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.

Found some interesting SME data in (of all places!) an article about sandwich board signs in today’s USA Today.

Small business owners have been hit hard by the economic slowdown. More than 30% of businesses with 500 or fewer employees have seen a decrease in gross sales and nearly 40% have seen a decrease in net profits in the past 12 months, according to a National Small Business Association. As a result, the NSBA says 54% of merchants will turn to new marketing strategies. Sandwich boards are among those techniques, Molly Brogan, NSBA vice president of public affairs, said.

What it means: directory publishing has traditionally been more immune to slowdowns and recessions than other media. It’s going to be interesting to hear experts at the Kelsey conference talk about this topic (I hope it comes up!). Some experts are predicting that this slowdown in the US might the first one where print publishing is really hit hard. I’m not sure it will be the case. Print is very resilient and is a core element of small business owners’ marketing strategy. I think every directional media (whether print or online) will fare better than other media in this difficult economic situation in the US (and that includes search engine marketing).

A few weeks ago, with the release of the latest revenue numbers from the Newspaper Association of America, we were treated with very Chicken Little-esque headlines including “Decline Of US Newspapers Accelerating“, “NAA Reveals Biggest Ad Revenue Plunge in More Than 50 Years “ and ”NAA to newspapers: advertise this“. 

Highlights of these articles included:

• “Total print advertising revenue in 2007 plunged 9.4% to $42 billion compared to 2006″
• “Signs that online growth rate is beginning to slow as well. Internet ad revenue in 2007 grew 18.8% to $3.2 billion compared to 2006.”
• “But an even more important reason why paper ads are declining is that their cost-to-value ratio is way out of whack with what advertisers can get elsewhere, particularly the Internet.”

One reader in Techcrunch (a former journalist) had an especially enlightening comment:

Across the board, three dynamics are pretty consistently hammering nails into the dailies’ collective coffin faster than might be occur otherwise:

* Despite talk about fundamental disruption in the business, there’s still an attitude that this is a storm to be ridden out rather than a complete sea change. Even when the folks at the top (owners, publishers) get it, there are many, many layers of upper and middle managers who don’t — and who are afraid of losing head count because that somehow diminishes their authority.

* Sales has been given increasing control of the organization. Mind you, sales are crucial — but it’s hard to find a group of folks less strategic than salespeople on commission.

* Too many lifers. When you get into key operational areas (marketing, product development, news management) you find a lot of people who’ve been in the daily news business their whole careers, which isn’t necessarily bad, but nor is it a hotbed of innovation. What’s more shocking is the number of people you run across who’ve been at the same paper for 15, 20 or 25 years.

Chris Anderson, Wired’s Editor-in-Chief, had a different take on things, one that I definitely agree with:

The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there’s still a lot of money there and what is required is strategic change, not giving up the ghost.

Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business).  Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.

What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I’ll bet some private equity firm out there is looking at the chart above and licking their chops.

With all this doom and gloom, I was pleasantly surprised when the Canadian Newspaper Association released their numbers last week.  Highlights from the Financial post and The Windsor Star:

• “Revenue at Canadian newspapers fell about one per cent last year”
• “The healthier financial picture in Canada reflects newspapers that are doing a better job maintaining their readership numbers”
• “a 30 per cent rise in online advertising revenue offsetting a two per cent drop on the print side.”
• “The ongoing challenge for newspaper companies (…) is to figure out how to use print content in digital form across various platforms such as home computers or mobile devices.”
• “The narrative about newspapers in the U.S. has been consistently negative in recent years, and that negativity has unduly influenced perceptions of the health of the newspaper industry in Canada”

What it means: as I don’t know the intricacies of both regions in the newspaper industry, it’s very difficult for me to comment on the why of those major differences.  But it’s something we also see in the directory industry, where Canada (or by proxy Yellow Pages Group) usually experiences better financial results than its US peers.  From a newspaper usage perspective, I do have one recent ”focus group of one” anecdote though.  Ever since I got my HTC Touch with a cheap unlimited data plan from Bell Mobility, I find myself reaching for the phone much more often than the printed newspaper when I have a few minutes during the day.  Radio-Canada (the French CBC) has become my default source for mobile news as they refresh their feed very often, have tons of original content and have a mobile-specific version.  If I (a self-proclaimed newspaper junkie) am reaching for the phone instead of the paper, it’s a sure sign that mobile will be next opportunity/challenge facing the newspaper industry and I think it will be the same in the directory business.

Learning about the imminent end of Polaroid instant films in this morning’s Le Devoir, I was inspired to read more about what’s going on with the company. They’ve clearly faced important disruption with the emergence of digital cameras and I wanted to see what had happened recently to one of the most innovative technology companies in US history. “Its founder, Edwin Land, held 533 patents, second only to Thomas Alva Edison in US history.” says the Boston Globe. They were the champions of the “razor and blades” model, selling cameras at low-profit margins to sell high-margin films. According to this Time Magazine article, profit margins in 1965 were already “perhaps as high as 30%”. Sounds familiar? They also were famous for their very high dividends. Sounds familiar also?

(Flickr picture by amayzun)

But the company is now, according to another Boston Globe article, “a shell of its once-great self, now owned by Petters Group Worldwide of Minnesota. There’s no research and development activity to speak of. The company primarily licenses the Polaroid name to electronics makers in Asia (…)”. There is a glimmer of light but it’s not much. In the same article, I read about Zink, a Polaroid spin-off that’s producing a cool ink-less printer for digital pictures. “As Polaroid was sliding into bankruptcy in 2001, the company was trying to figure out what to do with a printing technology it had developed that doesn’t rely on ink, but instead uses a patented type of crystal that changes color in response to heat. Paper coated with Zink’s crystals can produce full-color photos when exposed to just the right pulses of heat. The project was nearly killed as Polaroid stumbled through its bankruptcy proceedings, but Zink got a reprieve and was spun out as an independent company in 2005.”

What it means: I couldn’t find Polaroid’s specific mission statement but I’m convinced it did not talk about medium-specific products. The Zink innovation was too late to change the course of history for the company, but it serves as a great reminder to never be married to a specific product or medium. By following the “connecting buyers and sellers” mission statement, directory publishers have the opportunity to avoid Polaroid’s fate. Leveraging their sales force to sell new online products like Google Adwords or Yahoo Search products for example is a very smart way of conducting their business in an online (and fragmented) media world. I remain convinced that the smartest directory publishers will launch their own local ad networks, thereby drastically increasing their online reach. They already have all the assets, they just need to execute.

Update: regarding Polaroid’s mission statement, Cheryl (via Linkedin Answers) points me to this .pdf article. It’s “to put the latest cutting edge technology in the peoples’ hands and give them the power to use it comfortably, affordably… and in an instant.”

Many articles today in the international business press about the SEAT Pagine Gialle dividend cut announcement. Obviously, their stock has been badly hit by the news but I found three interesting insights about their future online strategy.

Reuters: “Seat will not pay a dividend this year because, it said, “in the current credit market environment, the company has adopted a financial policy devoting available financial resources to debt repayment and Internet development in Italy.”

Bloomberg: “Majocchi [Seat’s CEO] is focusing on Italy this year, a strategy shift after betting on expansion abroad to lift sales and earnings. Seat is also introducing new products such as Web-based directory services to attract clients.”

The Guardian: “Seat, which has focused on print directories and selling Internet ads as an additional product to its core products, aims to change and sell Internet ads as a stand-alone product.”

What it means: first insight, SEAT has decided it will be investing in its core market instead of internationally to expand revenues. Second, it will be investing heavily in their online products as this is where the growth is coming. Third, it will un-bundle print and online to try to maximize online revenues. With a difficult financial market and possible worldwide economic slowdown, I suspect that this emerging strategy will be replicated in many territories. Focus on core market, invest heavily in online opportunities (new products, new technology development, and acquisitions) and un-bundle the print and online will be key in the next couple of years.

As the stock market keeps punishing directory publishers’ stock worldwide, we’re starting to see more articles about “how no one uses the print Yellow Pages” anymore (see Boston.com, CNBC, or WickedLocal.com). People in the industry know it’s not true, the Yellow Pages Association (and individual publishers as well) have data to back it up but I fear we’re letting public opinion run loose with that preconceived notion.

The whole industry needs to work on this. I’m afraid we’re getting close to a perfect storm where the stock value drop is associated with usage drop permanently. As I suggested in the Kelsey Group blog yesterday, “One way to re-join the conversation would be for directory publishers to start blogging. They all have very smart CEOs and VPs, who usually have a lot to say, but we only communicate behind closed doors or in industry conferences. It’s time for the industry to get back its share of voice and I think it would help to address the media bashing that’s currently happening.”

The good news is that people are reacting. Dave Swanson, CEO of R.H. Donnelley Corp. appeared on CNBC’s Fast Money to counter the argument that “Yellow Pages are dead”. He did a great job. We need more of that.

(click here to listen to his interview)

Saturday, I was reading an article in Montreal’s La Presse regarding McDonald’s entry into specialty coffee shops and how it’s a direct attack on Starbucks. I was especially intrigued by comments from Bryant Simon, a teacher at Temple University in Philadelphia. As a history teacher, he’s interested in the social phenomenon that leads us to pay a premium to belong to the Starbucks community.

Quoted in the New York Times in 2004, he said: “Starbucks has become the corner bar of the 21st century. (…) It symbolizes the hunger for community in today’s atomized world. Starbucks has tapped into people’s desire to be with other people. It’s become a new public space where people can go to be with other people. That’s the genius of the place. That’s why I resist the demonization of Starbucks. Who else is building these community spaces in America today?”

As we know, since then, Starbucks has lost its cool factor, and many of its early enthusiasts are now drinking better coffee at local places, behaving almost like wine connoisseurs. It made me thing about my “Twitter is The New Facebook” blog post, about the reasons why innovators/early adopters are very fickle and the increasing speed at which they switch brands.

(chart found here)

I believe the introduction of social tools on the web gives early adopters access to better information than they used to have before. It’s easier to find out if your peer “tribe” is adopting new products & services. And if they are, you trust that your tribe is right, you pick up your friends and you just leave (what I call “Brand Nomadism”). Combined with low switching costs online (the next site is only a click away), it creates a situation where we see the rise of many new “next-big-thing” Web properties (Facebook, Twitter, FriendFeed, SocialThing, etc.).

I was first exposed to that phenomenon when I saw a presentation by Bill Tancer from Hitwise at the Web 2.0 Expo last year. He showed the attendees the YouTube early adopter adoption curve. In it, you clearly see that it took only 4 months for YouTube to really explode on the scene.

As for Starbucks, I think they lost a lot by standardizing their product offer through the introduction of automatic coffee machines. By becoming a “middle-of-the-road” brand, they’ve basically positioned themselves in the no-man’s land between big brands like McDonalds (or Tim Hortons) and small local coffee shops, effectively being attractive to no one in particular. I believe this innovator/early adopter curve is critical to the future success of a new venture and I think that, if you want to build a sustainable long-term business, you’ll want to remember who put you in the driver seat. Make sure there’s always a place for your first customers in your strategic plan.

A couple of news articles caught my eye last week. Mediapost reported on a TV exec seminar hosted by Havas’ Media Contacts unit. Talking about the online video revolution, Mediapost says “major TV providers are moving aggressively online–and not only to their own online destinations, but in an array of “distributed” online content options to deliver their programming directly to consumers regardless of where they are on the Web.”

In addition, TorrentFreak discussed data from Mininova (one of the largest torrent listing sites) showing that “ 50% of all people using BitTorrent at any given point in time do so to download TV-series, quite an impressive number. In total, over a billion TV-shows are downloaded every year, and this number continues to rise.”

Flickr photo by Marshall Astor

What it means: recently, all savvy media industry strategists have been talking about content atomization and clearly, in the TV industry, TV channels are being atomized by new Web technology. Whereby, in a traditional cableco world, channels used to be the basic content building blocks (think about how your cable TV subscription is structured), TV shows have become the new atomic element.

But there’s a problem.

The content is being atomized but the main TV business model (30-second ads) was built to be part of a larger element, the TV channel. Ads used to fill, i) the “empty spaces” between shows and ii) planned 3-minute interruptions during the show. In the first scenario, those empty spaces don’t really exist anymore as shows become the basic element and BitTorrent is disrupting the second scenario by offering easily accessible ad-less versions of your favorite programs.

Guess what. Someone forgot to atomize the TV business model while they were busy atomizing the content.

So, how do you atomize TV’s business model? Is it all about product placement, sponsorships, pre-roll ads? Do you move to a user-paid subscription model for individual shows? And BTW, is the future cableco the equivalent of a RSS reader for online videos?

And what does it mean for other media, newspapers for example?

In the case of newspapers, from a content point of view, news articles are the new atoms. This is the way news information travels online. But, in that situation, newspapers’ business model has been blown to bits (no pun intended). Let me explain. Like TV channels, newspapers are inserting ads in the empty spaces around news articles. These spaces don’t really exists anymore, so how do you monetize? News article sponsorships? A-la-carte article user-paid
subscriptions? This one is not easy as journalism ethics (rightfully so!) have kept news article and ads completely separated. How do you bring ads closer to the article without breaking readers’ trust?

