Although it’s been around for years, pay-per-call advertising may be finally hitting its stride. Greg Sterling, a Contributing Editor at Search Engine Land, recently wrote:

We’ve long known that calls are much more valuable than clicks to small businesses in particular, but also to many larger entities with call-center sales operations. However… it’s taken PPCall much longer to get going than I originally anticipated.

Sterling sees pay-per-call growth in traditional media and mobile. He also notes that pay-per-call programs are now increasingly being used in print Yellow Page directories such as AT&T which just announced pay-per-call programs via the YPmobile App for iPhone and iTouch . Merchant Circle also recently announced pay-per-acquisition pricing – including pay-per-call.

And it’s not just AT&T and Merchant Circle. Other traditional yellow page publishes are renewing interest, and venture rounds by MojoPages, Balihoo, RingRevenue, as well as the TechCrunch50 launch of Redbeacon and Yext show that there is a growing supply of pay per call offerings coming into the mobile local search market.

In fact, I just read a blog post lamenting the poor service delivered to a pay-per-call advertiser. The merchant—who was irate that he received wrong number calls and was charged inappropriately—reminded me of what can go wrong with an advertiser’s pay-per-call campaign.

All of this brings home a point: as more and more search engine marketers, publishers and others in the mobile local search ecosystem are discovering, pay-per-call is not as easy as it appears on the surface. If your local business is being pitched by a provider who just provisions a few tracking numbers, begins charging for calls and then expects to roll in the dough, you need to be prepared to ask a few hard questions.

Five rules for every local merchant interested in pay-per-call pricing

Make a good first impression. If the first calls received from your campaign are wrong numbers look out. Despite best intentions, assigned numbers (necessary of course for pay-per-call), are never entirely clean. Before a number is assigned, your provider should be monitoring for wrong number calls.

Be selective. Pay-per-call can succeed for local advertisers focused on phone lead generation, but it may not be right for your business. Your business should not rely on walk-in traffic (retail); the cost of sale cannot be too low, or too high; and sales generally need to be closed every few calls (high sales to call ratio). You are an ideal pay-per-call advertising candidate if you have advertised in the yellow pages, newspapers, FSIs, Valpak or other mailers, radio or local TV. Business-to-business (B2B) advertisers or niche merchants are not typically good candidates for pay-per-call.

Be prepared to serve your callers. I founded my company on the premise that pay-per-call must benefit the consumer, merchant and publisher. Ten dollars per call may be a great deal for you, but your business needs to be properly staffed and trained to answer the phone. Without a connection to your helpful, available staff, the consumer is not served. If your business does not have the infrastructure to serve clients by phone, pay-per-call may not be for you.

Be able to close a sale or make an appointment by phone. I had a client—a direct mail publisher—whose advertiser complained that they did not make any sales as a result of the pay-per-call leads. We were recording the calls (with permission) for the client and discovered that the leads from the publisher were good, but the advertiser’s staff couldn’t sell.

Calls prove return on advertising investment (ROI) even without pay-per-call pricing. If pay-per-call isn’t right for your business, don’t give up on the numerous benefits of tracking and routing calls.

Look for innovators and leaders when comparing pay-per-call offerings. Yext demonstrated an example of this innovative thinking at TechCrunch50. Leakage and dirty calls are a real problem with pay-per-call. Yext is using analytics to examine key words for relevance and filter out junk calls.

The TechCruch50 winner, Redbeacon—while not focused on pay per call, or calls at all—is trying to solve the problem of merchant availability. This is closely related to pay-per-call (see Rule #3). If your staff is not available to respond to a call, the consumer is not served. The merchant who answers the phone is generally more available than the merchant that does not—especially over a series of calls.

Successful implementation of pay-per-call requires bottom up thinking with the same new product development rigor as any major new advertising or lead generation product. The next generation of Pay-per-call 2.0 insures a high level of satisfaction with the quality of your callers (consumers) by including detailed analytics and reporting to identify repeat calls by caller ID and other calling patterns; category management to deliver the best leads to the right merchants; pricing models that optimize value; and finally advanced, real-time call routing applications to deal wrong numbers, vendors and other unwanted calls.

