After All These Years, There's Still HUGE Upside in the Local Search Space

For the last three years we have all been talking about how the pot of gold at the end of the "search rainbow" is to conquer the local market - to somehow attract and effectively monetize local search traffic.

I read the article below and was shocked to find out that today, only 14% of local Yellow Page advertisers are advertising online. Even more shocking was that by 2010 that percentage will only increase to 30%!

Whomever can effectively and seemlessly allow for small businesses to advertise on keywords in the SHORT TERM (ie before 2010) will big winner. Local.com? Web Visible? Yellowpages.com? Superpages.com? Or some other, currently unknown, player? There's still a lot of gold at the end of the search rainbow!!!

Now for the article from the Wall Street Journal:

Yellow-page publishers are searching for ways to stay relevant in a new-media world

By JULIA ANGWIN July 10, 2006; Page R5 WSJ

When Jackie Mitchell was launching her doggie day-care business in Tacoma, Wash., two years ago, she spent most of her limited advertising dollars in the local yellow pages. Now her business, Bark Central, is booming -- but she says more customers have found her through her Web site than through the phone directories.

This isn't the usual tale of new media overtaking old media, however. In a new twist, Ms. Mitchell is paying the nation's third-largest publisher of yellow pages, R.H. Donnelley Corp., to both run her Web site and distribute online ads on search sites like Yahoo Inc.'s.

The yellow pages are finally getting Internet-savvy. After years of fruitlessly trying to sell ads on their own Web sites -- which get relatively few visitors -- many of the directories have begun reselling ads to their customers on bigger, high-traffic Web sites such as Yahoo and Google Inc.
"We're media agnostic," says Simon Greenman, senior vice president of digital strategy, innovation and products at R.H. Donnelly. "Our strategy is to connect our customers with their customers wherever they may be."

Clicks by the Bundle

Only about 14% of U.S. print yellow-page advertisers -- about 600,000 -- are currently purchasing online ads from the yellow pages as well, according to estimates from Kelsey Group, a local-advertising research firm in Princeton, N.J. By 2010, the number is forecast to hit 1.2 million advertisers, or about 30%.

One reason for this slow growth is the relatively low traffic that the yellow pages attract to their Web sites. The most popular yellow-pages site, Verizon Communications Inc.'s SuperPages.com, attracted 17 million visitors in April, according to comScore Media Metrix, an Internet measurement firm based in Reston, Va. By comparison, Yahoo attracted 128 million visitors and Google attracted 108 million visitors to their search pages during the same period.

So the publishers of the top directories -- including AT&T Inc., BellSouth Corp., Verizon and Donnelley -- decided to offer small businesses a service that would allow the businesses to get their ads seen by consumers using those high-traffic sites.

The service, called click packages, works like this: The yellow pages, on behalf of advertisers, bid on search keywords like "carpet cleaner" in online auctions. The top bidders' ads -- typically a few lines of text -- then run on the right-hand side of a page with results of a search for the keyword. The advertiser pays a flat monthly fee for a guaranteed number of customer clicks on those ads, which link to the business's Web site. So the yellow pages will keep bidding for various keywords until the guaranteed number of clicks is reached. And the ads stay up as long as it takes to generate those clicks.

Micha Anderson, president of Chastain Chem-Dry, a carpet-cleaning service in Atlanta, spends $1,625 a month for 750 clicks from BellSouth -- meaning BellSouth will keep bidding on keywords until at least 750 people click on Chastain Chem-Dry's ads and land on the business's site each month.

BellSouth buys ads on Web sites including Yahoo.com, InfoSpace Inc.'s InfoSpace.com and Switchboard.com, and Ask.com, which is owned by IAC/InterActiveCorp. BellSouth keeps a percentage of the monthly fee depending on how many clicks are purchased.

Mr. Anderson says he doesn't pay attention to what keywords have been purchased on his behalf. He just knows that the traffic to his Web site has nearly quadrupled since the program began. "I don't know what exactly are the mechanics of how they drive the traffic for us," he says, "but it's effective."

High Cost of Convenience

Charles Stubbs, chief executive of YellowPages.com, a joint venture between AT&T and BellSouth, says, "Small-business people are busy people and they don't have time to spend two hours a day to manage their online advertising accounts."

There's a price for that convenience, however. Kirsten Mangers, the chief executive of WebVisible, the company that manages the bundle-of-clicks technology for Donnelley and others and trains sales representatives to sell those clicks, says that "if the average cost per click is 50 cents or a dollar, [the customer] may [actually] spend $2 or more for a click," but they are paying for the yellow pages to manage their accounts.

WebVisible, a unit of Atlanta-based SME Global Solutions Inc., buys between 300 and 600 keywords for each business and uses proprietary software to manage the advertising campaigns. Since some clicks cost more than others, WebVisible manages the bidding to allow its clients to offer flat-rate click packages.

Mr. Anderson of Chastain Chem-Dry pays top dollar for his clicks -- about $2.17 per click, based on a monthly fee of $1,625 for 750 clicks. The top bid recently for "carpet cleaner" on Yahoo was $1.20 per click, according to information available on Yahoo's Web site.

Yellow Book USA Inc., the leading independent publisher of yellow pages, says the markup of clicks can inflate costs for small businesses. "In the bundle-of-clicks model, there is an incentive for the middleman to maximize his profit at the expense of the advertisers," says Gordon Henry, chief marketing officer of Yellow Book USA.

Yellow Book says it's in the process of rolling out a product called WebReach, which won't charge a flat fee to advertisers. Instead, advertisers will pay according to the price of the clicks purchased -- so barbers will likely pay less per click than mortgage brokers. Mr. Henry adds that WebReach will only purchase ads on the top-tier search engines -- Yahoo, Google, Ask.com, Microsoft Corp.'s MSN.com and Time Warner Inc.'s AOL.com -- unlike other yellow pages, which purchase across as many as 30 sites.

Mr. Henry says Yellow Book will still charge an undisclosed management fee for managing the account. "We're taking a small fee to track the advertising, explain it to the advertiser and take that worry and hassle out of his hands," he says.

Verizon also offers a pay-per-click account that charges according to the price of the click instead of a flat rate.

Building a Site

The click packages aren't the only services the yellow pages are offering. Most also will design and manage a Web site for small-business advertisers -- many of whom don't have an existing Web presence.

BellSouth designed a three-page Web site for Chastain Chem-Dry, which includes a complete listing of its services, locations and contact information. It also manages the site.
Donnelley designed and manages the Bark Central Web site. Ms. Mitchell pays Donnelley $100 per month, which includes a clicks package of 240 guaranteed clicks and the design and management of the site. The Bark Central site includes contact information, a list of services, hours of operation, rates and requirements like vaccines. Customers also can send an email or make a reservation through the site.

The Direct Route

Some small businesses, however, say they don't need help from the yellow pages to make a connection.

Michael Jimenez of San Rafael, Calif., says sales at his upholstery business have risen 13% in the past 18 months. He credits the ad space he buys directly from Google. His ads run alongside some of the search results in Google.

To buy those ads, Mr. Jimenez bids on a bunch of keywords, such as "upholstery," "custom upholstery" and "upholstery shop" on Google. If his bid is among the top in a certain category, his ad will show up alongside the results for a search on that word. He only pays when someone clicks on his ad and lands on his Web page, MichaelsUpholstery.com. Mr. Jimenez says he pays an average of $50 per month for clicks.

The small-business owner says Yahoo approached him about nine months ago with an offer to buy keywords. He now spends $15 a month with Yahoo, which bids on keywords such as "Marin upholstery" on his behalf.

Mr. Jimenez says about 70% of the traffic to his Web site now comes from Google and Yahoo. And business has increased so much that he has been having a hard time keeping up with the volume.

Executives at the yellow-page directories say they aren't worried that too many companies will follow in Mr. Jimenez's footsteps. "The vast majority of small businesses have neither the time nor awareness to effectively market their products on the Internet," says Bill Hammack, an industry consultant and former executive at Donnelley.

Mr. Jimenez still pays about $600 a month for several listings in the local yellow pages, which includes the online yellow pages. But he says the online yellow pages haven't yielded much traffic.

"The thing that keeps us from pulling from yellow pages," he says, "is that our clientele in Marin County is an older clientele and they still use the yellow pages."