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Who said there is no such thing as a free lunch?

Having just switched roles from CTO to Chief Executive, Jingle Networks founder Scott Kliger talks to iSM’s Liam Cowling.

When somebody tells you their ambition is to create the next Google, you’d generally take it with a pinch of salt, but Scott Kliger doesn’t sound like a man who’s joking.

“Like any good entrepreneur, I looked at what makes Google successful and really there are three things. They give high quality search results to consumers for free, they allow advertisers to target consumers based specifically on what it is they’re looking for, and advertisers only pay for success. Success in the Google model is defined as a click or a visit to the advertisers website which has commonly become known as pay-per-click advertising.”

“I looked at that and thought if that model moved to another medium it could be very, very successful and I very quickly focused on the telephone as a great medium for being able to do that.”

The application of this idea has seen Jingle Networks grow since September 2005 into a free DA service with monthly call volumes in the order of 20million.

Kliger’s career started at IBM in the late 80s. Stints followed at Word Perfect and Lotus before Kliger started Narrative Communications. Narrative was at the forefront of the internet boom and formed a company called Enliven which was the first rich media company to use media advertising products on the internet – consequently, Kliger is often considered the father of rich media advertising. A couple of acquisitions later and Kliger was running advertising technology for Excite At Home, a business that he concedes became
“quite a train wreck and I got to experience the full ride!”

Following September 11th and the bursting of the internet bubble, Kliger saw the economic climate of the time, and says he quickly learned that he liked to start and run companies more than invest in them. After a couple of years he came to his moment of epiphany and decided he was on mission to build the next Google. The limitation of Google as an advertising medium for local businesses is that such businesses are faced with the requirement of having to build and maintain a website and understanding how to manage a pay-per-click campaign. This inspired Kliger to consider the Directory Assistance market.

“The 411 market in the US is a huge industry but consumers had to pay for it. I think it makes no sense that a consumer who wants to transact business with someone has to pay $1.50 or more to be able to find the phone number of the business they want. Clearly businesses are willing to pay and should pay in order to attract their consumer – that’s the way it works in every other medium.”

The company was launched in September 2005 and Kliger describes it as “a rocket ship ride ever since”.

“From the moment we announced the service and put the phone number out there in September of 2005, the trajectory has been upward and to
the right. And, the most amazing
thing about it is we’ve done all that
with basically a zero dollar spend on consumer marketing.”

Despite the limited spend on marketing and public relations, Jingle’s free411 service has enjoyed significant visibility in the States. Kliger puts this down to the fact that journalists like to write about anything that’s damaging to telecoms businesses. This, he feels, taps into the consumer zeitgeist, because so many people think they’ve been over-charged or mis-sold by telcos. Consequently, free411 has seen significant coverage in publications such as USA Today, The Wall Street Journal and The New York Times. This fuelled a flurry of conversations on consumer message boards and blogs which translated into free411 frequently receiving media hits across multiple channels like TV and radio.

However, Kliger concedes that the biggest media coup and certainly the single biggest catalyst to growth happened in March 2006 when Tyra Banks decided to tell her audience on her daytime talk show that her friends had told her to call 1800free411 rather than pay $1.50 to find a phone number.

“Literally over night we transcended just being an internet type email and blog phenomenon to being mainstream and consumer focused. From then on things have grown to the point where we now receive about 20million phone calls per month, we captured by our account 5-6 per cent of the US directory assistance marketplace and probably most impressively, we’ve managed to attract competition from all of the largest and most sophisticated players in both the technology and telecommunications industry and some of the largest corporations in the world. Microsoft, Google, AT&T and Verizon – all have
free offerings.”

This is all impressive stuff but the question remains how does Jingle Networks monetise the business, especially as previous Chief Executive Officer George Garrick was once quoted as saying that the business loses 5 cents on every call that it processes?
Kliger points to several different ways that free411 brings in revenue. Firstly, there’s a 10-12 second ad that plays at the front of a call. The second thing Jingle Networks does is play an ad targeted at the consumer’s specific request, so if a caller asks for Budget car rental, Avis (Jingle Network’s national sponsor in the car rental category) play an audio that Kliger calls the ‘switch pitch’ – trying to capture the customer at the point of connection. Jingle gets paid in such cases for successful connection on a pay per call basis. They offer to text message every phone number to the customer and use this opportunity to include a text ad in each SMS. And of course, in their yellow pages category search service, much like the internet, advertisers can pay in order to be at the top of the list. A combination of these models now yields average revenues somewhere in the range of about 7 cents per call.

