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If Google can’t get local merchants to self serve, you probably can’t either December 24, 2010

Posted by jeremyliew in advertising, local.
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Local has been a category that has long attracted a lot of attention from internet startups. Not surprising given that it is a $130Bn market. Now that Groupon and Living Social (a Lightspeed portfolio company) are growing s0 fast, it is attracting even more attention from startups.

Most of these startups focus on innovating on their product, and aim to have a “sales light” approach.

Usually they start with a self service business model, expecting local businesses to go to the web to sign up for service on their own. They mostly point to Google as the evidence that self service can scale.

I’ve long been skeptical that self service works for selling products to local businesses. From my time at CitySearch in ’96 to today, I haven’t seen this work. In fact, I’d argue that ReachLocal exists as a public company solely because Google can’t get local merchants to self serve. Today, perhaps lost in the holiday shuffle, the WSJ notes that even Google has turned to a call center sales force to reach local merchants.

The Internet-search giant this year has hired several hundred sales representatives to call U.S. businesses such as spas, restaurants and hotels to promote new advertising initiatives, people familiar with the matter said. The effort includes an office in Tempe, Ariz., with around 100 sales representatives, one of these people said.

The other business model that startups attacking local hope to rely on is channel partnerships. Many startups have struck deals with local yellow pages, or newspaper groups, to sell their product too. They have typically been disappointed when sales numbers come in far short of projections. It is hard to get someone elses salesforce to know and care about your product as much as you do, especially when they are used to selling traditional media and not online media.

The winners in this category (Yelp, Groupon, Living Social, Yodle, ReachLocal, CitySearch etc) have all relied on a direct sales force, whether on the phone, or feet on the street, to drive their revenue growth.

If you want to make a business in local online media, you have to control your own destiny and build your own salesforce.

Comments»

1. Tweets that mention If Google can’t get local merchants to self serve, you probably can’t either « Lightspeed Venture Partners Blog -- Topsy.com - December 24, 2010

[…] This post was mentioned on Twitter by You Mon Tsang, Google News US, Laurence Trifon and others. Laurence Trifon said: Self-serve doesn't work for local merchants b/c it requires time that most of them don't have. http://j.mp/dNcaQN (@jeremysliew) […]

2. beauty salon - December 24, 2010

The online advert ROI is hard for local business owners to quantify, i believe many of them have fatigue syndrome.

victorcab - December 25, 2010

Agree. They hear about all the online venues to promote their business and have no idea what works and doesn’t… meanwhile they need to focus on their bottom line and not giving away the store.

3. Jonathan - December 26, 2010

Sales teams have always been important but, I think that is due to our cultural limitations, it would be interesting to see how much that changes as digital generations come through? Same old stuff coming & going around, 4 me it is the same as linguistics / exact match domain protocols, until we (at a personal level) insert the chip to allow us to process information at a much greater speed, we fall back to our limited abilities culturally & technically.
Groupon, Living Social offering teeth whitening deals or two 4 one meals is not IMO self service.

4. Myron Rosmarin - December 26, 2010

Jeremy, I’ve been contributing to an early stage mobile app called RateCred (http://ratecred.com) and I can attest to the problem of not being able to scale sales in a local market without a sales force. But we have no intention of going that route.

Instead, we believe the time will come very soon where an affiliate model for local ads will emerge. A major player with a large sales force (e.g. Google, Groupon, LivingSocial, etc) will offer self-serve access to apps to distribute their ads. Local apps such as ours can simply bridge the gap between consumers who are checking in and rating establishments and the advertisers who want to connect with those consumers.

The benefit of such a model is that it would simplify things for the advertiser (buy ad space once ala Google AdWords/AdSense), expand the distribution of the ad network beyond just one site or app and provide a significant revenue opportunity for local apps that’s off limits to them today. A no-brainer IMHO – the pieces just need to get wired up.

5. Terry Matchett - December 28, 2010

One on one sales, relationships and service is as important today as 10 years ago, Hand holding is a must if you are going to succeed in this space.

6. Mike Hogan - December 28, 2010

No question, local businesses need hand holding. However, there are ways to automate the process so that the local business is merely selecting from a few auto-customized options instead of having to build their own advertising. If you can give them something and say “this worked for others and I tailored it for you” that assuages much of their concern, versus, “start with a blank form and create something you hope will work”. This was the insight we had at ZiXXo and we built IP around this. Unfortunately, we had a tough time convincing people that coupons were a big opportunity back then, until Microsoft saw the value and acquired the company. Ironically, a major local internet company now battling Groupon swore that his customers would never use online coupons, and a prominent VC told me that Google would crush us if there even was a market for coupons and the fact that they weren’t doing coupons indicated that there was no market.

Now I have a company doing an elastic SQL database for the cloud and I’m hearing similar BS. Oracle will crush you. If elastic SQL in the cloud was a big deal Amazon would already have one. Or my favorite, NoSQL will own the cloud. To quote former president Reagan: “Well, there you go again.”

7. BTS - December 28, 2010

Jeremy

When I talk about the successful 50 ex CitySearch people I talked to when I was creating MerchantCircle, you are one of them.

Dealing with this issue is one thing I often see local startups deny. We didn’t deny the issue and just decided it was the core issue and focused on finding answers to it.

As you know we have built a high margin, no sales cost and high growth business with what will soon be 2MM merchants with this focus…but your piece is still right on the issues. You have to own traffic or consumers and you have to own merchant relationships to make the local business work at scale.


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