Microsoft teamed up with Ingenio on Monday on a pay-per-call advertising deal for searches from mobile phones.
Ingenio, a privately held company based in San Francisco, will deliver its pay-per-call ads to consumers via Microsoft’s Windows Live Search for Mobile, a successor to the Redmond giant’s MSN search engine that debuted in beta form last month.
The market for mobile ad searches is a potentially lucrative one for Microsoft and Ingenio. Mobile ad spending is expected to reach $871 million this year and surpass $11 billion by 2011, according to Informa Telecoms and & Media. The Kelsey Group estimates that call advertising will reach $3.7 billion in the next four years.
Ingenio already has search ad deals with AOL’s web and mobile search services, which are powered by Google, and with InfoSpace’s mobile search service. Google has also been testing mobile ads in the United States, the United Kingdom, and Germany.
Last week Yahoo announced a mobile search ad service of its own in the U.S. and the U.K. that follows a pay-per-click model, as opposed to pay per call.
While the companies did not disclose the financial terms of the partnership, they will share in revenue from the ads.
“The deal with Microsoft for Live Search Mobile allows people on the go to get information about local businesses and service,” said Marc Barach, chief marketing officer at Ingenio. “Now when consumers input their desired search locations, that will be followed by algorithmic results that Microsoft brings into its own search facilities.”
Shares of Microsoft fell $0.13 to $27.74 in recent trading.
Bidding for Mobile Ads
Advertisers will be able to bid for the ads in an auction format. The top bidders will be shown in Ingenio’s distribution market, of which Microsoft is now one partner.
Ingenio doesn’t have as many advertisers as Google or Yahoo, pointed out Greg Sterling, an analyst with Sterling Market Intelligence. “The difference here is that it’s pay per call as opposed to pay per click,” he noted. “To the user it won’t make a difference. They’ll just see a box.”
However, he noted that Ingenio wouldn’t be able to monetize as many calls as it can with clicks. On the other hand, the Google and AOL program is only in beta stage, and the Yahoo program is currently being tested on a limited basis, whereas the Microsoft deal already went live last month.
“This is a big deal for Ingenio, which is getting a big partner with Microsoft,” said Mr. Sterling. “Now all the big search engines are putting sponsored listings in their mobile search offerings. Ingenio has reported, and others have reported, that the call-through averages are significantly higher on phones than online, since there is less clutter.”
Users generally only see one ad at a time on their phones, whereas online they might see seven or 10 ads show up with their search results, he noted.
Mr. Sterling also pointed out that a mobile user’s needs are typically more immediate since they are probably looking for a local hotel or restaurant to go to and are often much more interested in completing a transaction quickly, so the response rates are much higher.
Conversely, user responses are much more limited on mobile phones than on the Internet since users need to either place a call to the advertiser or tap their search query into a tiny cell phone keypad.
“I think it will definitely get better, and mobile will be a major channel eventually, especially for certain categories of users,” said Mr. Sterling. “All the big three are monetizing mobile. This is a big deal for Ingenio because this is a marquee brand they are partnering with, so it helps with their momentum as well.”
Microsoft Experiments with Search Ads
For its part, Microsoft views pay per call advertising for mobile search as a kind of test, though the facility went live last month and is not in beta.
“Our approach right now is this is very early days in mobile advertising and we want to experiment with both pay per call and pay per click,” said Darcie de Freitas, Microsoft’s product manager for Windows Live Search for Mobile.
She said Microsoft has already done some experiments with both models and learned about how they would work. For now the company has decided to implement the pay per call model in partnership with Ingenio, although it’s still keeping its options open.
“One of the nice things is that you’re combining search with the action oriented-ness of the mobile device,” said Ms. De Freitas. “There’s an urgent need, as opposed to a computer search that might be more research oriented. On a mobile device, there’s a chance of a good outcome, whereas pay per click might be more informational.”
Microsoft has been pleased so far since the mobile search ad technology went live. “The performance is definitely in line with our expectations,” said Ms. De Freitas. “Search is more a tool and more in line with the Windows Live brand.”
Mr. Barach of Ingenio said his company had been talking for some time with Microsoft about the deal, and that the news hadn’t been accelerated by Yahoo’s recent announcement.
“We’re very close with the company,” he said. “We’re always talking with Microsoft, and we’ve been doing other kinds of business with them for a while. It was an ongoing process of discussions.”
He pointed out that the Yahoo program is in a pre-beta stage and is now limited to just 100 advertisers. “It’s a very vibrant marketplace, and a lot of companies are looking at the mobile space,” said Mr. Barach.
