RingRevenue that it had closed a $3.5 million round for its "pay-per-call platform designed for affiliate networks" left me with two questions: First, what's a pay-per-call platform? Second, why is GRP Partners, a firm that's taken 15 companies from early stage to billion-dollar-plus exits -- Starbucks, Costco, Overture, etc -- plinking with a $3M round? It's because online marketing only attracts one-tenth of the total $300 billion spent annually on advertising in America. RingRevenue plans to open the door to selling higher-priced items online, and then quietly take a cut of the action.
First, the product: Affiliate marketing is a form of online advertising in which the advertiser only pays the publisher for results -- a purchase, not just an ad view or a click. It's the priciest form of advertising because it has the highest return.
A quickie tutorial on online advertising
There are several standard categories of online marketing and advertising. From least to greatest effectiveness and price:
- Cost per Impression or CPM ("cost per mille," bad French for one thousand ads served), in which advertisers pay solely to get their message in front of an Internet or phone user. It costs the same even if the user ignores it.
- Cost per Click (CPC) -- The advertiser pays only when a user clicks on an ad.
- Cost per Lead -- The ad buyer pays for the name and contact info of a prospective buyer, like in the movie Glengarry Glen Ross, except they collect the names online.
- Cost per Action (CPA) -- The advertiser only pays if a sale is made. This is the game in which RingRevenue plays.
CPA advertising is a boutique business, even when mass-aggregated online. The ad buyer only pays when, for example, a Web user buys a washing machine. But many, maybe most buyers of pricier items (it depends who you ask) want to talk to a human being when it's time to make the purchase. They're not going to buy a $4,000 treadmill with three clicks, even though they can.
Affiliate marketing works like this
Commisson Junction, operator of the world's largest affiliate marketing network and the first announced RingRevenue user, has a tidy primer on what they do:
Affiliate marketing is an online advertising channel in which advertisers (online merchants that sell products or services) pay publishers (independent parties that promote the products or services of an advertiser on their Web site) only for results, such as a visitor making a purchase or filling out a form, rather than paying simply to reach a particular audience. This "pay-for-performance" model is in essence the modern version of the "finders'-fee" model, where individuals who introduce new clients to a business are compensated. The difference in the case of affiliate marketing is that advertisers only pay their publishers when the new client introduction results in a sale or a lead, making it a low-risk, high-reward environment for both parties.
Advertisers in our network, the CJ Marketplace, populate their ad links in the interface, making them available for placement by publishers. Each link is assigned a commission, such as a fixed amount per lead or a percentage of a resulting sale on the advertiser's Web site. Publishers looking to monetize their traffic apply to join an advertiser's program. Upon acceptance, the publishers select and place the advertiser's links on their Web sites, in their email campaigns or as part of search listings. When a consumer clicks on a publisher's link, a cookie is set on the visitor's browser that identifies the advertiser, the publisher, and the specific link and payment rates. When the visitor makes an actual purchase online or fills out a form, that transaction is tracked and recorded by Commission Junction. Upon recording the transaction, Commission Junction handles all of the collection and processing required to ensure fair and timely commission payment for the publisher, and all of the administration and verification necessary to ensure quality sales and leads for the advertiser.
The problem is simple: How do you tie the customer's online research session with the phone call they made to buy the product? RingRevenue to the rescue! The company provides a behind-the-scenes ("white label" in industry jargon) technology solution that tracks the calls as surely as if they were clicks to sales pages. The trick is to use thousands of toll-free numbers for each campaign. The phone number serves as an identifier for the customer, who gets it from a website that carries an ad served by Commission Junction and tracked by RingRevenue.
Why is GRP funding RingRevenue? "The affiliate market today represents about $2 billion in total fees a year," GRP partner Mark Suster told me from his cellphone. While online advertising draws about $30 billion a year ($20 billion of that from Google), the offline ad market is nearly 10 times bigger. RingRevenue's plan is to enable Commission Junction and other affiliate networks (RingRevenue claims three more big partnerships will soon be announced) to tap that market and drag it online, by connecting online CPA campaigns to human-powered call centers. Affiliate marketing currently sells about $10 billion annually in goods and services. RingRevenue's business plan is to grow that market and take a big fat cut.
Marchex and AT&T's Ingenio is the management team. CEO Jason Spievak (pictured), Colin Kelly, Rob Duva and Scott Herman are 6-10 year veterans of Callwave, the mobile/landline/PC interoperability company that brought in $40M revenue and launched a quarter-billion-dollar IPO in 2004. "We [at GRP] are all dry powder right now," Suster bragged politely, "while other firms are dialing back their investments."
Can Spievak and company do it again? The cool thing about today's not-so-hot startup market is you don't need a hardware investment for a play like RingRevenue. With three million bucks and an Amazon Web Services account, you can give it a shot.