Despite several years of building expectation, pay-per-call is still a relatively new pricing model within mobile local search. Providers entering this market must be prepared for a fairly steep learning curve and merchants need to be prepared to ask the right questions.

Dynamic Number Insertion (DNI) technology allows advertisers to track the specific search engine, web page or keyword that generated an inbound phone call using tracking numbers. Advertisers are using DNI to measure the performance of their online advertising campaigns and the impact on call volume. At the most basic level, DNI seamlessly replaces select contact phone numbers on a web page with call tracking numbers, which allows advertisers to measure volume. Combined with pay per click programs, DNI can help complete the online advertising performance picture by clearly outlining the results of advertising campaigns both online and by phone. Advertisers using DNI to measure and report phone calls driven by web activity use two different methods: a server-side method called reverse proxy, and a client-side method that uses Javascript tracking codes. While each approach is different, both offer advertisers unique benefits and value.

Reverse proxy method: Best suited for local advertisers

With the reverse proxy method, instead of web requests going directly to an advertiser’s website, the user request is routed to an intermediary server which determines what content should be displayed. This proxy retrieves the content from the advertiser’s website and transforms the output by inserting and/or replacing specific phone numbers on the page with call tracking numbers based on keyword or search engine triggers. This is done via cached copies of an advertiser’s website or in some cases, in real-time, for every request through the proxy so that any dynamic content included on the advertiser’s page is reflected ensuring that data is always current and up-to-date.

As reverse proxy capability is more readily available from SEM or other third party resellers, this approach is very effective for local advertisers or SMBs that do not have sophisticated internal technology resources easily available to make modifications to their existing websites. However, because a service provider is involved, it is typically more expensive. Also, reverse proxy is a better option for advertisers that use third party website functionality for shopping carts or email forms.

A disadvantage of the reverse proxy method is that it is not well suited for tracking organic search activity. Reverse proxy sites are invisible to search engine spiders, so organic searchers would never reach a reverse proxy site and online organic search activity is not captured. Also, larger advertisers with complex websites that are considering this approach should ask the reseller about their reverse proxy method as some require the advertiser to share control of the websites as they continuously make duplicate or updated copies of the page. This “carbon copy” approach would be a complication for advertiser sites that include real-time data such as news feeds, RSS or stock quotes, as it risks serving static or old data.

Javascript tracking codes: Best suited for national advertisers

In the Javascript tracking code method, user requests are routed to the advertiser’s actual website rather than through a third party intermediary. Similar to Google Analytics, a piece of Javascript code containing a unique identifier is inserted into an advertiser’s webpage which links to the SEM provider’s servers via a web service. When an ad click or organic search result routes a user to the advertiser’s website, the Javascript takes the parameters used to perform the search along with the advertiser’s unique identifier and passes them to the SEM provider to be processed against predefined keyword, ad group and browser triggers. The result is a series of phone number substitutions returned to the advertiser’s page where it is used to dynamically update the content with the designated call tracking numbers.

Since the coding is performed client-side, this method requires HTML design and maintenance expertise—something typical SMBs lack. It is best suited for larger, national advertisers with committed monetary and technology resources or which have access to specialized agency resources that can perform such maintenance.

A benefit of the Javascript tracking code method is that advertisers can use it to track organic search activity. This method uses an advertisers’ primary website and domain names, which are easily visible to search engine spiders and enable advertisers to compare the organic traffic from a keyword or ad campaign on Google versus Bing. As such, Javascript tracking code is the best method for tracking full search engine optimization and marketing results. Also, because this method uses traditional or primary domain names, such as macys.com, rather than a third-party provider URL like provider.macys.com, national advertisers have more control over their branding standards.

One minor pitfall of this method is that some browsers disable Javascript tracking code. It is a small percentage but does represent a data loss.

The overall benefits of DNI—through either method—are simple: DNI provides advertisers greater visibility to the source of inbound calls and allows advertisers to track the performance of specific ads and/or keywords. With the ability to capture the full value of online advertising initiatives adding call counts to the traditional click count approach to online campaign performance, advertisers can optimize their spend and move underperforming keyword-search engine ad buys to more successful combinations.

