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Brent Turner is executive vice president of call advertising products with Marchex. He joined Marchex in October 2009 and is responsible for Marchex's call-based products. Prior to joining Marchex, he was General Manager of Search and Media Network for Microsoft. Mr. Turner joined Microsoft in 2007 through the acquisition of aQuantive, where he held numerous roles over eight years, including Vice President of Operations for Avenue A (Razorfish), Founder and Vice President of Atlas' Publisher division, and Founder and Vice President of aQuantive's Vertical Networks product group. Mr. Turner received a B.S. in Electrical Engineering from the University of Memphis and an MBA from Vanderbilt University.

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Pay-for-Call: Dawning of a New Pay-for-Performance Age

Written on
Jul 20, 2010 
Author
Brent Turner  |
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Pay-for-Call: Dawning of a New Pay-for-Performance Age

dawn_smallADOTAS – They came out of nowhere. They saw an opportunity, and before anyone realized what was happening, they were enormous.

Pay-for-performance businesses absolutely exploded during the first 10 years of online display media by using a simple, three-step formula. First, by pricing media on cost-per-conversion basis, companies assumed advertiser risk in order to guarantee ROI.

Second, comfortable with this guarantee, advertisers were willing to scale budgets quickly. Third, because Internet traffic continued to grow with increased consumer adoption and increases in bandwidth, media supply outstripped demand and enabled pay-for-performance companies to fulfill advertiser budgets as they scaled.

The result was inevitable: pay-for-performance businesses dropped out of the sky, and were huge.

Consider that Advertising.com sold to AOL for $440 million only six years after the company was founded. Consider that ValueClick posted average annual revenue gains of 71% between 2003 and 2005. DrivePM, aQuantive’s performance network, literally doubled revenues for each of the four years of the company’s existence, beginning with a surprising $12 million in its first year.

Today, as mobile media rises and performance models emerge, will this happen again? Will huge pay-for-performance business leveraging mobile media appear out of nowhere?

One answer has made itself obvious: pay-for-call will be the method by which companies assume advertiser risk. By requiring advertisers only to pay for qualified calls, companies are already helping guarantee ROI and encouraging advertisers to scale budgets quickly.

If this is the model, how quickly will they grow? At Marchex, we are betting that pay-for-call will grow even faster than its predecessors in online display media.

Why? Pay-for-call businesses have four key advantages over their display predecessors. Each of these advantages in isolation would enable pay-for-call businesses to grow even faster than performance display. In combination, they are the first signs of a gathering storm.

Enormous, existing budgets. Despite their growth, pay-for-performance display businesses were constantly held back by an important limitation: businesses were slow to move budget online. Many of them didn’t have robust Web presences. Some weren’t comfortable paying for conversions until they could implement their own measurement tools, which took time. Others preferred to continue to rely on traditional channels, particularly after the bust of the early 2000’s.

Pay-for-call businesses, on the other hand, do not have this limitation. Not only do advertisers have significant budgets allocated to digital media, they also spend massively to purchase calls. At Marchex, at least 30% of our customer base is literally willing to spend as much budget as we can fulfill, less than a year into working with us.

Exploding supply. While Internet usage grew quickly in the early part of the decade, mobile usage is growing even faster. Morgan Stanley predicts that by 2014, mobile Internet use will outstrip that of the desktop, while globally, 64% of the world’s population will be mobile subscribers, compared to only 23% projected penetration for Internet use.

Significantly increased transparency. Yet another factor that held performance display businesses back was fraud. While these businesses were able to assume advertiser risk by guaranteeing conversions, those conversions were measured through Web pixels or other means that lacked real transparency about who was actually converting.

Knowing this, many businesses and individuals — particularly in the affiliate space — devised clever ways of driving conversions that were not “real.” Realizing this, and occasionally burned by fraudsters, advertisers were slower to increase budgets dramatically than they otherwise might have been.

Pay-for-call businesses are free of this limitation as well. An advertiser knows if a call is valid or fraudulent the second they pick up the phone. This advantage acts as a major deterrent against a repeat of the fraudulent practices that the industry experienced in display.

Participation of local businesses. A final limitation of pay-for-performance display models was the absence of local businesses. While display media promised significant ROI for national advertisers, local businesses perceived a much smaller opportunity with display.

Target audiences were harder to reach. Relatively unknown brands struggled to achieve user mindshare in the space of an online banner. Creative costs loomed large as a percentage of overall media spend. Fifteen years on, these limitations still restrict the success of display media with local advertisers.

Pay-for-call businesses will address local businesses aggressively. Target audiences are easier to reach due to the granularity of online listings, Internet yellow pages, and other media that specifically cater to consumers searching locally.

Brand strength is less of a factor for local businesses than it was for display. And creative costs are much lower for many mobile media offerings. Local businesses want calls, pure and simple, and will embrace pay-for-call, finally ushering online the budgets that we have known have been there for some time.

At Marchex, we believe in the future of pay-for-call with such conviction that we are investing more in this opportunity than any other under our umbrella. It is a conviction that our advertiser partners increasingly share. The ubiquity of media-driven-calls in digital marketing is only a matter of time, and it will happen faster than most people expect. Fasten your seat belts.





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