In addition, the service now has close to 130,000 advertisers in the system and that’s comprised of about 500 major national and regional advertisers that Jingle Network’s direct sales force has signed up. And, those include some of the most recognisable brand names in the world including the likes of McDonalds and Wal-Mart, as well as thousands of local businesses in literally every yellow page category, whether its car insurance, car repair, travel agencies or beauty salons.

It all sounds impressive, but cutting to the chase, advertisers are looking for ‘more bang for their buck’, that is, a return on investment. Indeed, if an advertiser has spent a big chunk of their budget working on their brand and building awareness, it’s reasonable to assume that people calling directory assistance are more likely to make a request for them – as a result, the ‘switch pitch’ surely undermines their hard work in favour of a less well known brand. I put this to Kliger, but he’s unfazed.

“It really depends on the advertiser and their campaign goal. For instance, on the sponsorship side either McDonalds or General Electric – they don’t have any interest in driving phone calls to their business – they’re big brand advertisers that have a message that they want to get it out there that’s consistent with what they’re marketing in other mediums. Typical measures for those guys are the brand metrics of brand awareness, brand retention and brand favourability. We’ve done some extensive surveys in branding for some of these guys which shows that as a medium, advertising on the telephone – in particular on free411 – yields higher results than other media they’ve tested.

“And really it makes sense intuitively when you think about it, because unlike anything else that’s out there – unlike friends, television, radio and even unlike the internet, there’s no other place where you can literally whisper directly into the consumers ear, and have a one to one conversation with them at a time when you know they’re attentive.”

So from a brand advertising perspective free411 works, so what about direct response advertisers? Here Kliger is typically bullish:

“For the direct response advertisers whether they’re looking to further their communication with the customer by engaging them to send a text message or looking for a direct phone call from them the results are very, very good. They range, depending on the advertiser and the offer, from the 1.5 per cent response, to as high as 6 or 7 per cent. And lastly, with a truly targeted switch pitch, when a caller requests a business in a particular category, and we have a direct competitor with an offer in that category – and it’s strictly about connecting the call or getting a lead, we see response rates anywhere from 2 per cent on the low end, to 70 per cent on the high end. The conversion rate is not only tied to the specifics of the offer that’s being made, but also what the consumers looking for and how tightly they have an affinity with a particular brand or product.

“So if they’re calling in either a category search or asking for a locksmith or tow truck, they really don’t care who the provider is they just want the service and those are where we achieve conversion rates in the 50 per cent range. In instances where callers might have an affinity – and car rentals is a great example where people will typically say use Avis or Budget – but they get a clear agreed offer for 50 per cent off, or a free weekend day, then we easily achieve conversion rates in the 20-30 per cent range for those types of promotions.”

In addition, regarding the companies engaged in building a brand and generating awareness, Jingle Networks offers a protection from having a competitor advertise against them and their specific phone number.

“Wal-Mart’s a great example here, they advertise on our service in terms of upfront sponsorship ads and in particular to target areas where they’re opening new stores. So their sponsorship ad would say: ‘did you know there’s a new Wal-Mart coming to your area?’ But at the same time Wal-Mart’s phone number is one of the most single requested phone numbers in DA and they’re very cognisant of not wanting one of their competitors like Kmart or Target purchasing a switch pitch ad, so when Wal-Mart’s number is requested we play ads promoting their products or services like photo development or the pharmacy.”

With such a focus on DA as an advertising medium, you could be forgiven for assuming that other questions that perplex DA providers would be lower down Kliger’s agenda, but he seems happy to talk about rates of accuracy and quality of service. Jingle Networks has ‘extensive internal testing and monitoring goals’, additionally they engage third party companies, such as the Paisley Group to randomly test the free411 service and to benchmark them against their competitors in both the free space and paid DA space.

So with the success of their proposition and the continued growth that the service enjoys, what is the target for the US? Surely, there’s a limit to the US market share that they can win – and if that’s the case will Jingle Networks be launching new propositions to broaden their offering?

Kliger points out that every quarter Jingle Networks fields a survey where they measure awareness of DA and use of their service as well as all the competitive services. Awareness across the US of any alternative pay 411 is less than 30 per cent of the population. Meanwhile Jingle Networks has just completed a five-week advertising campaign – their first media based consumer marketing promotion. They focused on ten markets in the US, using radio as the medium to address their audience. Kliger says that they saw an immediate growth of volumes in each
of those markets.

Kliger adds: “Now, seven weeks after the campaign they’re still seeing an increased growth rate against their base line in each of those markets. This confirms what we’ve always been aware of – friends tell friends to stop wasting money on finding phone numbers. So in terms of market potential we think we’ve only just scratched the surface.”

