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Searching for a Better Local Ad Model

boland-michael
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Local search is a paradox. At least, its current ad models are. In one sense, online pure plays, such as search engines, have done the best job building local search products with online mapping, social search and Web 2.0 appeal.

Local search products from online pure-plays eventually hit a wall. Ad models rely on self-service. Advertisers sign up and manage search-based ad campaigns on their own. The vast majority of doctors, restaurant owners and bricklayers are simply too busy being doctors, restaurant owners and bricklayers to become search engine marketers.

On the other hand, yellow pages publishers with fleets of eager young sales reps knock on every small business' door in town to sell, launch and optimize their online ad campaigns. If only that were the case.

The truth: yellow pages companies have this capability, but haven't yet fully executed. Why? They're staring at the potential loss of core offline revenues. Undermine a model that brings in 40 percent plus margins? Not the lesson taught in B-school.

More to the point, yellow pages publishers have what online pure plays are missing (physical sales channel), but lack what they do have (better search-based products). This is beginning to change. Some IYPs, such as YellowPages.com, DexKnows, and Yellowbook.com, have integrated mapping, video or social media to varying degrees.

The fact remains: local search players have an edge from a product development standpoint. Cannibalization of revenue remains a concern of traditional yellow pages publishers. The natural tendency to cram an offline model into an online product doesn't work. In part, it's simply the organization's DNA structure.

Companies that grew up online and are led by teams of engineers are simply better at innovating than century-old book publishers are. The same situation applies to online newspapers when you compare them to the likes of Netvibes, Pageflakes and MyYahoo.

Worlds Collide

So, local search players lack sales channels, while yellow pages publishers lack the Web 2.0 gene. Can't we breed them to create some kind of mutant super local search monster? (I call him Yattoogle.)

Probably not. That would involve the oft-discussed and equally oft-dismissed prospect of a Google or Yahoo! buying a directory publisher for its sales channel. At the SMX Local & Mobile show earlier this month, Steven Chuck, director of strategic alliances for Yahoo!, was asked this for the most recent (but certainly not the first) time.

"Direct sales force partners are important as an avenue to reach small businesses," he said. "As far as having our own sales force to reach below the advertisers we have today, that's not going to happen."

A yellow pages acquisition would require a tough integration of starkly different types of organizations. Instead, we're seeing increasing activity around sales channel partnerships as well as smaller local search players building their own sales forces.

The former was most recently seen by Yellowpages.com's four-year contract extension with SEM firm Marchex.

"We've been working closely with AT&T and Yellowpages.com to enable their advertisers to appear in relevant local results in Google, Yahoo! and our own Web sites," said Mark Peterson, Marchex vice president of public relations. "They have more than 5,000 local search professionals, so they are going to be on the street selling our local search product under [their” name."

A week earlier, Canadian directory publisher YPG partnered with Google to resell AdWords through its 900 sales reps. This is similar to the relationship Superpages previously formed with Google, while its in-house SEM firm, Inceptor, brings distributed search advertising and bundled click packages to its advertisers. R.H. Donnelley has LocalLaunch to do the same.

Buy or Build?

As for building from scratch, we're also seeing a lot of action. Citysearch announced the launch of a 150 person Atlanta-based sales center in January. Online marketing firm ReachLocal received a $55 million investment to continue building out its own feet on the street earlier this month, while Weblistic continues to staff local sales reps.

Meanwhile, hyper-local site Smalltown has built up a small but successful local ad sales strategy in the San Francisco Bay area. The company brings local businesses online with low barrier "Webcards," a de facto Web presence that is easier and cheaper than starting a Web site. Webcards also have the portability, functionality and social elements of being easily e-mailed, shared and embedded with pictures and video.

The year-old company employs a small sales force of about four reps for the five Bay Area towns it serves, about one per every 100,000 residents, and the next move is to replicate the model in other communities

"We know now much more than we did a year ago what merchants want, how to meet with them, how to sell to them how to get the community involved in the site," said Smalltown CEO Hal Rucker. "We are at the point now where we're ready to start to scale to other towns."

Taking it to the Streets

To put the local ad sales opportunity further into perspective, it comes down to the wide swath of local advertisers -- representing billions in untapped ad dollars -- who aren't advertising in the yellow pages. Local advertising in the print yellow pages is a $16 billion industry, according to The Kelsey Group.

"In the century or so that the yellow pages has been around, the industry only has about a 30 percent penetration of the small-business marketplace," said Marc Barach, CMO of Ingenio. "There is an opportunity to grow this with new products."

For the remaining two-thirds of this market, yellow pages advertising could be cost prohibitive, limiting or simply not of interest. Either way, online distribution through bundled SEM/SEO/CPA/CPM and the rest of the online alphabet soup, will offer varied price points and options to attract this untapped segment.

Given that many of these businesses don't have Web sites to begin with, low barrier ways to get online such as landing page or microsite offerings (i.e. Smalltown's Webcards), could complement this product bundle.

Throw in hosting and other services, and this could represent the opportunity to be the trusted source that provides the training wheels for SMBs to get online and advertising. Develop this hand-holding relationship early in a company's transition to the Internet, and you could have an advertiser for life.

In other words, whoever can combine a comprehensive bundle of ad products with the right high-touch sales force will be able to make a play at this massive market segment. If this is the yellow pages, sales forces need to transition from a print-centric push to more of a consultative role; and to truly adopt the "platform agnosticism" that has become the epitome of over-used PowerPoint speak.

It will take a while for this to really take hold, and should start with sales force recruiting, as echoed by Local Insight Media CEO Scott Pomeroy at The Kelsey Group's DDC Conference last month. But when this does happen in earnest, we'll get closer to the local search ad model we've been waiting for.


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