Fundamental Questions about Local

This time I will be at the Kelsey Group show, which starts tomorrow. I’ll be there on Tuesday and Wednesday (speaking as a “big thinker” on the final panel). There are lots of great speakers; it’s a veritable who’s who of local. Kudos to Peter Krasilovsky for programming a terrific-looking show.

The most controversial issue, which isn’t formally on the agenda, is: who’s going to make any money here? Consumer demand for local information can’t be questioned at this point, as well as the desire of SMBs and national marketers to reach local audiences online. But the economics and fragmentation of local makes the prospect of generating offline-like dollars less likely. This is a version of a point that Hearst’s Lincoln Millstein made two years ago at a similar Kelsey Group show.

Here’s a relevant article that ran in the NY Times on Saturday. It’s not about local but it has implications for publishers in the local space:

LET’S say you wanted to build an advertising-supported online media business that took in $50 million a year in revenue. How many users would you have to attract to get there?

Probably too many for most people to even try, if the numbers run by Jeremy Liew, a venture capitalist at Lightspeed Venture Partners, are accurate. On his blog (lsvp.wordpress.com), Mr. Liew determined that even the type of site that can get the largest advertiser payments per user would have to be immensely popular before it made that kind of money.

Google, Yahoo! and a small handful of others are making real money online. But for some publishers, such as yellow pages and newspapers, that online money is a fraction (between 6% and 8%) of traditional revenues. Yet the historical consumers (and in many cases advertisers) of those media are disbursing across the Internet. And it’s getting harder and harder to corral them — or, as I like to say, “Put Humpty Dumpty back together again online.”

There’s a much longer post trying to get out right now. But it’s 12:30 a.m. so I won’t let it.

Let’s just say that it’s very challenging for people to build profitable businesses in local (unless you’re two guys and a dog in a garage). Of course I’m joking but there are some serious fundamental questions here about who is going to make any real money in local and whether it’s even possible (depends on your aspirations).

Eventually some of the big media companies, online incumbents and traditional publishers are likely to. But much of the money in the near term may be from “liquidity events,” as many of the startups (“feature factories”) are acquired by the incumbents’ and traditional media players’ M&A groups.

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Related: PaidContent echoes this with a short discussion of magazine and newspaper publishers’ struggles to make their sites more profitable.

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5 Responses to “Fundamental Questions about Local”

  1. howardowens.com: media blog » Blog Archive » To bridge the revenue gap, grow audience Says:

    [...] Greg Sterling, my panel mate at Kelsey on Wednesday, as a related post. Share and Enjoy:These icons link to social bookmarking sites where readers can share and discover [...]

  2. links for 2007-03-21 « David Black Says:

    [...] Fundamental Questions about Local « Screenwerk “the economics and fragmentation of local makes the prospect of generating offline-like dollars less likely” (tags: internet newspapers business revenue advertising trends) [...]

  3. Theo Tonca Says:

    Nice post Greg! I’m enthralled by the whole opportunity of local. But as you expressed there is a lot of hype at the moment without much substance, i’m currently working on changing that. (yes i’m one of two guys in a garage, but no dog) :)

  4. Ted Feely Says:

    As one who’s taken 2 shots at making “local” work, I must agree with you. My first effort – LocalReady.com – was designed to help “local” businesses get a web presence.

    My next effort was AllSunnyvale.com. A local portal which I thought I could do differently. You know. Not one of those ghost towns that are strewn across the Internet. I imagined a lively place with coupons for local businesses, local interest groups, etc. Sorry to say I was as unsuccessful with it as the hundreds of similar web sites that preceded it and will probably follow it.

    I always knew that the key was to get enough local traffic that it made local advertising worth while, but understanding this and being able to economically generate the traffic were two different things.

    My core business – Feely-Associates.com – gets business locally via the Internet. So, in that sense “local” is not a bust, but otherwise it’s been a financial and time sink. Not worth the effort for even one guy and a dog.

    Thanks for your article.

  5. Alan Hecht Says:

    You make some very good points Greg. The exception, however obvious,
    is that to be successful with local you need to have locally generated content that visitors can relate to. I find it strange that, with the occassional exception of some of the online verticals published by local newspapers, other local media (radio stations in particular) don’t really get it and aren’t taking advantage of the tremendous value added and potential incremental revenue opportunities available to them if they did.

    Thank you for getting this going.

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