Google Picks Up the Phone

Even though Google (Nasdaq: GOOG) has launched a myriad of services, the fact remains that 99% of the company's revenues come from advertising. It got there by using a pay-per-click model, something that it didn't invent (Yahoo! (Nasdaq: YHOO) sued Google on charges of patent infringement), but which has served the search king very well.

Simply put, this is how pay-per-click works: An advertiser bids on certain search words, such as "mortgage" or "hot stocks." Each time a Google user clicks on the resulting ad, the advertiser pays Google the amount that they'd previously bid.

Now, Google is experimenting with a new model in a similar vein: pay-per-call. When you search on Google, you can press an icon that will automatically make a call to the advertiser. The call is free to the Google surfer; the advertiser pays for the call.

Unlike with pay-per-click, advertisers are willing to pay more for a phone call lead. "When you're taking inbound phone calls, it's effortless to manage lead generation and subsequent conversion to sales," says Chris Consorte, the CEO of Integrated Direct. Moreover, as Ari Jacoby, president of VoiceStar, points out, "Merchants pay only for calls received without writing big checks up front."

But with the online search business having become fiercely competitive, Google does not have a lead in pay-per-call. Microsoft (Nasdaq: MSFT) plans to offer its own solution, especially in light of its recent purchase of Teleo, a provider of voice over Internet protocol (VoIP) services. Yahoo! is experimenting with its own version.

Even brick-and-mortar players are in the game. Look at Verizon (NYSE: VZ), which in October introduced a pay-per-call service for its SuperPages.com portal. (The company has more than 1,000 different telephone directories in print.) Verizon has also put comparison shopping capability in the listings, such as from Motley Fool Stock Advisor recommendation eBay (Nasdaq: EBAY) and Fast Search.

The competitive structure comes as little surprise, given that the pay-per-call market looks particularly attractive. A recent study from The Kelsey Group forecasts that this will become about a $1.4 billion market by 2009.

While Google is likely to be a beneficiary of this trend, it definitely will not get a free ride. Finding more growth -- especially with intense competition -- is getting more and more difficult for the mighty Google.

Fool contributor Tom Taulli does not own shares of companies mentioned in this article.