The Local Search Follies

It's officially a gold rush, with everyone now stampeding to mine the allegedly huge dollars to be found in the local search market. Let's not be bothered with whether or not what's being sold is what the market needs -- that would spoil all the fun.

Google and Yahoo now have beta versions of their answers to local search open for inspection. My quick review: they're better than I would have expected, but a long way from what's needed. AskJeeves has partnered with CitySearch so that its local restaurant and nightclub listings will appear prominently in applicable search results. In the yellow pages area, FindWhat has announced that Canada' s Yellow Pages Group will be grafting FindWhat pay per click auction technology onto its site, perhaps more evidence of a mini-trend in this area. Every other yellow pages publisher is out with their own local search initiatives, all fervently hoping that local retailers will deliver the online riches that have eluded them to date.

As Janice McCallum of Shore Communications points out, local newspapers are the group best positioned to benefit from local search, but they continue to sit around as more nimble competitors rip the guts out of their businesses. Just as newspapers saw their classified advertising business decimated, local search may ultimately start to cut into newspaper display advertising, which might finally spur them into some sort of coherent reaction. Newspapers have always jealously watched the yellow page business. Indeed, most major newspapers have at one time or another owned yellow pages publishing companies, only to divest them after concluding they just didn't "get" the directory business. Now with the Internet, there actually would be some great synergies between newspapers and yellow pages, but newspapers still feel burned by their earlier yellow pages experiences.

So who's going to win in the local search game? Here are my predictions:

I agree with Janice McCallum that newspapers are the best positioned to be the winners in local search, but they've got to overcome their own inertia, previous bad experiences with directory publishing, fighting a multi-front war over their classified advertising, and the surprising continued strength of the print yellow pages business, which limits their openings. I just don't see newspapers pulling it off, especially since they need to overcome the biggest obstacle of them all: themselves.

As to the big search engines, I personally believe the cracks are starting to show as they push to be all things to all people. The future of search -- yes you heard it here first -- is two-tier searching, where the big general search engines hand off certain types of searches to specialist search engines/directories/yellow pages.

Local yellow pages publishers have always dreamt of being national yellow pages publishers. The Web let them indulge that dream, and indulge they did. Of course, while these publishers raced to build out national content, they never built out their regional sales forces. Is it any surprise they aren't drowning in ads? For several years, I've been urging yellow pages publishers to play to their local strengths. I'm currently estimating it will take 2-4 years for them to get up enough courage to try, and then they'll be contenders.

Long-shot possibilities? Think about Comcast, or even AOL, both of whom have unique capabilities to target content geographically, and a still significant "home page advantage." Stretch your imagination a little further and you might come up with InterActive Corporation, a powerhouse in local listings with holdings such as Citysearch, TripAdvisor, Evite, ServiceMaster, but seemingly more interested (for now) in the rich transaction revenues generated by its Ticketmaster, Hotels.com and Expedia units.

Bottom line: local search will happen, and it will be big, but it's going to be a big, sloppy, crazy competitive mess for 2-4 years before yellow pages publishers realize they should focus on selling ads where they actually have salesforces. Then we'll have our winner.

Second-Tier Is Not Second-Rate

I want to elaborate on last week's message that we are moving towards two-tier searching, with general search engines "handing off" searches to more specialized search engines and databases.

This prediction is based on my belief that general search engines are not and never can be the single best way to access all information. That's especially true when you don't have access to all information anyway, and the information you do have is highly inconsistent in structure, depth and currency. Layer on top of that the technological limits on full-text searching, and you can start to see why I say this. Interestingly, the hot new search engine start-up of the week, Kozoru, reportedly raised $3 million in venture capital based on the concept of introducing taxonomies into search. This says to me that others are seeing the limits of keyword searching.

The opportunity in second-tier search is to take a specific subject area and cover it deeper and better than a general search engine ever could. This could be expressed as a vertical search engine (take a look at GlobalSpec), a vertical buying guide (look at Hanley-Wood's ebuild.com or Martindale-Hubbell's lawyers.com) or a vertical portal (look at West's findlaw.com). The commonality in all three of these sites is a tight vertical coverage area, proprietary content (if only because the content is stored in such a way that it's invisible to the major search engines), and lots of structure to speed searching and provide precise and consistently presented results.

I suggest that the major search engines will increasingly "hand off" searches to second-tier information sources. That's not to imply that these hand-offs will be free. I suspect second-tier information sources will assume that role through aggressive and expensive pay-per-click programs, and we're already seeing some very expensive exclusivity deals between search engines and specialty buying guides.

This game will get more expensive and competitive before it's over, and the rules of engagement are likely to change over time. Indeed, the general search engines may choose not to explicitly acknowledge that they can't be all things to all people, but this evolution will be hard to stop, because it's logical, natural and the revenue the general search engine might be forgoing is revenue that might never have been theirs anyway.

