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As director of online marketing for Nutrisystem (NTRI), Bill Chase has a $12 million annual budget to place advertisements for his company’s weight-loss programs all over the Internet. The effectiveness is modest: Just 2 percent or 3 percent of those who click on a Nutrisystem ad go on to sign up for the company’s 28-day weight loss program, he says. The yield is significantly higher if a prospective customer picks up the phone and speaks with a Nutrisystem representative; 20 percent of those interactions result in a sale. So about a year ago, Chase signed up with Marchex (MCHX), a company selling mobile advertisements that automatically connect clickers using smartphones to a call center. “It goes against all my principles as an Internet guy, but we can close a sale more often by having people call,” he says.
Online advertising has become a $70 billion annual global business in part by promising to measure how many views turn into clicks and which clicks lead to sales. The problem for many small businesses and service industries such as law and insurance is that prospects don’t tend to become customers until they get on the phone. “The naïve assumption that people made in the early days was that e-commerce was going to decimate other kinds of customer contact,” says Greg Sterling, an analyst at Opus Research in San Francisco. “When there’s a human connection, there’s a lot more that can be sold, and those customers are a lot more valuable inherently.”
Just as Groupon reinvented coupon-clipping for the online world, several advertising companies are trying to bring back the old-fashioned telephone call. Seattle-based Marchex expects its call advertising business to bring in $111 million this year, more than double last year’s total, and has plans to increase its 300-person staff by a third. Its big competitor is Google (GOOG). Its click-to-call program started as the part-time project of a few engineers about two years ago. More than 500,000 customers now use it, including car-rental company Enterprise and Esurance, according to Surojit Chatterjee, lead product manager for Mobile Search Ads.
It works like this: When a smartphone user visits a website with advertising or searches Google for, perhaps, car insurance, the result could include a sponsored ad with a phone number. Tap the number and your phone dials the seller. Marchex promises that advertisers pay only for completed calls of a certain length, filtering out telemarketers and accidental “butt-dials.” Google and Marchex sell similar ads that appear on desktop PCs, but potential customers have to actually pick up the phone and dial instead of clicking. Marchex says it’s working on a way to smooth the process by routing PC-based calls through Internet voice providers so callers speak directly through their computers.
Call advertising has been available for several years but has gotten a boost as smartphone sales take off. Less than a year ago, Google reported it was connecting millions of phone calls via click-to-call each month. Now it’s reaching that number every week, it says. Last month Marchex signed a deal that will put its ads on the local-reviews site CitySearch and the restaurant recommendation site UrbanSpoon, both owned by InterActiveCorp (IACI).
The cost of individual click-to-call ads varies widely—Google, for instance, uses an auction model to price them—but the overall market may grow to more than $1 billion in the next two to three years, estimates Opus Research’s Sterling, up from several hundred million today. Tolithia Kornweibel, director of online marketing at Esurance, says her company plans to increase its spending on the ads. Acquiring a new customer using click-to-call ads costs 30 percent less than traditional methods because phone ads attract a more motivated customer and the ensuing conversation lets Esurance sales reps flex their powers of persuasion.
Not everyone finds the market as promising. New York City’s Yext, which started selling click-to-call ads in 2006, is now “running away from it” and focusing instead on helping companies keep their online business listings and profiles up to date, says Chief Executive Officer Howard Lerman. He estimates there are no more than several hundred thousand businesses likely to be interested in call advertising. “Everybody likes the idea of it,” Lerman says. “But it’s actually hard to generate calls, and calls are expensive.”
The bottom line: Click-to-call ads are more likely to lead to a sale, and the market is growing fast. Google now connects millions of calls a week.