First, a Word From Our Sponsor

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Advertisers have long sponsored programming, on network TV and radio, to reach consumers. That time-honored business practice even extends online, with ad-supported e-mail services like Juno and Hotmail. Now Broadpoint Communications, based in Landover, Maryland, wants marketers to pick up the tab on another bill: long-distance calls.

Broadpoint's service, called Freeway, lets callers earn free chat time by listening to recorded ads on the phone. More than 10,000 households in Pittsburgh have tested Freeway since last spring; encouraged by the results, the company plans to go national early this year. More than 70 companies, including Blockbuster and The Wall Street Journal, have already broadcast ads. What's the draw? Broadpoint's ability to push ads to very specific users, from 20-year-old college kids to married boomers with two tots under five. "This is not about long distance," says Fred Voit, senior analyst at The Yankee Group, a Boston-based research firm. "It's about data and advertising, with long distance as the prize."

Individuals sign up for Freeway by completing a comprehensive application at the company's Web site (or through a toll-free number), providing basic demographic information like age, gender, income, marital status, and number of children. They're also asked about their hobbies and future purchase plans, such as if they anticipate buying a car within the next year. A PIN code is issued, officially recognizing the person as a subscriber.

To place a long distance call, the user dials Broadpoint's 800 number, enters the PIN and starts listening to ads targeted specifically to them. Each 10- to 15-second spot racks up two free minutes of long-distance time to be used for that particular call. Don't expect to pad around the house while your speakerphone blares one ad after another-subscribers must indicate after each spot whether they want to place their free call or hear more commercials. Ads are often edited versions of the clients' existing radio spots, but some companies develop new creative content.

According to Broadpoint CEO Perry Kamel, the average Freeway customer hears 150 ads a month. That equals 300 minutes of long-distance time, but Kamel says subscribers often don't use all of it. "If someone plans to make a four-minute call, they may listen to four messages to give them a little cushion," he says. This makes the service financially possible, he says; otherwise, Broadpoint could only offer one free minute per message.

So far, it seems subscribers like what they're hearing. More than 75 percent of respondents in a recent survey indicated that they intend to buy products and services advertised on Freeway. That makes sense, since they're getting promotions relevant to their lifestyle, hobbies, and interests. According to Broadpoint, the average Freeway user is married with children, college-educated, owns their home, and makes $60,000. "Services like ours skew disproportionately to higher-income, higher-educated households," says Kamel, a former executive at MCI. "They're the most cost conscious, the most communications-intensive consumers. Many of them make a hobby out of pursuing the best deals."

Freeway advertisers fall into two categories, says Lisa Baker, vice president of media marketing and sales at Broadpoint. Some, like Blockbuster and T.G.I.Friday's, use ads to build awareness of their brands. Others fall into the direct response arena, encouraging immediate action on the part of consumers. Broadpoint says the average response rate is 10 percent, with some ads scoring rates as high as 27 percent. The service makes it easy for consumers to respond. Take a current ad for The Flower Club that offers a 10 percent discount on an order of flowers. At the press of a button, a subscriber can be "cut through" to The Flower Club's call center to place an order. When finished, the customer can resume listening to ads or place their intended call. Jim Pagano, vice president of marketing for Florafax, owner of The Flower Club, says it's too early to measure response rates, but he adds that the company plans to continue broadcasting on the service.

Who are advertisers keen on reaching? College students are one segment, says Baker, adding that 28 percent of Freeway users fall between the ages of 18 and 24. In the near future, Broadpoint hopes to cull detailed information from its college base so it can target students in certain universities, academic programs, even athletic clubs. Reaching such narrow niches is often a new concept for most advertisers, Kamel says. "When we tell advertisers that we can reach grandparents over the age of 60 who earn $100K a year and travel at least once a year, their eyeballs nearly pop out," he says. "They've never had such options." Of course, such selective picking can be costly. Prices start at about six cents per delivered message to the general subscriber base and rises, depending on the degree of targeting. An ad that only hits 10 percent of subcribers might cost 12 cents a message, says Baker.

The World Wrestling Federation did modest targeting for its ads last summer to promote its weekly Monday night TV programming. Messages were sent out to males aged 18 to 49, families with children under 18, and college kids. That reach extended to about 71 percent of the subscriber base, says Baker. "Our fans are already watching our shows," says Bob Collins, senior vice president of promotions at the WWF. "We're trying to reach people who might be curious or who might be parents of kids who are already fans."

Despite its early successes, Freeway still faces challenges. Competition in the telecommunications industry continues to whittle down the price of a long distance phone call, making the service less enticing to cost-conscious, but time-crunched, consumers. "This service might have found a larger and more profitable niche when calls were 25 cents a minute," says telecommunications analyst Jeff Kagan. "As prices drop, there are going to be fewer and fewer people willing to put up with ads. Of course, you're always going to find some cheapskates looking to save a few cents, even if they have money to spend."

But what if industry players like AT&T and MCI start offering those penny pinchers the same service? Analyst Voit doesn't expect it. "Major carriers don't want to dilute their brand," he says. "You're not going to see AT&T mix their brand with Blockbuster." For now, Broadpoint is banking on it.

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