In the field of paid search, the pay-per-click model is well-known. Advertisers pay sponsors when potential customers click on their ads. In search engine results, the top hits will often be those from paid sponsors. It's a model that has meant booming business for Yahoo! (NASDAQ:YHOO), Google (NASDAQ:GOOG), and Stocks 2004 pick FindWhat.com (NASDAQ:FWHT).
Yet the pennies-per-click method means these companies need to churn out lots of ads to turn a profit. FindWhat.com thinks it has a better idea: pay-per-call. With this model, advertisers pay only when a potential customer actually places a call. The fees for pay-per-call are higher -- around $2 a call -- but the advertiser is getting a potential customer closer to actually making a purchase. It looks like it could be a winner.
A pay-per-call ad is a keyword search engine listing that features a free, ad-specific telephone number for users to call and speak with a live person. Currently, FindWhat.com is the only paid-search company offering the service, and it's doing so in conjunction with privately held Ingenio, a telephone technology company that has eBay (NASDAQ:EBAY) and Microsoft (NASDAQ:MSFT) among its investors.
Advertisers are able to create simple text ads; create a business information page; choose keywords, categories, and geographical areas; and bid for placement. The advertising platform then does the rest, redirecting calls to the advertiser; storing call data and call activity (in the future there may be additional fees for extended call length or follow-up calls made to the same number); and integrating transaction processes.
FindWhat.com unveiled its service in April and launched it in September. It reports that interest in the service is building, though it hasn't released actual numbers yet. It is being aimed at small businesses, some 70% of which don't even have their own websites. That's key because, obviously, pay-per-click requires a business to already have a web presence. Programmed to be included in the booming business of local search, the ads are targeted to a specific ZIP code. With paid search expected to grow 23% to $3.2 billion in 2005, according to Jupiter Research, a lot of that money might be spent locally. And local search alone is supposed to increase by 64% over the next few years.
Small businesses don't have the resources available to them to waste money on pay-per-click advertising, where the majority of leads do not result in a sale. As noted above, the person who actually makes a phone call to an advertiser is further along in the process of making a purchase, and converting that lead into a sale is a greater possibility. It's a low-risk means of reaching customers. FindWhat.com has teamed up with a network of websites, including CNET's (NASDAQ:CNET) Search.com, Dogpile, and Microsoft's Internet Explorer Autosearch. One could also imagine Verizon's (NYSE:VZ) SuperPages.com extending their current pay-per-click relationship, though no such plans have yet been announced.
Yahoo's Overture paid-search service hasn't bought into the concept yet, but if it catches on -- if it clicks with advertisers (sorry!) -- and becomes profitable for FindWhat.com, you can be sure the field will be as crowded as the other flavors of search have become.
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Fool contributor Rich Duprey says his favorite flavor of ice cream is plain vanilla. He does not own any of the stocks mentioned in this article.
