Why Pay For Ads That Don't Work?

Imagine if advertisers had to pay only when a customer bought something. That day may be here.

1 | 2 NEXT

Businesses have long worked to take the guesswork out of advertising. And for a time, pay-per-click ads on the Internet seemed like a pretty good solution. Not only did pay per click let marketers better target their campaigns, it cost them money only when potential customers actually clicked on their ads.

But for many businesses, pay per click has been a letdown. For one thing, between 20 and 50 percent of clicks are estimated to be made by people who have no intention of buying--and many are outright fraudulent. And the price of keywords is soaring; popular terms on Google cost an average of $1.95 per click.

Now a host of technology entrepreneurs believe they have a better answer. They're working toward a future in which online advertisers, instead of buying clicks of uncertain value, will pay only when an ad results in a phone inquiry--or, in some cases, an actual sale. Their services, which are just now becoming available, represent a kind of Holy Grail for marketers and could spark a revolution in the way businesses seek to reach customers. "Pay per click was just the beginning," says Bill Gross, who helped pioneer Internet advertising in 1998 with GoTo.com, the Web's first paid search engine, which he later sold to Yahoo. Gross has launched two new online advertising services, Snap and InsiderPages. "The real evolution is pay per action," he says--in which advertisers pay only when a customer actually does something, like signing up for a newsletter or purchasing a product.

The appeal of these new services is easy enough to understand. A phone call is far more likely to result in a sale. Some 30 percent of calls lead to sales compared with a mere 3 percent of clicks, according to Jupiter Research in San Francisco. "That kind of high close rate should put some pressure on the kind of fraud that happens over the Internet," says Bill Leak, CEO of Leads Customers Sales, an online marketing firm in Austin. "Where I'd pay $1 for a click, I might pay $10 for a phone call." Indeed, research by the Kelsey Group, a market research firm in Princeton, New Jersey, shows that 42 percent of advertisers would prefer paying for phone calls over clicks.

Pay-per-call advertising was pioneered and trademarked in 1999 by a company out of San Francisco called Ingenio, which has since partnered with AOL and Smartpages.com to bring the technology to market. It's similar to bidding for keywords on Google, except that when your company appears in the results of an AOL search, you're charged only when a potential customer picks up the phone and calls you. (The average price per call is about $5.50, according to Ingenio.) Ingenio supplies a toll-free number, which allows it to automate the tracking of unique calls. "We only charge once per each unique customer, not for each phone call," says Marc Barach, Ingenio's chief marketing officer. That means you don't have to pay over and over again to serve the same customer.

1 | 2 NEXT

Try a RISK-FREE Issue of Inc. Today!

Renew | Contact Us | Current Issue

Select Services