What about radio?

For the traditional FM radio industry, individual songs are clearly the basic atom of content. But those are so easy to find online through legal (music streaming services, iTunes) or illegal means (BitTorrent again). As for their business model, radio stations insert ads around songs. Again, these slots don’t exist in an atomized world. Maybe radio stations should invest in original content or better DJs (Wired calls them robo-DJs in “Why things suck”)? Can radio stations move online as trusted brands and become real music aggregators/recommendation engines? It might be too late. So, is FM radio as we know it screwed? Maybe more than people think. That one again is not easy to solve.

And finally, directory publishers?

As for directory publishers, their business model is currently in the ranking of directory listings. But those individual listings might be the new content atoms. And if they are, it means that the ranking structure does not exist anymore. Is it now the merchants’ phone number and a pay-per-call model? Is it pay-per-click to individual merchants? Given that directory content is all about advertising, atomizing content does not impair a directory publisher from atomizing their business model but it just needs to be properly executed. I believe pay-per-call and pay-per-click to individual merchants might definitely be the way to go.

Conclusion

If you’re atomizing your content, don’t forget to atomize your business model! This blog post raises important questions about future traditional media business models. I don’t have all the answers at this point but I meant this post as a wake-up call to stimulate deeper strategic thinking in all traditional media firms.

Jake Winebaum, President, RHDi, CEO, Business.com, took the stage yesterday afternoon with a very interesting keynote address at the Kelsey ILM 07 Conference in Los Angeles. Winebaum joined RHD three months ago following the acquisition of Business.com by RHD in July and he offered his first observations on the local search market and the blessings/curses of being an incumbent publisher.

On the blessings and curses of being a media incumbent, he listed “brand”, “scale” and ”business model” as both blessings and curses with the only differentiator being strategy and execution.  RHD has a great brand with Dex but that brand does not necessarily mean local search.  Scale (especially in sales) can make you very successful but at the same time can be very bureaucratic. The yellow pages business model is an amazing one as it is an pure advertising model with great cash flow and margins but it’s tempting not to question it and protect its large margins.  He added that incumbents usually start with a defensive strategy when competitors attack and that they need to attack their own business in order to be win in the long run. He concluded that the strategy needs to be focused on offense, that it needs to take into account the needs of both advertisers AND users and finally that execution has to be efficient and crisp.

On his first observations about local search, he listed the following challenges:

• Local search is fragmented from both a user and advertiser point of view.  To compete effectively in local search, companies have to aggregate a critical mass of local queries and local advertisers to create a true performance-based ad marketplace.
• The IYP user experience is compromised by selling rules as it is built on print model and rules. It needs to become relevancy-based.  Companies that create a better match between users and sellers will create more loyal users and generate better ROI for the advertisers.

He also listed the following opportunities:

•  The yellow pages advertiser base and sales force offers unmatched market coverage and advertiser penetration.  Companies that effectively leverage their existing sales force and advertiser base will be winners in local search.
• Ad dollars follow usage. As the local search market is in its early stage of development, local usage currently exceeds local advertiser adoption. Companies that make it simple and easy for SMEs to harness the Internet efficiently and effectively will be winners.
•  Vertical user experience. Current local search user experience is generic. Companies that can aggregate deep vertical local content and create unique vertical user experiences will be winners.

What it means: again a very honest look at the local search market from one of the top executives in the US directory industry.  I had the same feeling when I listened to Scott Pomeroy at the last Kelsey conference in September.  I think Winebaum is right when he says it’s now time for clear strategy and crisp execution.

According to Keller Fay Group (via the Center for Media Research), there are 3.5 billion brand-related conversations per day in the U.S. 8% (280MM) of those are happening online. Let’s speculate for an instant. If 25% of those online conversations are local in nature, that means an impressive 70 million local conversations are happening online every day in the US in e-mails, instant messenging, blogs, forums, social networks and other online communities.

Let’s equate these conversations to local searches and compare them with ComScore “IYP” searches. According to this article from SearchEngineLand, these totaled 808MM in the US in Q1 2007. In a three-month period, 6.3 billion local conversations are potentially happening online. That’s 7 times the total “IYP” searches universe! And a whopping 35 times the total of the current leader, Yahoo!

What it means: for anyone who doubted that local search was very fragmented online, I think these numbers speak for themselves. In addition, the ability to deploy a social media strategy for anyone operating in that space is key.