jump to navigation

Comments on Insider Pages sale to CitySearch March 1, 2007

Posted by jeremyliew in advertising, Consumer internet, Internet, local, user generated content, web 2.0.
trackback

There is lots of coverage today of the acquisition of Insider Pages by CitySearch. My first job in the internet industry was at CitySearch, in 1996, and some of the lessons I learned about how difficult it can be to build an online local media company have been seared into my brain.

In 1999 CitySearch bought Microsoft’s struggling Sidewalk cityguide business so this is not the first time that it has acquired a competitor. CitySearch is the dominant online cityguide business today, but it hasn’t all been beer and skittles along the way. Although quite profitable now, some have quoted that over $200m was invested into CitySearch before it ever turned cash flow positive.

There are two reasons that the online cityguide business is difficult.

The first is that the cost of building fresh, high quality local content is quite high, especially if it is done by professional editors. The new generation of online cityguides (Yelp, Insider Pages, Judy’s Book as well as CitySearch itself, Google, Yahoo and Ask, have all been addressing this problem by turning to user generated content over the last couple of years. While some models (Yelp in particular through its use of social networking incentive mechanisms) seem to be better tuned for producing high quality user reviews at volume and at low cost, this problem seems to be solvable.

The second problem is the cost of sales problem. This is a harder problem. An outside sales force tends to be too expensive a channel to use to sell online local advertising given average price points and churn rates. (It can work for high end advertisers, and for cross selling to local advertisers who already advertise in another medium).

The self service model that works so well in search advertising is harder to implement in local advertising. Unlike in search, there is often no clear link between advertising and transaction in the local space. Despite your best efforts of tracking, the vast majority of local offline transactions can’t be tracked back to a marketing source (whether online or offline). This makes self service CPC models difficult to implement for local merchants. (There has been some innovation on cost per call models and lead gen models in this space). Furthermore, many local merchants don’t have the time, nor the inclination, to actively manage their marketing budget. They prefer a predictable flat monthly fee. This also works against the mindset of many self service models.

This leaves inside sales (telemarketing). Most local online companies have settled on this model. The key challenge in local ad sales is always “getting to the decision maker”. The owner of a local business is often very busy, and talking to sales people on the phone is not high on their list of priorities. This is a viable sales channel, but it isn’t easy. Companies that have an advantage in their ability to get to the decision maker will find the most success in selling to local merchants. This is not about the value proposition of variable costs vs. fixed costs – you need to get to the decision maker to even be able to make that distinction! As this problem hasn’t changed much in the past 10 years, this isn’t about better sales training or tactics, but usually requires some fundamental shift in the marketing/sales message.

Insider Pages has healthy consumer traffic (2m UU/mth according to Comscore), a strong management team and reasonable review density across the verticals that it focused on (mostly services). Although I have no Insider Pages Insider Information, I suspect that it ran into trouble on the cost of sales problem. CitySearch can likely help with this issue given its scale and experience in the space.

Comments»

1. J. Glerum - March 1, 2007

Jeremy…great post. Does selling within distinct local areas ever get to a tipping point?

As a new online company selling services to local businesses, I’ve found it to be very true that the biggest hurdle in selling our sevices is just getting in front of the decision maker. It is relatively easy after that (luckily), but getting that face time is quite an effort!

I am wondering what your experience is in selling within a distinct geographical region. Specifically, did you ever get to the point where you saw a herd mentality of decision makers actually coming to you (hopefully via the web) after realizing that 5, 10, all of their competitors were buying your services? I’d be interested in hearing about it. Thanks!

2. Leigh - March 1, 2007

Interesting read. We’re grappling with those same issues.

3. KevinL. - March 1, 2007

Check out MerchantCircle who is on the other side of the board. Aggregating reviews for BUSINESS OWNERS not consumers, so that businesses have a chance to fend for themselves on the internet. Over 90,000 businesses have signed on in just over 8 months. And there is NO feet on the street sales force.

4. jeremyliew - March 2, 2007

J. Glerum – this can happen in certain geographies, but it takes quite a while. But you’ve put your finger on an important issue – this is a multi-local business, not a national one.

KevinL – I’m only somewhat familiar with Merchant Circle. Is that 90k paying customers, or sign ups for the free product? If it was paying customers, then that is a VERY impressive sign up rate!

5. joe suh - March 2, 2007

Great post. Perhaps the web 2.0 model of giving away a free service and winning the eyeball war is not yet mature enough for the local business. Telemarketing certainly doesn’t scale like a self-service algorithm neatly does. This seems like a long tail problem with a short-reach solution.

And now that I think about it, why would a local business want to advertise where all of its competition also has a presence? Especially if my competitor has better user-generated reviews than I do. In the old days, I can just win with money: my yellow pages ad will be the biggest in the restaurant section!

But perhaps there is a “herd mentality” in this space that I’m missing due to lack of experience in local media…

6. Ben - March 2, 2007

Jeremy

We have not cracked the complete process for acquiring paying merchants, but we are excited about our Merchant focused approach. We actually spent some time talking with people around the whole industry as we put the idea together, and came to a simple conclusion. The cost of sales for local merchants was the fundamental issue. There is alot of great local inventory and it grows all the time. The innovation in this local inventory ranges from Quigo to Jingle from Google to InsiderPages. So we decided to focus on one thing, the costs of sales issue.

We don’t have the answer, but since Kevin posted above we are heading to 92K merchants, by allowing merchants an easy way to come onto the web, express themselves, manage how they loook across the web—and use the web to grow local customers.

7. Smart Web Blog - March 2, 2007

Local Search Puzzle

Today’s announcement on Insider Pages acquisition by IAC is another interesting development in the local search market space. This article by Jeremy over at Lightspeed analyzes market dynamics pretty well. Here are some things to consider, The average…

8. joe - March 2, 2007

Very thorough article, Jeremy. Lots of history and background there. A lot of those issues are ones we’re familiar with too (thankfully, we have a bunch of very smart people). Keep up the good work!

9. Forget birdwatching - welcome to commentwatching - Tech Soapbox - March 6, 2007

[…] about another 20, and almost every single one had a comment by Kevin L. You can see his job here, here, here, here, and so forth. It consisted of him saying how no one cares about the business-owners […]

10. ventureblogalist - March 13, 2007

cross-selling is the answer here. check out voicestar’s new exchange. leveraging salesforce of newspapers too. there are companies that are aggregating marketing channel for smb that would also be good channels.

11. USA! USA! USA! We're number one! « Lightspeed Venture Partners Blog - May 18, 2007

[…] Can any readers provide some counter examples of US based companies which deliberately targeted an international market before attacking the US? (Friendster’s South East Asian bias, Orkut’s Brazilian bias and Hi5’s Indian bias don’t count since they were not deliberate). if so, please comment. […]

12. Social media meets the desktop « Lightspeed Venture Partners Blog - May 30, 2007

[…] be interested to hear from readers about other desktop apps that are taking a social […]

13. Debra - July 9, 2007

Hey

Check this ouT

14. How to do a layoff « Lightspeed Venture Partners Blog - January 26, 2009

[…] What other advice do readers have? […]

15. 健康网 - December 20, 2009

^_^··哈哈··支持捏!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 27 other followers

%d bloggers like this: