Google and EBay have just announced a Click to Call advertising partnership, and Andy Abramson thinks that Google got the better it.Â Â I think he’s probably right.
I’ve built a quick model based on my own experience with Google Adsense, and some assumptions about terminations.
- Click through rate: 2.3%.Â That’s my actual today.
- Average revenue per click: $0.25.Â My actual is just under $.24. Let’s assume that Google earns at least as much as I do after they pay me.
If Google wants to build a $100 million / year business from selling advertising to EBay, then they need about 400 million clicks in a year, or 1,096,000 clicks per day.Â Assuming a click through rate of 2.3%, and a paltry 2 impressions per day, gives a requirement of roughly 24 million users to earn that $100 million.
Clearly, as Russell Shaw pointed out in his piece, if Google is serious about Click-to-Call, GTalk is not going to cut it.Â GTalk doesn’t have users.Â Hence the reason for the deal with EBay.Â The writing is on the wall, especially since Skype is going to be integrated with the Google Toolbar.Â
But what about on EBay’s side?Â Let’s assume that the average call duration is 10 minutes, and that their costs are a very aggressive 0.5 cents per minute, and they’re able to monetize their terminations at 4 cents per minute (that’s what I currently pay for my personal toll-free 800 number, and that’s the market that EBay is going to try to displace).Â At 400 million calls per year, EBay can expect to earn $160 million dollars, with costs of $40 million dollars in terminations.Â That’s $20 million more than Google… so long as EBay can sustain 4 cents per minute, and that’s the rub.
EBay will argue that those clicks should be at a premium to non-voice enabled clicks.Â Is that really such a good assumption though?Â Google’s clicks are already among the cheapest in the industry.Â Their appeal to advertisers is that they deliver volume.Â Â Google could charge more, but would then risk losing market share. I’ll bet they follow the same strategy with Click-to-Call.
Incidentally, you can extend this reasoning one step further, and figure out why a strictly ad-funded telecom service may never be a reality.Â If, instead of assuming that you’re paying termination charges for each click, but rather for each impression (as might be reasonable, if people are viewing ads while making telephone calls), then you could expect to be paying out hundreds of millions of dollars in termination costs in order to realize perhaps one hundred million dollars in revenues.
Aren’t spreadsheets the cat’s meow?
For a contrary view, read Peter Cohan.Â