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Opportunity knocks: Yellow Pages move online

A number of industries are undergoing a kind of dislocation as the internet becomes a dominant medium for finding information and entertainment. One of those industries is the yellow pages industry. It is currently a $26BN global industry; $14BN in the US. The Kelsey Group projects that the portion of that market that is online will shift from 18% in 2008 to 34% by 2013 (http://www.kelseygroup.com/services/GYP2009-FACT-SHEET.pdf). That is a shift of a little over $2BN in the US and a little over $4BN overseas. Frankly I am surprised that the shift is predicted to be that slow. I guess the inrtia of established business models and marketing practises is hard to overcome, even in the face of consumer adoption of other media.

As with every dislocation, this shift from an offline printed product to an online service creates many opportunities for entrepreneurs. The opportunity arrises from that fact that the offline product does not easily translate into a similar experience with the online service. In the online world, people are used to going to a search box and typing a keyword.

Try finding a plumber in Washington, DC on Google. I tried it for fun. The organic search results started with a list of businesses that were plotted on a map. I clicked on “more results”. I was taken to a list of results within Google Maps. There were 11,326 results. How were they ranked? Not alphabetically (no advantage for a plumber naming his company AAA plumbing). Also none had any spiffy pictures that stood out to capture my attention (no such thing as a full page ad). And I am not likely to go through several pages of results to try to find the one I want. Some weren’t even plumbing companies but were instead bathroom fixtures companies.

What was the common denominator of all the ones listed first? They all had websites. That’s right. Small local companies, even ones without a physical retail presence now need to have websites; they need to know how to market themselves through search engines, i.e. how to get clicks and convert them to customers. Where are the good old days when a small business could just think about this once a year, place their order for a quarter page listing, pay their $1,000, and go back to business? Who is going to help them figure out this new world of Search Engine Optimization or Search Engine Marketing? You get the picture.

I don’t think a general search engine platform like Google offers the best platform for users to get the local information we need. That’s where incumbent yellow page companies come in to try to fill in the gap. The early attempts were little more than a relisting of the business information in an online directory that the local salesperson could upsell along with the usual print subscription. They are now getting smarter by adding interactive elements like clickable information or video that help the user make a more informed decision. Are they likely to win? The jury is still out. Many of these companies were the offshoots of telecom service providers that are not known for innovation, especially in a totally new medium. They have one tremendous advantage, however: feet on the street. It is hard to reach hundreds of thousands of businesses, except for yellow page companies who have the salespeople that can do that.

So where can entrepreneurs try to build a business in this world where shifting dollars are being competed for by large incumbents from the offline world with the large established internet search and portal players: Here are a few areas:

1. Sell tools to the incumbents. Yellow page companies cannot innovate themselves to stay ahead of Google. They are likely to partner with other services to offer customers a better value proposition online as well as a better user experience. Business model here could likely be revenue sharing which provides a nice platform to scale a business quickly. The problem is that that a business is dependent on the yellow pages sales force to sell the new services to small businesses.

2. Sell a marketing service to the small businesses. In essence become their online marketing partner. They can’t market online effectively. But there is ample expertise in the online world. If that expertise can be packaged and sold effectively to the small business world, one can build a higher margin business by being the intermediary that handholds small businesses in the online world. ServiceMagic (IAC) started out with this model as a leads service and Yoddle is trying to take it to the next level with a comprehensive service.

3. Build a better directory: Start with a clean sheet and think through what a great local directory should look like online. Yext is trying this.

4. Harness the crowds for better content: Yelp and Angie’s List are trying this. Angie’s list is a subscription service that is aggregating consumer opinions and reselling them to consumers on the assumption that they are more honest platforms for making purchase decisions. Yelp is trying to same but uses an advertising model.

5. Focus on a vertical: Create a deep application that address issues inherent to a specific vertical. OpenTable helps consumers make restaurant reservations and helps restaurants manage those reservations. Zerve does something similar for tour operators.

6. Invest a new model around a consumer need: The list here could be unlimited. For example, companies like Milo or Krillion are trying to help consumers find local stores that have specific products in stock.

I am sure entrepreneurs will come with other creative ideas to address this market. In summary, this is a fertile area for innovation.