Is what I am describing the same as what is now being called "vertical search"? Yes and no. Two-tier search includes buying guides and directories, whereas vertical search generally refers to vertical versions of Google. Further, the word "vertical" still sends shivers down many spines, due to such things as vertical portals (ahead of their time) and VerticalNet (out of their minds). Two-tier searching is here already and working quite nicely. What's evolving is the relationship between these specialty search resources and the big general search engines. The better that relationship, the better the prospects for the second-tier search engine.

Search Local, Shop Local

In posts past, I've dissed the newspaper industry for not harnessing the Web to build local buying guides and shopping sites, given what I see are built-in advantages to dominate local search. That's why it was with great anticipation that I went to take a look at ShopLocal.com, the newly announced local shopping site from CrossMedia Services, a company jointly owned by newspaper giants Gannett, Knight-Ridder, and Tribune Company.

Rather than a series of local micro-sites, the newspaper giants are thinking big and have built a national site to drive local shopping. But you quickly get to local offers by entering your city name or zip code on the opening screen. Any indications that the site was affiliated with my local newspaper were conspicuously absent, and there wasn't much in the way of explanatory text to position the site to users or even describe its contents and purpose.

I entered a zip code for Philadelphia and got a search results page split into three sections: categories, stores and brands. The category section of the screen gave me a list of yellow pages-like headings from which I could search. The stores section of the screen lists local stores (currently all national chains, buy hey, they're just getting started), and the brands section showed me a list of national brands. For fun, I clicked on "outdoor playsets," and found three offers: CVS offering not playsets, but rather a storewide discount, and two offers from Home Depot for playsets. Under each item was the option to "add to list," which creates a printable list that consumers can take shopping with them to remember what to buy. Under one Home Depot item was the option to "buy online," which didn't sound much like local shopping to me. I clicked on it and found that I could indeed order my playset online. Why do I already feel that ShopLocal may be missing the point?

The other thing I quickly learned about ShopLocal is that it is focused on special offers. Click on a category and you'll be presented with an eclectic list of whatever the various merchants in the category happen to be featuring at that moment -- sort of a giant electronic yard sale. Maybe you want these things, maybe you don't. The classification taxonomy appears to be a work in progress. Under the general heading of "automotive accessories" were only four sub-categories, one highly specific one for "power inverters," two much more general ones and one for "miscellaneous." It's not fatal, but if the site grows, this could quickly become a mess. What's really surprising is that the site doesn't allow users to print coupons to build involvement and help retailers track response -- it merely generates a simple shopping list.

One thing I liked about ShopLocal is that you can attach your email address to any store, brand or category and receive weekly emails with current specials. That's smart marketing, pushing special offers to targeted consumers, but in a way, the power of this feature really makes the rest of the site seem unnecessary.

What I saw with ShopLocal was a national site, utterly devoid of local personality and in no way leveraging or complementing the local paper. The fact that ShopLocal had no local merchants (at least in Philadelphia) I will attribute to its recent launch. However, this is a trap that's befallen other putative local shopping sites --- bringing on true local merchants is a pain compared to selling the big national chains, so guess what: they don't. So ShopLocal's commitment to local shopping will need to be proven over the next few months.

The press release for ShopLocal notes that its mission is to marry online research to offline shopping, making its many convenient links to online ordering a bit mysterious. The press releases also positions ShopLocal as saving the consumer from having to go to numerous different Web sites to find the best deals. But since ShopLocal only lists sale items, it will be a very long time before it has enough mass to present a real comparative shopping experience to consumers.

Another failed online venture by the newspaper industry? Perhaps not. The most interesting thing about the launch of ShopLocal was the sentence in the press release stating "...in the coming months, we expect to announce additional network partners such as portals, online directories, and other newspaper publishers." Will ShopLocal soon be sporting local yellow pages listings? Maybe the newspapers do get it after all.

Contextual Advertising: Fear Today, Great Tomorrow

There's lots of room to disagree when it comes to contextual advertising -- and that's what make the decision on whether or not to participate in programs such as Google AdSense so challenging for publishers right now. What I'm seeing in the market are the first steps towards refining and improving the whole concept, and that, as with all things Internet, will mean even more confusion before we get to anything approaching clarity.

One company that's getting some buzz right now is Quigo. By mixing technology with a new model that combines contextual ad placement with categories such as travel, it claims it is creating an even higher level of relevancy. The underlying logic seems good. For example, if you are a cruise ship operator, do you want your ad on a recipe site where there is mention of a recipe found during someone's travels to Spain , or a travel site talking about all the wonderful things one can do if one travels to Spain? Neither site is a bad place to advertise, but from a clickthrough perspective, the cruise ship company is likely to do better on the travel site.

Some theorists are going further, suggesting that advertisers could place their ads at a central location, and publishers would select what ads to place on their sites. Presumably, they would select the ads most relevant to their audiences in order to maximize clickthroughs, and thus their own revenue. A nice side benefit is that publishers would have complete control over what appears on their sites.

