The Praized Blog

Pat Marshall has been in the online directory industry basically since it was created. In fact, when introducing him, John Kelsey and Charles Laughlin (both from the Kelsey Group) called him “the father of Internet Yellow Pages”. According to the press release announcing his Yellow Book nomination, “ Marshall has spent more than 28 years in marketing leadership positions, including as a senior executive with Verizon, Frontier Corporation and R. H. Donnelley. At Verizon, Marshall led the launch and management of SuperPages.com.” So, it was with great pleasure I sat down to listen to this conversation between the Kelsey Group folks and Pat Marshall.

Q: Why did you get back into the Internet yellow pages (IYP) business?

A: I did not want to get back in IYP, I wanted to get back into local search. I also wanted to get back into action (as opposed to the consulting I had been doing in the last few years)

Q: So, is Yellow Book in the local search business?

A: Today we’re more IYP than local search, but the trajectory is going towards local search. IYPs are really good at finding who but not good at finding what.

Q: What are the areas you need to move into to to go into local search?

A: Three things: 1) Infrastructure. Business directories are yearly things and this does not work in the local search world. 2) Traffic. a key directory publisher axiom: advertisers advertise because users use. You need a qualified audience and we’ve done well with that (see this Comscore release). 3) Having inventory. Present a merchant in a context that’s appropriate for him. We don’t have enough inventory today.

Q: Where are you now on a scale of 1 to 5?

A: We’re at 3. We’ve made a lot of progress but I would like to move at twice the current speed. As a senior executive, I need to create the environment where that can happen. We need to focus on the collective IQ.

Q: What are you doing to develop a local search solution supported by research?

A: When people are using local search, they’re not shopping. They’re hiring. You don’t shop for a pool service, a lawyer. You hire these people. The process is three dimensional: urgency, risk, satisfaction.

Q: Let’s talk about verticals. Would the IYP product be further ahead if verticals had been developed earlier and deeper?

A: I don’t think we would have been better off. The industry has gone through enormous changes to get to 2008. In 1995, sales forces were unidimensional. The first year of Superpages.com, we generated $100K in revenues. We missed our target and it was the first time in my life I missed my target. Sales was afraid to bring Internet in conversations because they were afraid merchants would know more than them.

Q: Where is the value in Yellow Book’s online offers? Is it search engine marketing, is it YellowBook.com?

A: It really depends what the customer wants. In some situation, they only want what we called “Googlecaine”. So, you should sell what people are buying.

Q: What kind of partnerships are you looking for?

A: Anyone that can help me solve my three problems listed above. 1) Infrastructure products/services that reduce our costs (but bring a business case), 2) traffic (we’re always interested but talk about the quality of the traffic and how it fits with us), and 3) advertising/inventory products (talk to us about why it’s good for our customers, what skin are you willing to put in the game).

Q: Is it important for Yellow Book that Google, Yahoo!, MSN be successful in local search?

A: Yes, definitely. I doubt that they will invest into a local channel. So, they will come to us to resell their products.

Just received the press release announcing the new interactive ad revenue forecast by The Kelsey Group. Highlights:

Global (2007-2012):

• Ad revenues (currently at $600B) to grow at a compound annual growth rate (CAGR) of 2.7 percent and reach US$707 billion in 2012.
• Interactive ad revenues will increase from US$45 billion in 2007 to US$147 billion in 2012 (a 23.4 percent CAGR).
• Directional advertising, which comprises local search, print Yellow Pages and Internet Yellow Pages (IYP), will go from US$33.3 billion in 2007 to US$41.4 billion in 2012 (4.5 percent CAGR)
• Local search revenues will grow from US$2.1 billion to US$6.6 billion (25.5 percent CAGR).
• Print Yellow Pages revenues will decline from US$27.5 billion to US$25.6 billion (-1.4 percent CAGR).
• IYP revenues will grow from US$3.7 billion to US$9.2 billion (20.1 percent CAGR).

US (2007-2012)

• Interactive advertising revenues: from US$22.5 billion to US$62.4 billion (22.6 percent CAGR)
• Directional advertising revenues: from US$16.4 billion to US$18.8 billion (2.8 percent CAGR)

Canada (2007-2012)

• Interactive revenues: from US$1.3 billion to US$3.3 billion (21.3 percent CAGR).
• Directional revenues: from US$1.4 billion to US$1.9 billion (5.8 percent CAGR).
• “Canada is one of the markets in which The Kelsey Group expects growth in the print Yellow Pages segment, forecasting a 1.8 percent CAGR for print directories in Canada during the forecast period.”

According to Charles Laughlin from the Kelsey Group, they expect “printed directory revenues to decline in most global markets over the forecast period, though print will remain the most important source of leads for small businesses. For directory publishers to succeed, they will need to invest time, energy and resources in both channels to minimize the decline in print and maximize the opportunity online.”

Reporting on the same press release, MediaPost added that “ the forecast does not include mobile ad platforms.”

Update: Techcrunch chimes in.

Yesterday was Kodak’s annual analyst day and the New York Times seized the opportunity to discuss the progress made in the last few years as the company transitions from a film-focused business to a digital one. In light of disappointing newspaper industry and print directory news, it’s heartening to look at the new opportunities Kodak is seeing in the market.

But to hear Mr. Faraci (Kodak’s president) tell it, the factors that are hurting newspaper publishers in the United States — the migration of advertising and readers to the Internet tops the list — are not having the same impact overseas. “Literacy is growing through the world,’’ he said, noting that it is encouraging more newspaper readership in developing countries.

And even in the United States, he said, Kodak is benefiting from the moves that some publishers are making to recoup at least some of those lost advertising dollars. He notes that The Chicago Tribune and some others are trying “microzoning” — printing several versions of the paper in the same city, each with ads aimed at a specific neighborhood. And, he said, newspapers all over are using more color.

All of that, he said, promises to yield increased sales of Kodak’s high-speed production printers — particularly of the 1,600-page-per-minute printer Kodak is about to introduce. And far more important to the company, the trend can yield a steady stream of orders for inks and other highly profitable consumables.

As Mathew Ingram says regarding the newspaper industry, “… just because newspapers aren’t doing well doesn’t mean that journalism or media or the news business itself isn’t doing well. If anything, people are searching for more and more news all the time. They’re just doing it online instead of on paper.”

Now, going back to the Yell Group news that made their stock price fall 18% this week. The Guardian has more details:

John Condron, chief executive, said the problems in the market came to light as Yell’s sales teams put together about 20 directories, out of 102 it produces across the country, to be published in January, February and March. “I think UK plc, as far as our company is concerned, came back after Christmas and took a very cautious, very conservative view of the future. We seem to have replaced the regulatory pressure on us with recessionary pressures,” he said. “But it is important that we all realise that customers are staying with us and renewing with us, they are just not increasing expenditure.” Under its current regulatory regime, Yell cannot increase Yellow Pages prices by more than inflation minus 6%, which in effect means it must cut rates every year. From April, Yell can increase rates in line with inflation. Its average planned price rise is inflation minus 1%.

Based on those explanations, I think that situation might be more cyclical (stock market nervousness, UK regulatory pressures, etc.) than structural, but it certainly serves as an early warning signal to directory publishers worldwide to get on board the digital train fast, and start re-inventing their business.

I leave the last few words to Charles Laughlin from the Kelsey Group as I fully endorse them:

Amid such a sharp sell off, it’s worth reiterating some truths about the directories business. Yes, print revenues are declining, but directories are still a highly valuable source of leads for small, local businesses. The directory industry remains hugely profitable. It seems to us that many investors got into directories based on an oversimplified story (lots of cash, visible revenue, stable customer base). And they seem to be leaving based on similar reasoning (no one uses Yellow Pages anymore, Google has made the medium obsolete, it won’t exist in five years, and so on). While search is a growing factor in local, search cannot yet replace the volume of leads available from printed directories, and it may be some time before it can. Directories will be a major player in local media for quite some time to come.

Charles Laughlin, Senior Vice-President and Program Director at the Kelsey Group, presented this morning an interesting view of what society, media and the directory business will be like in 2020 compared to today.

Today:

• Society today: we drive to and from work in gas-powered cars. We “go” online, We “consume” media.
• Media today: mass media dominates, but user control is emerging. Media are largely priced using fixed rates, with a paradigm shift towards pay-for-performance. The Internet is still a media channel, like print, tv, or radio.
• Directory business today: competition has created “title inflation” as we see more A-Z business directory books than ever. Print represents approximately 90% of the total revenues. Print usage is still larger than the sum of online directories and local search sites.

2020:

• Society: we work wherever we are. When we drive, it’s hydrogen. We “live” online, media “surrounds” us.
• Media: vertical and segmented, 100% measured and heavily performance-based. Internet is not a channel, it is the infrastructure.
• Directory business: the number of print titles will be half of today’s number. Proliferation of specialized vertical targeted print directories, many from non-directory publishers. Print is not going away. It’s going to be more fragmented. Pricing is largely based on a multi-channel strategy, value-based, and supported by ubiquitous call measurement.

(Via the MediaPost blog and the Kelsey Group press release)

According to The Kelsey Group’s Global Directories Forecast 2007, advertising revenues from print Yellow Pages, Internet Yellow Pages and Local Search will grow from $30.6 billion in 2006 to $38.9 billion globally in 2011, representing a 4.9 percent compound annual growth rate. The forecast expects the print Yellow Pages segment of the global directories marketplace to grow from $26.5 billion in 2006 to $27.8 billion in 2011.

Charles Laughlin, senior vice president and program director, The Kelsey Report, said “Bucking the trend of some other traditional media, the global print Yellow Pages market will grow slightly through 2011, driven by aggressive and innovative publishers.” The online segment is expected to grow from $4.1 billion in 2006 to $11.1 billion globally in 2011, a 22.3 percent compound annual growth rate.

Neal Polachek, senior vice president, The Kelsey Group “Our outlook for Internet Yellow Pages and local search is supported by our annual research of small and medium-sized business advertisers… While (small and medium-sized businesses) continue to utilize traditional media, they are increasingly turning to targeted, vertical electronic media.”

Thumbnail Summary from the Report (U.S. $):

• The global print and online directory market is expected to grow from $30.6 billion in 2006 to $38.9 billion in 2011.
• Global print revenues will be $26.5 billion in 2006 compared with $27.8 billion in 2011.
• Global online revenues will grow to $11.1 billion in 2011.

In the United States:

• Internet Yellow Pages with traditional sales channels will grow at 30.7 percent (compound) through 2011.
• Internet Yellow Page revenues will grow from $624 million in 2006 to $2.3 billion in 2011.
• Local search revenues will increase from $922 million in 2006 to $2.6 billion in 2011 .

What it means: according to the Kelsey Group, the print directory business will continue to grow in the next four years. I’m not surprised. It’s still a great business. I’m obviously biased but directory publishers have tremendous assets: sales force, usually a great brand, distribution, users and advertisers. It’s a great ecosystem! If you operate in the local search space and you brand yourself as a “Yellow Pages Killer”, you’re missing out on major opportunities to partner with these guys.