AOL Dials Up Ingenio’s Pay-Per-Call

Whatever the planned search enhancements that AOL announced last month will do for AOL users, they’ve already accomplished a lot for Ingenio, the San Francisco-based start-up with the first pay-per-call advertising network.

“The pay-per-call model has already been validated by our other deals with firms like FindWhat and go2,” says Ingenio chief marketing officer Mark Barach. “But the AOL deal will really put us in the prime time. This deal speaks about adoption by the industry and mainstreaming the pay-per-call technology.” AOL has said it will use Ingenio’s platform in its AOL Search and Yellow Pages features, as well as in other areas around the network. No date has been set for the first pay-per-call ads to appear on AOL.

The effect of the AOL move to adopt pay-per-call may be to heighten the appeal of paid search advertising for small, highly local merchants who do not currently advertise on the Web. These vendors are not interested in counting clicks, the business model that has made online ad stars of Google and Yahoo. Instead, they want the kind of intimate customer connection that they have traditionally parlayed into sales-- phone contact from motivated customers. Rather than paying for anonymous views of a Web page, these businesses will pay whenever a customer calls the unique 1-800 number that Ingenio assigns them.

These businesses may not even have Web sites, or may not have the ability to conduct e-commerce. By Ingenio’s math, out of about 13.8 million U.S. businesses, only about 250,000 businesses have Web sites fully activated for e-commerce. That’s a small number compared to the 9.8 million that do not have Web sites, and even small compared to the 4 million that maintain “brochure ware” sites—bare-bones sites with some informational content but no shopping cart, little interactivity, and no way to turn page views into sales.

The reasons why small businesses shy away from online advertising vary. Many sell services rather than products, making e-commerce less valuable to them. Others market only within a limited local area; they won’t benefit from the broad reach of Internet advertising in any form, including ad clicks. Still others are put off by the complicated process of keyword bidding and the difficulty of tracking its performance in terms of sales.

But it’s much easier to track calls than clicks. Local businesses already know pretty well how their incoming calls are converting, Barach says. A survey conducted by the company in March 2004 fond that 85% of local merchants could estimate their incoming call conversion rates. It’s a metric the local roofer and realtor are more comfortable with than invisible page viewers.

Merchants can sign up for the Ingenio pay-per-call service in two ways: through third-party advertising networks such as FindWhat and AOL Search, or directly through Ingenio. At Ingenio’s Web site, they fill out a form that lists their contact data, business description, and the market area they serve. Advertisers can choose local, regional or national plans, and can even specify how far beyond a given ZIP code they’re willing to provide service.

“We enable the local merchant to determine their service area,” Barach says. “If someone feels like driving up to 100 miles to do a roofing job, that’s their decision. But most contractors need to advertise in a much smaller radius, and with pay-per-call, they can.”

With their market area selected, merchants then create a few taglines for their ad, specify the search terms in which that ad should appear, and set a bid price per call and a daily budget. As with pay-per-click, the high bidder wins top ad placement within the search results.

Per-call prices for a search term are usually several times higher than the per-click price, starting at around $2 compared to 10 cents for pay-per-click. According to Barach, that’s only natural because pay-per-call delivers more highly qualified sales leads.

It’s this per-call premium that may lead search engines to follow the fortunes of the AOL-Ingenio partnership closely—that, and a growing industry feeling that paid-search advertising has saturated the “e-commerce elite” market segment and needs to grow down into the smaller operators. To do that, it may have to replace the click-based business model with other alternatives.

No one, and certainly not Barach, is yet willing to suggest that pay-per-call search advertising will replace pay-per-click. AOL’s search function is powered by Google, and Google paid-placement ads now appear in the AOL search results. But the industry seems to be coming to the conclusion that it can run several different revenue schemes simultaneously without seeing them cannibalize one another.

“We think pay-per-call and pay-per-click are complementary,” Barach says. “A business may even want to run both types, if they’re capable of benefiting from both business over the phone and over the Web. This simply means that the industry is now broader than it was, and can offer a new online advertising option to companies whose needs may not have been served by the click product.”