Skype Dials Up Dollars With Pay-Per-Call Advertising

Pitch to Businesses: Calls Convert to Sales Better Than Clicks

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NEW YORK (AdAge) -- Skype is hoping to dial up a few ad dollars with a new pay-per-call ad unit, which will turn phone numbers into little ads for the 560 million users of the service.

Skype users have long been able to call, text or video chat with one another for free. Skype makes money by charging a few pennies to call land lines and mobile phones from their computers.

Now Skype is allowing businesses to pick up the cost of incoming calls by converting a business's number into an ad. Clickable Skype numbers appear in gray, but ads will be highlighted in blue as well as say "free call."

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Businesses pay based on the number of calls they receive through Skype, and can set a monthly budget based on the number of calls they'would like to pay for. Skype splits the revenue on pay-per-call ads with call advertising firm Marchex, which is setting prices as well as supporting and providing analytics for the service, and offering it to third-party re-sellers.

"It's an opportunity to tap into a large community of consumers that are initiating calls from their computers," said Donald Albert, general manager of Skype Americas. Initially, the ads will only appear for Windows users and not users on Macs or mobile phones. Satellite TV Dish Network and Extra Space Storage are two national advertisers trying out the service.

The ads themselves function much like search ads. Indeed, Google has a mobile pay-per-call product where businesses pay when a user clicks to call via mobile phones, as well as a browser extension for Chrome that allows Google Voice users to click and call any phone number.

Google charges for those ads based on a keyword auction for the click, not the actual call. Skype and Marchex will charge businesses a flat fee for the call, and believe a call itself is a much more valuable lead than a click on a hyperlink.

"Data shows it takes five to 10 clicks to get a call," said Marchex Chief Operating Officer Pete Christothoulou. "Now we can go to an insurance company and say we're going to drive you a call but charge $50 for that call."

EBay sold a majority stake in Skype last fall for $1.9 billion to a consortium including investment firm Silver Lake, Andreessen Horowitz, Index Ventures and the Canadian Pension Plan investment board. Skype generated $550 million in revenue in 2008, and eBay once projected it would earn $1 billion in revenue by 2011. Skype estimates it currently accounts for 12% of all international call minutes.

"We view this as a promising opportunity -- but it's obviously early days," Mr. Albert said. "We have a very strong core business and we view this as an ancillary revenue stream not as our primary revenue stream."

Advertising for phone calls was long the domain of newspaper classifieds and Yellow Pages, two deteriorating ad vehicles. The technology has been around for at least a decade, but those dollars have moved primarily into search, in part because businesses have been told for more than a decade to forget about calls in lieu of clicks to their web sites online.

Marchex execs believe that while the first decade of search marketing focused on driving clicks to websites, the next will be about directing phone calls from PCs and mobile devices. "We're now in a place where consumer behavior is evolving given the growth of mobile devices," Mr. Christothoulou said. "We use a phone much differently today than we did even six months ago."

Calls can be much more effective than clicks in generating an actual sale, and a better buy for some local businesses that don't sell anything online. "When you are connected to a call there is a much higher rate of conversion," said Kevin Ryan, ad consultant and president of Motivity Marketing. "You are now engaged with a human being."

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