That's an interesting peek into the future, but what about today? My contention is that publishers can't come out winners in the current game of contextual advertising. Here's my reasoning, excerpted from my June speech at the Canadian Business Press annual conference:

Some of us are already engaged in a form of self-abuse by allowing contextual advertising on our sites. The rationale for a publisher to accept advertising from a search engine is simple and seductive: some money from advertisers you'd never sell anyway is better than no money. Some publishers are already reporting nice monthly checks rolling in -- with no work at all. What's not to like? After all, aren't you the clever one for turning the search engines into ad sales reps for you?

Yet what would you say if an independent sales rep came to you and made this proposition:

I want you to give me space in your publication, and by the way, I'm looking for good positions, maybe even your home page

I'll sell ads into that space, and keep the lion's share of the revenue

I won't specifically chase your advertisers, but if they should come to me, tough on you

I'll sell using a whole different pricing approach than you use, which may turn out to be a cheaper rate than you offer your advertisers

I'll essentially be the judge of who advertises what on your site, without regard to your brand or your market position

I'll be building a huge syndicate, so you'll always need me more than I need you

I will be telling the advertising community, day in and day out, that my approach to advertising is far superior to yours

How long would that rep be in your office? Probably just long enough for you to stop laughing. Yet when Google talks, we listen.

Contextual advertising may in fact be clever and beneficial if most of your revenue doesn't come from advertising. But if you generate the bulk of your revenue from advertising, you need to be afraid -- very afraid -- of contextual advertising. Let's go back to that rationale I mentioned earlier: you're getting some money from advertisers you'd never sell anyway. Actually, that was the rationale for going with some of the old syndicated advertising services like DoubleClick. They sold massive traffic in broad categories to marketers of broad-appeal consumer products. That is indeed free money for any specialized publication. But if you publish a magazine for, say, the machine tool industry, and a contextual ad appears on your site based on the keywords "NC simulation," that's your advertiser -- or it should be -- meaning the search engine supplying that ad is competing with you and you're helping them do it. Let me say it another way: by definition and design, contextual advertising is competitive with your own advertising sales efforts.

The future of contextual advertising might be a lot friendlier to publishers, but for now, fear and loathing appear to be the correct response.

Why Newspapers and Directories Don’t Mix

Just weeks after noting the newspaper industry's on-again off-again love affair with yellow pages, I see an announcement by Hearst that it's acquiring White Directories, one of the nation’s largest independent yellow pages publishers, and that White will become part of the Hearst newspaper group.

Is this a case of another newspaper publisher getting an expensive and painful lesson that local ad sales expertise and local directory ad sales expertise are not synonymous? Perhaps not. I spent some time flipping between a list of markets served by White and markets served by the Hearst newspapers, and found very little overlap. What we probably have here is Hearst making an investment in a growing and dependable stream of profits, just like the bevy of private equity funds that have discovered the yellow pages industry over the past few years.

So why don’t newspapers and directories mix?

The primary problem is that directory salespeople aren’t like other salespeople, and I offer that observation as high praise. There was a time when it was widely believed that yellow pages salespeople, particularly those with the benefit of Donnelley sales training, were among the best salespeople in the media business. But that’s not the same as saying they could sell any medium equally well. Directory salespeople are indeed a breed apart, and the general experience to date is that they don’t do well selling other forms of media. It's not for lack of yellow pages publishers trying to make it so. Part of this is a natural salesperson’s tendency to focus on what they know best and are making money at today.

But the larger issue is that the directory sale is almost totally opposite to the sale of most other media. With yellow pages you sell retention, discovery, saturation distribution and response. Add in an annual frequency and rates so high they have to be expressed in terms of the monthly cost, and you can easily see the challenge. Yellow pages salespeople can't sell newspaper ads, and newspaper people can't sell yellow pages ads. That’s why the potential sales synergy that looks good on paper has never worked in reality.

Consider too the cultural divide. Newspapers provide important news and have a strong and proud journalistic tradition. They sell subscriptions and they sell advertising. Yellow pages sell advertising and give their publications away. In the yellow pages business, the advertising is the content. That’s simple to say, but hard to absorb, particularly if you grew up in the newspaper business. Add into the mix that yellow pages and newspapers have different pre-press needs, are manufactured differently and distributed differently, and you knock out loads more potential synergy.

Finally, there is the "grass is greener" issue. When newspapers look enviously at yellow pages, they look at the market leaders, the Verizons of the world. But when they finally take the plunge and buy yellow pages, they buy independents, the scrappy competitors, the "we try harder" publishers. Nothing wrong with that, as these independents can be both large and profitable. But what it does mean is even more emphasis on advertising sales in a highly competitive, take no prisoners environment. That can be a real eye-opener for newspapers, many of which operate with effectively no competition.

Does yellow pages make great media investment vehicles? Yes. Should they be acquired by newspapers to build "a highly synergistic, integrated local media advertising platform" (I just made this up, but doesn't it sound so ... plausible?). No.