Pay Per Click Universe has recently conducted an exclusive interview with the CEO of Interchange - Heath Clarke. Interchange is the parent company of one of the largest and oldest Pay Per Click search engines on the market - ePilot™, as well as the developer of a unique local search technology, Local Direct™. Heath has served with the company as President and Chairman since March 1999 and as CEO since January 2001. He has shared his vision for Interchange and offered some insights into the PPC industry.

Interview by Boris Mordkovich
Edited by Frances Krug

Q: ePilot was launched about two years after Overture went live (formerly GoTo.com) and well before Google started its own AdWords program, which makes ePilot one of the earliest PPC search engines on the web. What makes you different from Overture and Google?

A: The basic difference is that we operate alongside companies like LookSmart and FindWhat in a different segment of the PPC marketplace, characterized as Tier Two. We're also different with respect to our approach to local search, which we regard as the new frontier in paid search.

Q: Fraud is becoming a big problem in the PPC industry. How does ePilot address this problem at the present time? Do you expect that anything will change in the upcoming year?

A: The potential for fraud is something that is inherent in any transaction-oriented business - I don't think it's any less or more inherent in paid search. Interchange takes a variety of countermeasures to remove illegitimate clicks out of our advertisers' accounts each day. For example, one of the largest concerns of advertisers is duplicate clicks - our system au tom atically refunds those every night.

If we were to use our refund rate (less than 1%) as a measure of how much fraud we fail to identify on behalf of our advertiser clients, I think you would find that we're impacted by fraud less than your typical online retailer.

Q: What kind of distribution partners does ePilot work with? How do you convince major outlets to work with you rather than with Google or Overture?

A: We typically work with smaller sites. With our Local Direct platform, we specifically target Yellow Page s sites, city guides and newspaper sites. Since we're targeting a different segment of the search marketplace, we typically don't encounter the larger actors.

Q: You went through a 600% growth from Q3 in 2003 to Q3 in 2004 - from 1 billion searches per month to 6 billion. What do you think contributed to this outstanding growth rate? Do you expect your growth to continue at this rate?

A: It has been an incredible growth in search volume. I think t The number- one driver of this growth was the addition of new Distribution Network partners, followed by increased traffic from our existing Distribution Network partners. We're going to continue to work very hard to try to grow our access to search, particularly through local search and hope the upcoming year brings more success.

Q: One of the trends that been occurring over the past several years is that the cost per click is constantly being inflated, as more and more advertisers get involved. It is to the point where advertisers are paying $5 to $10 per click in some highly competitive industries. As more businesses climb on the PPC wagon, do you feel this problem may worsen?

A: I don't really see it as a problem, because the top bidders tend to track their ROI very closely. If it ever reaches a point where the cus tom er acquisition cost becomes so high that there is little or no profit, an advertiser has the option to either lower their bids or improve their website, ad campaign, and so on. In a sense, this actually pushes them to get better and more efficient at what they do.

Q: You were one of the first PPC search engines to start offering a local search feature, called "Local Direct™". Can you tell us a little about how it works?

A: Local Direct™ is a search and advertising platform for city guides, Yellow Pages, and newspaper sites - basically, anyone with a focus on serving geo-specific information to a consumer. Local Direct™ incorporates a private label paid-search service, bidirectional distribution (access to both our Distribution Network search traffic and our Advertiser Network sponsored listings), and our groundbreaking Keyword DNA technology (which enhances the consumer search experience on our clients' sites). Local Direct™ typically is available within a licensing and revenue sharing structure.

In summary, our Local Direct™ feature service is available for local portals that want to monetize their traffic and resources. We like to think that we serve as their R&D department, providing them with tools and assistance in order to make generate the most of the feature additional paid-search revenues.

Q. What kind of an effect do you think local search, in general, will have on the PPC industry?

A: I think that paid-search companies that don't have a local strategy will find themselves in a difficult position in due course. Remember, less than half a million businesses advertise online today, with another 9.5 million plus that could be considered "local businesses" yet to advertise online using paid-search (Kelsey Group research). To be able to tap into that advertiser base, you're going to need a local search service of some kind.

Q: In April 2004, you integrated a "Push To Talk" feature into your local search system. How does this feature benefit advertisers?

A: Push to Talk is a feature that enables consumers to connect directly with advertisers by initiating a call online. We think eStara's got some great technology, and we're really excited to be working with them on some very interesting new products which represent a new direction.

Q: One of the other major search engines, FindWhat.com, recently launched a new service called Pay Per Call, which allows businesses to bid for phone calls from qualified leads rather than clicks to their website. What are your thoughts on this matter? Do you think that Pay Per Call might take off as a competitor for advertising dollars?

A: Advertisers always benefit by being able to pay only for consumers that they're connected to via a click, phone, or some other means - I think that's a winning proposition for the consumer and for the business. Critical mass is extremely important for a Pay Per Connect™ (aka Pay Per Call) model, and I think that it's important to deploy the service the right way in order to achieve this.

Pay Per Connect is a very popular advertising model among small businesses. In focus groups, when questioned, business owners have always expressed interest in this. It's understandable that they are more comfortable dealing with prospects over the phone rather than the Internet. Furthermore, they can track the results better based on the amount of calls coming in versus clicks to their website.

On the other side of the coin, the easier we make it for the consumer to find what he/she is looking for, the better it'll be for both the industry and the advertisers.

Q: Since we're discussing innovations, do you see a lot of future potential in wireless search (e.g., cell phones, PDAs, etc.)? How do you think this will affect traditional PPC search engines?

A: Absolutely! In fact We believe that our future services in this area will also serve to , this is what separate s us from the competition. We're Our goal is to be able to trying to attract connect the consumers who will us ing e wireless technologies to via search - not just , rather than consumers using the standard Internet connection via a computer on a desk. Traditional PPC search engines will have to add these capabilities if they want to survive in the future

Q: Many businesses lack the time and the experience to successfully manage their PPC advertising, which may lead to them losing interest in using your services. How do you address this issue?

A: I'm a big believer in the free market system. If there's a need, then someone will identify it and attempt to fill it. There's a secondary industry that's being created whose sole purpose is to manage complex ad campaigns on behalf of clients who don't have the expertise or the inclination. I think that this industry will only continue to grow, particularly with respect to its local component.

Q: Several months ago, you announced an Initial Public Offering for Interchange. What were the main reasons for taking the company public?

A: We felt that the time was right, from the perspective of both the financial markets and of the local search market. We felt it important that we capitalize on this opportunity in local search quickly, and we needed to be properly capitalized to be able to do so. It was always our intent to take the company public.

Q: Since going public, how have your current operations been affected?

A: Certainly the day has become much busier, with a lot of additional demands on our time. Irrespective of going public, our company is at a point where we're taking it to the next level, so whether we're public or private, that involves a lot of additional planning and always some growing pains. It's a high quality problem .

Q: The industry has gone through tremendous growth in the past 5 years, and it looks like it has a long way to go to full maturity. This might sound like a cliche, but from the perspective of the CEO of one of the largest PPC search engines on the web, where do you see the industry going in the next 5 years?

A: I see search as still really in the formative stages. Our goal over the next five years will be the same as the past five - to deliver information on demand to consumers across multiple devices or platforms. The funny thing about being in this industry is how rapidly we see things come full circle.

Q: Any final tips for advertisers?

A: Track, track, and track again. Pay-per-click advertising is direct marketing, so extensive monitoring and constant tweaking of your ad campaigns is the best way for you to get results.