Search Engine Journal alerted us to an apparently renewed test of click-to-call at Google. Google had been testing click to call in 2005 and 2006 with an eye toward implementing pay-per-phone call. Rather than show local or 800 tracking numbers, Google was using a field that remembered users’ telephone numbers (once entered) and connected calls. It also had been using the functionality on Google Maps. However, in roughly June or July of last year Google stopped accepting click-to-call advertisers and the ads stopped showing up.

Simultaneously, click-to-call or call completion was terminated on Google Maps. Here’s what Google officially said at the time:

“Google is always working to improve the local search experience. We are constantly testing new features and iterating based on feedback from our users. Click-to-call was a valuable experiment that enabled us to learn more about the preferences of our users. While we are no longer providing this service, we expect to incorporate our findings into future developments for Google Maps.”

Microsoft Live Local had a similar program, “Call for Free,” which it appears to have discontinued.

The central issue with click-to-call is consumer adoption and usage. While there’s some dispute over this, the majority of anecdotal evidence suggests that consumers don’t use these services. However, providing visible tracking phone numbers is more expensive than the VoIP-supported click-to-call boxes Google was using. Yet calls are more compelling to many advertisers (local and national) than clicks. Think: hotels or any local business that deals in appointments. That persistent recognition may be partly motivating the renewed test.

Given the history and lack of consumer adoption, it’s very interesting that Google has apparently resumed this program, although I was unable to find any such ads in several attempts to find one. It should be noted that click-to-call is not the same as PPCall, but they’re often confused. The former is a method of delivering or connecting phone calls, while the latter is a billing or advertising system that may be supported by click-to-call but also conventional tracking phone numbers.

Here’s a video showing the apparently renewed test on Google:

Postscript: Superpages says it is still using click to call.

Voice services provider CallGenie announced the acquisition of mobile content provider and ad exchange PhoneSpots. The mostly stock transaction was valued at $5.75 million and provides a range of new client relationships and capabilities to Canada-based CallGenie.

PhoneSpots has been around since 1999 and pioneered the “send to mobile” feature now in widespread use on local search sites. PhoneSpots originally partnered with European mobile operators to offer enhanced results (additional content and links) from directory assistance queries when users opted to receive them as text messages. Most recently, PhoneSpots announced its first US customer relationship with AT&T, to power the YellowPages.com “send to mobile” feature and the company’s YP411 SMS platform.

CallGenie offered a “voice in, voice out” approach to content and ad delivery. However, that approach is incomplete in a rapidly evolving market, and the PhoneSpots acquisition allows the company to deliver mobile content and ads via text message or WAP in addition to voice.

We previously wrote about PhoneSpots’ mobile ad exchange. There’s also some additional information on LocalMobileSearch.net.

AT&T has announced that it acquired pay-per-call (PPCall) vendor and ad network Ingenio for an undisclosed amount. The press release suggests that the company was acquired primarily as a technology platform and perhaps secondarily for its distribution network. That network includes AOL, Microsoft (mobile), Jingle Networks (1-800-Free411), Medio Systems and JumpTap (mobile), Switchboard and go2 (mobile), among a few other sites. Ingenio was founded in 1999 and had revenues in 2006 of approximately $85 million, primarily from its legacy online advice business.

Marchex announced this afternoon that it has acquired VoiceStar, which provides pay-per-phone-call (PPCall) and call tracking services to a range of companies online and their advertisers. The reported acquisition/investment price is $28 million. VoiceStar is expected to generate $1.5 million for the full year 2007 and double that in 2008. However Marchex sees a much bigger opportunity in integrating VoiceStar’s technology and PPCall capabilities into its current advertising and search distribution platforms.

I have more detail on my personal blog.

Pay per phone call (PPCall) probably qualifies as something of a disappointment to date. While there has been adoption by advertisers and some good results, revenues have not kept pace with early expectations (which, admittedly, I helped create). In mobile it’s a natural business model and that may be the arena in which PPCall ultimately lives up to its potential.

