The attack of the ad-sponsored phone call

NEW YORK (Fortune) -- Callers beware: Marketers are about to invade one of life's last advertising-free zones, the private phone call. At the end of last year, privately held Internet phone company Jangl started testing "in-call" advertising: While customers wait for Jangl to connect their calls, the originating party may hear a short audio advertisement. Potential advertisers, Jangl says, include wireless game and ringtone purveyors.

Meanwhile, Jajah, also an Internet-based communications company, is set to launch in-call ads this year. Customers will opt into the service, and in exchange for listening to a 15-second clip, they'll earn credits that will offset their phone bills.

A sample sound bite from an earlier Jajah trial goes something like this: "Please hold while Jajah's connecting your free call, brought to you by the Sony Image Station. With Sony the results are beautiful."

These ads are a variation of the marketing messages consumers are used to hearing while they're on hold with, say, an airline reservation line or customer service. But thanks to Internet Protocol, or IP, which powers these next-generation phone calls, operators such as Jangl and Jajah can target the advertisements they serve callers - much the way Yahoo (YHOO, Fortune 500) or Google (GOOG, Fortune 500) can deliver relevant ads to users of their search and portal services. So a caller who frequently calls Boston using an IP-based phone service might start hearing ads promoting new flights to Logan Airport.

Long-distance carrier IDT (IDT), for example, now inserts targeted advertisements before it completes some calling-card calls made by its ex-pat clientele: A person who is using a calling card to contact the Dominican Republic, for example, might hear an advertisement promoting new flights to Santo Domingo. IDT uses a start-up called VoodooVox to insert ads before calls, and says marketing messages from VoodooVox run on approximately 30 percent of calling-card calls. Advertisers include airlines, banks, movie studios and other blue-chip companies.

Pioneers in the nascent in-call industry acknowledge that in-call marketing is pretty cutting edge. "We know this is kind of bold," says Jangl founder Michael Cerda. "But these are bold times." It is so cutting edge, in fact, that a lot of advertising agencies haven't even heard of in-call marketing, and those that have are somewhat skeptical. "The first question I would have is how is privacy being handled," says Angela Steele, a mobile marketing vice president at ad buyer Starcom USA. "People need to know that by using the service, that information can be used for advertising."

Because in-call marketing is so new, companies such as VoodooVox end up having to produce the ad messages for customers, says J. Scott Hamilton, the company's CEO. Hamilton says the market is growing, though. VoodooVox had revenue of about $4 million in 2007, he says, and he expects revenue to increase at least ten-fold in 2008.

He says he's a big believer in advertising as a way to subsidize calls, but he acknowledges it isn't for everyone. He says: "If it doesn't work for the caller, it doesn't matter how many other stakeholders want it, they'll find another way to make calls."