February 21, 2006

Consumers trawling Google Inc.'s search engine may have noticed a new icon appearing beside some advertisements on the Google Web site: a little telephone handset.

The handset image is part of a "click to call" test that Google has been running since late last year. Web surfers wanting to talk with a participating advertiser can type their phone numbers in a designated space and have Google connect them on a free call. Google gets the consumer and the merchant talking by causing both their phones to ring at the same time.

The Mountain View, Calif., company is expected to charge advertisers for the number of calls they receive via the icon, just as it charges them for clicks on ads that take consumers to advertisers' Web sites.

A Google spokesman declined to discuss the results of the test so far or any billing details, saying only that "Google is always considering new ways to provide value to its advertisers, and we frequently run tests of potential new features and products." The company says it won't share users' phone numbers with advertisers or anyone else and will delete them from its own records "after a short time."

The Google test, under way with technology partner VoIP Inc., spotlights a new form of Internet advertising, dubbed "pay per phone call." Experts say it could become an important new revenue source for search engines to go along with their pay-per-click ads.

Indeed, phone icons could soon become a fixture on numerous search sites. Time Warner Inc.'s America Online unit has been helping consumers reach search-page advertisers by phone for about a year using technology from closely held Ingenio Inc. that displays trackable phone numbers, which consumers dial themselves.

Yahoo Inc. says it is testing pay-per-call ads. Consumers using Yahoo's local-search service on their cellphones can connect to merchants with a click at no charge to merchants. And Microsoft Corp.'s MSN is weighing adding a click-to-call feature to Windows Live Local.

"It's the most promising new model in paid search," says Gerry Campbell, vice president of search and directional media at America Online. "Is it as big as paid search? Hopefully, although I don't think that's realistic in the next five years."

Connecting consumers and merchants by telephone could bring new advertisers to paid search, particularly small businesses and services firms that don't transact business online. It could also help companies that rely on call centers to sign up customers.

"The big theme here is the connection of online and offline," says Greg Sterling, an analyst at research firm Kelsey Group. "It really closes the loop, and that's the attraction of it for everybody." Mr. Sterling estimates the pay-per-call market will be worth $3.82 billion by 2010, up from $60 million this year, driven by the arrival of large Internet players like Google and Yahoo.

Google's interest in telephones comes at a time when it is looking to take its advertising system beyond the Internet, including by placing ads in traditional media, such as radio, print publications and even television. Last month, Google said it will acquire closely held dMarc Broadcasting Inc., which places ads on radio using an online system similar to Google's.

Countrywide Home Loans Inc., which has been paying for the calls it receives as a result of the Google handset icon, says the advertising works well. "Some consumers really like the fact that they can speak to a live person, a professional loan officer, after they've done their research," says Bruce Cornelius, executive vice president of consumer markets at Countrywide, a unit of Countrywide Financial Corp.

With the aid of Internet technology, merchants can track with precision how many calls came through their ad placements with the handset icon, and what sales resulted. Merchants in general are willing to pay more for a call than a click alone.

Average bid prices are $10 a call, with certain popular, mature categories, including mortgages, refinancing and debt consolidation, reaching as high as $50, Ingenio says. "This is 10 and 20 times the going rate for clicks," says Marc Barach, Ingenio's chief marketing officer.

The prices are piquing search engines' interest and so is the opportunity to woo small businesses in local markets, such as lawyers, florists and pizza parlors. These businesses may not have Web sites but have phones and spend large sums on yellow-pages ads. That industry is well aware of the threat; YellowPages.com already provides its advertisers with a bonus click-to-call feature provided by Ingenio.

"This is a very large market. There are about 14 million small businesses, virtually none of whom are using the click products that are out there today," Mr. Barach says. Search engines are paying attention because it offers an opportunity to "expand the market, not just fight over market share," he says.

Write to Riva Richmond at riva.richmond@dowjones.com