely held expectation back in 2005, including my own, was that the model would push deeply into the small business (SMB) segment – since calls are favored over clicks – as well as national advertisers that wanted to drive leads to call centers.

The 2005 forecast was based on a range of hypothetical scenarios, from relatively conservative to quite aggressive. All the subsequent press releases that picked up the 2005 forecast cited the higher figure to fuel hype surrounding their companies and the pay per call industry as a whole. And perhaps they were justified. All assumed the dominant search engines, Google and Yahoo!, would adopt pay per call and offer it to their advertisers. Both ran promising trials but didn’t implement anything at the time.

AOL was the only major player using pay per call among the big online companies at the time and wasn’t driving enough volume to generate significant revenues. Among a few smaller companies using the model was free directory assistance provider Jingle Networks (800-Free-411), which also had marginal volume.

The company behind much of the early pay per call hype was Ingenio, a front runner in this space. While the speed of growth in the pay per call market didn’t fulfill expectations, Ingenio itself did when in late 2007 it was acquired by AT&T. The deal was worth $316 million.

 

Pay Per Call is Now Growing Rapidly

Out of the ashes of the early disappointment, pay per call is now gaining momentum. Free from the pressure and hype of inflated expectations, pay per call is being used more widely in print media and mobile, as well as online. It’s a model particularly well suited to mobile, where a click on a phone number can immediately turn into a call on the handset.

I won’t offer another forecast but there’s plenty of evidence that pay per call is growing rapidly. A major call-tracking company whose numbers are used by many print and online yellow pages publishers said recently it was seeing “explosive growth in customers’ local search pay per call advertising programs in the last six months.” The company added that it’s “monitoring three times the number of pay per call programs from January 2009 to June 2009.”

I’ve also been told informally that some print directory publishers are using pay per call to help retain accounts where advertisers balk at prices or declining print usage.

Google has recently revisited pay per call and is experimenting online with cost-per-action and lead generation ad models, some of which involve phone calls. I’ve been informed that the company also intends to implement pay per call at some point in the future. I expect Google will use it in mobile as well as selectively online. In addition, Yext, a call-based online lead generation company, claims to already be doing $20 million in revenue today.

Part of the reason that pay per call is showing new life is that the rationale behind the model is sound:

• It’s versatile and can be used in traditional or digital media
• Most SMBs prefer calls to clicks
• The closing or conversion rate for calls is many times higher than for clicks
• Most people still use the phone to contact businesses in their area

Ad agency TMP Directional Marketing and comScore recently released data from a consumer study conducted earlier this year with several thousand US users. The findings validate the phone as the primary tool that consumers use to connect with businesses. After doing online research on local businesses, the data showed the two dominant ways consumers contact or interact with local businesses (including retailers with physical stores) is over the phone or though an in-store visit:

 

Post Search Activity

(Business Contact Method)

Source: TMPDM-comScore (10/09, n=4,000)

While pay per call is unlikely to supplant online clicks any time soon, it will take its place beside other digital ad models as one that holds special appeal to local and small business marketers and well as those targeting users on mobile devices. However, perhaps the most interesting and ironic aspect of pay per call is the way it has gained traction in traditional media as a response to the pressure of performance-based online advertising.

Given all this we can expect more platforms, ad networks and publishers to offer pay per call and for advertisers to adopt accordingly. Eventually the forecast of 2005 will be fulfilled – it’s just taking slightly longer than expected.