Nevertheless, we suggest that there are still opportunities for Jingle Networks to broaden their offering – something along the lines of the VoodooVox model. We’re interested to hear Kliger’s reaction to the concept of playing ads to people whilst they’re in a call queue for a call centre.

Kliger responds intriguingly: “The in-call advertising model is one we’re watching very closely. I said at the beginning the model for this was Google – it’s a very successful model to follow and we’re
not looking to reinvent the wheel we’re just looking to succeed in the space we’ve pioneered.”

Kliger says his vision from the time they started the company was to build and follow the success of Overture or Yahoo search marketing. Their model dates back to 1997 when they launched Go2.com which was in effect, the first pay-per-click internet site search engine. Once they won a consumer audience, they then sold to advertisers and enticed them to the service. And, once they had a large base of advertisers in addition to having their own consumer-facing brand, they then distributed to advertisers through an ad network model.

Kliger sees Jingle following a similar path – they launched free411 in order to attract consumers. Then due to their volume of consumers, they have sufficient leverage to get through the doors of the likes of McDonalds
and Wal-Mart.

“We have therefore been able to aggregate a large base of both national and local advertisers using all of this audio content or help them create the content as the case may be, in order to serve ads onto free411.

“The next logical step for us, given
our advertisers have an insatiable demand for awareness or new
business, is to distribute those
same kinds of ads where there are consumers and where the medium will play on the telephone or other audio channels. Now primarily the first and best bet for us is in the 411 space, but beyond that, to the extent that there is demand we would absolutely take our technology platform and extend our relationship with advertisers and distribute them everywhere.”

Besides looking at new types of advertising propositions, one obvious area of potential growth for Jingle Networks is if they replicate the free 411 model elsewhere. Currently however, their marketing is largely B2C and aimed at driving volumes in the core business. Would they consider a B2B approach, where they could go into new markets directly or by licensing their technology platform to players in alternative markets or territories? It’s a possibility that Kliger enthuses about.

“International is very interesting for us on a couple of different fronts. Certainly in terms of the free411 business itself – because of the way that the North American dialling pattern works, the next logical markets would be Canada and Mexico – and certainly when you contemplate either of those you have to contemplate foreign language support because of French/Canadian and also Spanish. Also the Spanish speaking directory assistance market place in the US alone is an extremely large and a very interesting market too.

“Again, if we look across the pond, at the European opportunity, it would be much more a technology infrastructure play and our ability to take our ad management, ad targeting and campaign delivery system and partner with companies that are interested in delivering truly ad supported solutions in those markets. It’s on our road map but not something we’re making any announcements on at this point.”

Clearly though Jingle is a market savvy business and if the demand emerged, you get the distinct impression that they’d move quickly. Kliger isn’t fazed for example by the notion that cultural factors may help Jingle’s propositions work well in the States, whereas there are certain European markets where such an overtly commercialised DA service might not be embraced quite so readily.

“I think the principle absolutely applies everywhere, which is that businesses should pay, and are willing to pay, in order to find consumers and get consumers to connect with them. And the notion, even in the deregulated markets that exists throughout Europe now, that consumers have to pay in order to get information about a business they want to transact with, just makes no sense at all. Frankly, its only a matter of time before that model is spun on it’s head and everybody in the industry sees that. If not this year, certainly next year, I think you will see free ad-supported information services on the phone beginning to take hold in Europe. A lot of people have waited to see if we could make money at it and now that we’ve demonstrated that, we’ll probably see a whole new set of market entrants.”

Beyond the future scope for Jingle Networks specifically, Kliger is upbeat about the future evolution of information services generally.

“What we started in 2005 could have happened, from a technology perspective, probably 10 years ago and for a while in the late 90s there was a race toward the whole notion of voice portals. And Tellme, now part of Microsoft, helped pioneer some of that effort. Certainly all the major search properties dabbled in telephony and none of them were really able to gain traction in terms of mainstream consumers. On the other side services like In Phone which Metro One launched as a premium concierge-type service on a fee base, investing a significant amount of money trying to make that work and that didn’t get any success either.

“I think when you look at the reasons for those failures, high telecommunications costs existed at that point – and they made an ad-supported model prohibitive. That’s now gone away, with the advent of voice over IP and SIP, the incremental cost of delivering a telecom minute is close to zero. And so now the telephone starts to look a lot more like the internet and the internet bandwidth space which is absolutely key to making ad-supported models work. So, I’d strongly encourage anyone that wanted to get involved in this space to come and talk to us about the market – we could get you up and running and evaluate a potential partnership.”

Perhaps there is such a thing as a free lunch after all.