Despite this, PPCall remains a fascinating and promising marriage of performance-based advertising with a traditional medium (the phone). And it can go anywhere a phone number can go. Indeed, Idearc/SuperPages has been using PPCall in its printed yellow pages for over a year. Now thinkingVOICE and Clear Channel Outdoor have teamed up to offer PPCall on billboards and bus shelters.

In a test with 50 outdoor placements, PPCall ads will appear for local search vertical destination ServiceMagic (owned by IAC). ServiceMagic will pay for each call received based on the outdoor ads. If the test is a success I would imagine more advertisers will be interested and start experimenting. Billboard owners may not be so thrilled with such a development, however, because of a potential loss of revenue — the owner of the inventory bears the risk of non-performance. (In other words, it becomes free branding for advertisers if no calls are made.)

Outdoor advertising is worth more than $6 billion in the U.S. annually.

Pay-per-call provider Ingenio has added white label mobile search vendor Medio Systems to its distribution network. In addition to a range of online destinations, Ingenio is working with a number of mobile search sites and providers: JumpTap, Live.com/MSFT, AOL, go2, UpSnap and 1-800-FREE411.

Last week Medio put out this release, claiming the be the leader in North American mobile search. And Medio also just announced the launch of its own mobile ad network.

Jingle Networks’ free directory assistance (DA) service 1-800-FREE411 is slated this week to launch a new “category search” option, where you call to get matches of businesses in an area that relate to a category of interest (such as movie theaters in Los Angeles, or a dentist in San Francisco). To date Jingle has offered a free, ad-supported alternative to consumer-paid 411 services, which has largely duplicated the “what city, what listing?” model of conventional DA — albeit with ads.

With the addition of category search, callers will now be able search with more flexibility by business type and with more precise location options. The company says it now handles almost 17 million calls monthly, representing 6% of the mobile DA market in the U.S.

Jingle CEO George Garrick promised last year that category search was coming. But the need to implement this is made more urgent by several considerations:

• It turns traditional DA into mobile local search, offering an improved user experience

• Competitors, including Tellme, 1-877-520-Find and 1-800-YellowPages (in its test markets), already offer this capability
• Category search will increase advertiser response rates

Perhaps the final reason is the biggest driver of the enhancement. Jingle offers a wide range of ad inventory from sponsorships to preferred placement and direct response. But in terms of pay-per-call, response rates can be expected to increase when consumers are simply looking for a type of business and are exposed to relevant ads as opposed to being played a competitive ad for, say, Marriott when they’re looking for a Hilton hotel.

Jingle is in a very interesting position as DA morphs into voice-based mobile search, because that segment is poised for immediate growth compared with, for example, WAP-based mobile search. There’s a huge, installed base of mobile 411 users who will likely adopt these ad-supported services in the near term. That’s because there’s no learning curve, no awkward keying of queries, no downloads and no hardware limitations. Clearly these services have limitations but they work today and are rapidly improving.

As I said last week, one can almost feel the acceleration of competition in mobile. And there are several major players that will be aggressively competing in the free DA/voice-enabled mobile search category in particular:

• Jingle Networks

• Microsoft-Tellme
• Google
• AT&T (1-800-YellowPages)

There are others using a similar model but these are the major contenders today. While Google is unlikely to do much consumer marketing around free DA, both Microsoft and AT&T can be expected to run expensive consumer marketing campaigns to build awareness of their fledgling services.

Jingle’s head start in awareness and usage, as well as its “intuitive” brand (1-800-FREE411), may help the company weather the storm should Microsoft and AT&T start to pour money into consumer marketing. But the best, most reliable user experience will likely be the thing that drives consumer adoption more than any other factor.

To say there’s a lot going on with mobile right now is to state something more than obvious. The carriers, the handset makers and the mobile content providers are in what amounts to a frenzy of competition and business development as they try and position themselves for what they see as the next really big opportunity: the mobile Internet.

Two articles that simultaneously appeared in the Wall Street Journal (subscription required) yesterday capture this mood and activity. The first article, “Companies Vie For Ad Dollars On Mobile Web,” was a broad survey of the state of the mobile marketplace and wireless advertising.

The article cites research firm M:Metrics for the statistic that only 15% of mobile users access Internet content on their phones. Earlier this week comScore said the number is 17%.

