Monday, October 04, 2004

Barron's - Reach Out and Click Someone

Barron's: Reach Out and Click Someone

Is there more to the paid-search story? At a time when very little in Techland is working for investors, the bulls have had their way, at least when it comes to search-engine stocks. And the key to Google's successful IPO and Yahoo!'s resurgence has been the emergence of paid search in which advertisers pay to place those "sponsored links" at the top and to the side of the search results. In the wake of the unequivocal failure and ineffectiveness of banner advertising, there was a time when many skeptics wondered how these cool and useful media companies would ever make money.
But the pay-for-results concept has turned into the Holy Grail. And there could be more from where that came. "We know that Web search was out there in 1995, but there was no business model relevant to the search results," says Marc Barach, chief marketing officer for Ingenio, a privately held Internet company in San Francisco. "Yahoo! walked away from search. It was a financial backwater."
Now, advertisers are increasingly devoting more of their media budgets to online campaigns because they like what they're seeing compared to broadcast or cable television. That's good news for the search-engine stocks, and it could be good news for companies looking to take paid Internet search in new directions.
But the attractiveness of paid search needn't be limited to just the Cokes, Disneys and Fords of this world. At least that's what Barach and his Ingenio backers (Benchmark Partners) think. Ingenio, an extremely well-funded company spawned from the dot-com era, has totally retooled its business model to focus on the "pay-per-call" market, which marries pay-for-click Internet-search technology with the telephone.
Essentially, Ingenio is targeting Yellow Pages advertisers. About 70% of all American businesses don't have Websites. And many that do only have "brochure ware" sites that aren't interactive or very rich in content. Ingenio aims to give small businesses a way to bridge online buyers with offline sellers via the telephone.
Here's how it works: Online advertisers post a toll-free number set up by Ingenio in their ads. Potential customers use search engines to find the merchant's advertisement and, if interested, call the number to be connected to the merchant. Ingenio monitors how many times the number has been called, charges the advertiser, and splits the profit with the search engine.
For example, a local plumber, who currently advertises in the Yellow Pages, can now bid for placement on the Internet, and garner new job leads without having a Website. This brings click technology to the local market. "It's not because they aren't Web-savvy. Pay-per-call just matches the way they do business—over the telephone," Barach says.
The Ingenio executive says that the Yellow Pages market in the U.S. generates more than a $15 billion in annual revenue. He maintains that pay-per-call could grab as much as 6%, or nearly $1 billion of this, by 2008. Just last month, Ingenio announced a partnership with, a search engine that just went live with its telephone-meets-the-Web offering.
At a recent growth-stock conference in San Francisco, FindWhat's CEO, Craig Pisaris-Henderson, was excited about his search engine's new pay-per-click business powered by Ingenio. Says Pisaris-Henderson: "There are a lot of doctors and lawyers out there. They all have telephones, and they are waiting for a call."
And the more than two-thirds of U.S. businesses without Websites now can be reached with the help of the Web.