Internet Outsider

Ether: Cool New Pay-per-Call Service

Ingenio has unveiled "Ether," a new distributed pay-per-call service that allows companies and individual service providers to accept paid customer calls through their own web sites.  The idea is to leverage the service providers' existing relationship with users, be they blog readers, information/expertise seekers, consulting clients, astrology addicts, etc.

One of the reasons Ingenio's existing service-provider directory (keen.com) has not become a smash hit is that it forces users to go to the Ingenio (or keen) site and find the service provider.  As a quick scan through the listings reveals, many of the keen.com service providers appear to care so little about professionalism, accuracy, etc., that they can't even be bothered to spell correctly.  (Which does not fill one with the confidence necessary to pony up $2 a minute.)  Also, unlike most eBay sellers, the service providers are selling themselves, not branded products that can be bought anywhere, and potential customers are therefore often taking a greater leap of faith than eBay buyers.  Even so, the former keen.com is doing well--profitable and generating approx. $100mm of revenue a year.

The new service, Ether, seems flexible and easy-to-use, and it should give a certain type of service provider a new way to monetize their expertise.  The service provider can control pricing, scheduling, hours, time-of-call, etc., and Ether handles the entire back end.  The service also does not require the service provider to publish a phone number, which should reduce the anxiety about 2am calls. 

Ether will manage everything and take a 15% cut of the per-call take.

Better Data on Search Pricing

Citigroup analyst Mark Mahaney spoke with about 10 major search advertisers at an ecommerce conference in Palm Springs.  The feedback on pricing was mixed, but in Mark's opinion, the exchanges were "generally bullish for search."  Specifically:

• Two of the ten said that pricing had gotten "exorbitant," but only one of the two planned to cut back spending.
• One said the hiring of an SEM firm and the use of advanced analytics has allowed it to reduce its overall spending [which suggests keyword prices can rise for a while yet].
• Several said there is far more competition for keywords than there used to be.
• Two companies directly contradicted FTD's comments about ridiculous pricing in the flower market.
• Only 20% of respondents to a survey reported that their biggest concern about search was pricing.

Mark also spoke with several multi-channel retailers who are just now beginning to explore search (incremental demand).  And he reported that FordDirect is psyched about pay-per-call, which apparently generates leads worth $30-$45 a call.  So there may be smooth search sailing for a while yet.

Ingenio and Pay-Per-Call: First Impressions

I spent an hour with Ingenio executive vice president Paul Manca this morning, talking through the pay-per-call opportunity and the company's business.  I'm not an expert in pay-per-call and Paul's a persuasive fellow, so I welcome counterpoint.  In any case, here are my key takeaways and impressions:

• Ingenio's "pay per call" product is distinct from Google's new "click-to-call" product: With Ingenio, the web user sees a unique 800-number generated on the fly and then calls that number.  The advertiser pays only for calls to the 800 number, and only if they last more than ten seconds or so (to eliminate poor leads).  With Google's "click-to-call," meanwhile, the web user must enter his or her phone number online, and then Google calls both the user and advertiser to establish the call.

• Ingenio has offered a click-to-call product like Google's for several years.  It has experienced a low conversion rate because users do not like entering their phone numbers (inconvenience and fear that number will be sold, misused, or given to advertiser, etc.) and because they do not want to wait for the phone to ring.  The conversion rates for the Ingenio pay-per-call product are much higher.  As yet, Google is not testing an 800-number pay-per-call.  (Greg Yardley provides an excellent walk-through of the Google service here, with screen shots).

• Ingenio is distributing pay-per-call links through AOL search, Interchange, Miva, Marchex and others and expects to add more soon (traffic begets partners begets traffic begets, etc.--the same old chicken/egg).  Several blogs have apparently reported that Yahoo!'s pay-per-call test partner is Ingenio.  Paul didn't dismiss this as bogus. 

• The distribution deals are structured as revenue shares: every time a call is placed, Ingenio and the partner split the revenue.  The revenue splits are richer for Ingenio than for Yahoo! and Google in the average sponsored search partnership, but Ingenio still keeps a minority of the gross (I assume approximately 40% ).  The splits vary depending on whether the content partner or Ingenio signs up the advertiser; Ingenio keeps more if they bring the advertiser to the table.

• The average price-per-call across the Ingenio network is now $10-$11 per call.  In some categories, prices-per-call are as much as $60.

• Call fraud is probably negligible.  Ingenio can block autodialers, so fraudsters have to actually hire people to call and chat.  Not impossible, but inefficient.  Also, because prices are determined by a bidding system, the advertiser maintains control over ROI.

• Ingenio will book $35-$40 million of (net) revenue this year, 90%-plus of which is from a pre-existing advice business, which includes the former keen.com (people available for phone consultation for a dollar or two a minute).

• Assuming the remaining 10% of revenue encompasses Ingenio's pay-per-call business, I estimate that Pay-per-call revenue is currently tiny: approximately $2-$4 million.  Given that Ingenio has been incorporated into AOL search since April, this revenue seems surprisingly small (and may indicate that the feature is not actually that popular with searchers, perhaps for the reasons described below).  Because the company's voice infrastructure already exists, the incremental margin contribution for the PPCall business is very high.  Overall, the company's operating margin is about 20%.

• The company has invested $60-$100 million in R&D developing the voice infrastructure and believes its system is robust enough to handle $1 billion in revenue.  Most other pay-per-call vendors are operating with much smaller budgets.  Ingenio believes this is a major barrier to entry.

First Thoughts:

Pay-per-call, as currently implemented, is a small business in part because it's not a perfect solution.  Most web searchers would probably like some additional information about a vendor before chatting with them on the phone, and Ingenio deliberately does NOT enable this (by, say, also linking to the advertiser's web site; see this search on AOL as an example, and compare the top link--Ingenio's--with the next few).  The best experience for the searcher would be to be presented with all options--link to web site, click-to-call, 800-number, and direct number--and only the use of the 800 number will result in a revenue event for Ingenio.  Unless Ingenio doesn't mind the "leakage" that results from the user going direct--or can figure out a way to get paid for a direct call from the advertiser's web site--it will offer searchers an imperfect experience.

Yes, Google will enter this business, and, no, it won't kill Ingenio.  The stronger Google gets, the more it will be in everyone else's interest to support non-Google partners.  Yahoo!, AOL, and MSN wouldn't be caught dead using a Google Pay Per Call product, so Ingenio has three massive potential partners there--at least until one or more develop their own solutions.

Ingenio would be a prime acquisition candidate for Yahoo!, Microsoft, or Google (AOL probably can't afford it, at least under current ownership).  The Google guys would presumably consider it an insult to stoop to buying a capability like this, so that probably leaves Microsoft and Yahoo!. 

If Ingenio isn't acquired, it will probably go public in late 2006 or early 2007, provided revenue ramps as expected (which I actually don't think is a slam dunk; the business is still way too small to declare victory, and, in my opinion, the leakage issue is potentially a big one).  The company has already generated significant buzz on Wall Street and appears to have potential underwriters and M&A advisors in a tizzy.  This, too, will act as a barrier to entry.