PCs, phones link voices as Web talk proliferates

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The ranks of Internet telephone users are exploding -- and advertising beckons to deliver targeted banners and voice ads to the surging market.

By any measure, the concept is connecting with consumers. One leader in the category, free PC-to-phone service dialpad.com, said it has amassed 4.7 million users since launching just five months ago.

Of the estimated 260 million worldwide Internet users by yearend, 40 million will use live-voice services, also called Web talk, according to International Data Corp. The researcher estimates that by the end of 2004, at least 415 million people will be Web talkers of the 690 Internet users worldwide. So the Web-talker percentage could jump from 15% now to 60% by the end of 2004.


Dialpad, Net2Phone and PhoneFree.com are the biggest players in the category, according to Media Metrix.

Dialpad was the No. 1 Internet telephone provider with 1.7 million unique users in January, according to Media Metrix, ahead of Net2Phone (700,000) and PhoneFree (600,000). (Numbers reflect site visits rather than the number of people using the downloadable telephone applications required for these services.)

Many of these sites are betting on an ad-supported model to make money, as well as a captive audience of people who have opted in to targeted marketing and have little else to do while talking on the phone but look at ads. Advertising so far has been sparse.

Santa Clara, Calif.-based dialpad earlier this month signed 24/7 Media to sell banner ads.


Dialpad has focused on boosting its subscriber base first. This week it will name a "major West Coast agency" for a $10 million to $20 million marketing campaign, said Peter Hewitt, VP-communications at dialpad. Advertising is expected to break in April.

"Dialpad is uncluttered," he said, in contrast to the way many Internet properties present advertising. This is a point he said it will drive home in its campaign to consumers and marketers.

Another prominent player is Net2Phone. America Online owns 5.9% of the company and was said to be in takeover talks with Net2Phone, which is integrated into AOL's Instant Messenger product and has a four-year contract to be embedded into AOL's Netscape browser. Net2Phone charges 1› a minute for domestic PC-to-phone calls; rates vary for international calls. PC-to-PC calls are free. It's experimenting with ads on its site; Net2Phone's marketing, created in-house, has been limited to banner ads and co-marketing agreements.

PhoneFree.com, a New York-based start-up, like dialpad, is betting heavily on future ad revenue. It offers free PC-to-PC calls, which includes live video chat, and charges $15 a month for PC-to-phone calls into the U.S.


PhoneFree has an in-house sales force and is in the process of switching its ad serving from 24/7 to Orb Digital. PhoneFree uses registration profile information to send targeted ads; it charges $30 per thousand impressions for ads that rotate on its Personal Communications Channel, the application users download to make calls.

Advertisers include AltaVista Co., custom printer iPrint.com and online auction site uBid.

"What we stand for is liberating people from the legacy" of phone companies, said Geoff Hatheway, senior VP-marketing at PhoneFree.

Earlier this year it broke a $17 million ad campaign created by Hampel/Stefanides, New York, that showed people burning their phone bills. Future ads, Mr. Hatheway said, will talk more specifically about PC-to-phone services instead of PC-to-PC services.

"PC-to-phone is the first step for many people," Mr. Hatheway said.

Mark Winther, group VP-worldwide telecommunications at IDC's New York office, sees the growth rate of these services as a good sign for advertisers.

"I think almost every one of them has passed the 500,000 mark," he said, adding that IDC expects the major competitors to have several million members by yearend.

Mr. Winther also sees communities developing around Web-talk capabilities, something that's already happening on several services, including AOL's Instant Messenger and ICQ chat areas. This could evolve into powerful forms of permission marketing.


"What's happening to them as [these services] build, [is] they are evolving into chat groups. The issue here is when you're not constricted to a keyboard and text, you have a much richer community," he said. "It becomes much more real world. . . . Wouldn't an advertiser want to reach that market?"

Audio ads, such as those AOL's Moviefone employs when consumers call to get free movie listings, are another potential boon for Web-talk services.

Mr. Winther said dialpad is considering starting audio ads as early as May. Audio ads reach "a dedicated ear of a captive audience," he said, because users must listen to the ad before connecting to the service.

"Will they piss people off? We don't quite know," Mr. Winther said.

But if Moviefone's success with audio ads is any indication, he said the model could work.

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