These figures at first blush appear to be relatively small, but when you step back they grow larger. Consider that there are more than 2.5 billion wireless phones in use around the world today. Just over 200 million of those phones reside in the U.S. So what’s 15% or 17% of 200 million? The answer is: between 30 and 34 million mobile Internet users.

These are the relatively early adopters who suffer with rendering problems, awkward interfaces and painful keypad-based entry systems. Given those challenges, 34 million is already significant — even impressive — usage and it’s only going to grow. The questions are how fast and how will it be monetized?

The WSJ article cites figures for current spending on mobile advertising: In 2006, mobile ad spending was an estimated $871 million world-wide, according to data from research firm Informa Telecoms and Media. Most of the money went into text messages, the mobile equivalent of sending people ads by email. Spending on Internet advertising was about $24 billion world-wide in 2006, according to ZenithOptimedia, a unit of Publicis Group SA.

The sheer scale of the global mobile market makes it a potentially gigantic opportunity that is not lost on any of the U.S. search players. (Bill Gates, Eric Schmidt and Terry Semel keep reminding everyone how many more handsets than PCs there are in the world.) But mobile is not merely a small-screen extension of the desktop. It’s essentially a different medium that needs to be thoughtfully approached and treated differently. The idea that all the rules and behaviors of the Internet will automatically apply to mobile is simply incorrect.

For example, the WSJ article cites Harris polling data (October, 2006) that presents a complicated picture for mobile marketers. Harris pollsters asked: “How willing would you be to watch advertising on your cell phone if in return you were to receive free applications for your cell phone?”

Approximately 26% percent of respondents (n=871) expressed varying degrees of receptivity, with 10% saying they would be “very willing” to watch ads. By contrast, 63% were negative, with 51% saying they were “not at all willing” to view ads.

The findings were even more skewed regarding text-based advertising: 7% indicated some degree of interest in promotional text messages (2% were “very” or “extremely” interested), while 92% indicated little or no interest. Within that second group 78% said they were “not at all interested.”

There are other studies in the market that support these findings and indicate consumer resistance to mobile advertising. This will likely mean that mobile banners, video pre-roll, unsolicited text messages and other forms of “push” advertising on mobile devices will meet with limited or no success in the U.S. in the next few years. (The WSJ article does talk about the success of mobile banners in Japan.)

By contrast, search-based ads or push advertising tied to consumer opt-in choices (e.g., mobile coupons) will likely fare better because of perceived relevance.

The long anticipated and hyped “location-based services” model where the restaurant or movie coupon is “beamed” to me while I walk past the business will probably never develop. But location sensitivity certainly will continue to develop and be a huge consideration in mobile marketing.

The point here is that consumers are likely to be receptive to ads or offers that are served in response to their formal queries or invitations. Thus the paid-search model is likely to be quite effective in mobile. There’s already evidence of that in the limited roll-out of ads by G, Y and M. In addition, ad-supported directory assistance provider Jingle Networks (1-800-Free411) indicates connect rates of 80% (pay-per-phone call) for “preferred listings” – relevant businesses given “top placement” on the call. And PPCall ad provider Ingenio indicates much higher call-throughs in mobile than online. Both of these are audio variations on the PPC search model.

The second WSJ article, “IPhone Fans and Foes Clash Online,” shows how the not-yet-released Apple iPhone is already shaking up the market. Indeed, there’s already an LG “iPhone clone” being developed. U.S. carrier Alltel is simplifying its content interface. And of course Yahoo Go 2.0 was announced at CES with the aim that it would make mobile Internet browsing and searching much simpler and less frustrating to users.

As carriers seek to make the mobile Internet more user-friendly and as handset makers move to match the perceived simplicity and innovation of the iPhone the net effect (so to speak) will be to draw more users into mobile data. So generally the stars appear to be aligning and we should see significant gains in mobile Internet adoption by consumers by late 2007 and 2008.

Established Internet brands (i.e., G, Y, M, MySpace) will have running start in mobile content (and mobile advertising) but the best user experience may be able to trump brand in these early days.

We’ll see of course. But at this point the mobile Internet is still relatively wide open.