Backfence Suspends Operations

The image “http://backfence.com/images/bfver2/backfence_logo.gif” cannot be displayed, because it contains errors.Backfence is shutting down it appears. Peter Krasilovsky and PaidContent report on the closure. (There’s also a message on Backfence sites.) And the American Journalism Review has a very long article on Backfence and “hyper-local” sites more generally quoting Mark Potts, one of the founders of Backfence. The conclusion of the piece is that the economics don’t work for “hyper-local” sites.

Potts told me in an email that he and the current investors are looking for additional investors, partners or buyers to enable Backfence to live on in some form. As something of a counterpoint to the post-mortems above, Yelp appears to be doing well. But, its focus and content are quite different from those of Backfence.

The business model (and specifically sales) is the fundamental challenge in local. Judy’s Book shifted its model and InsiderPages sold to IAC partly because of the Herculean effort involved in selling into the small business market. Selling ads to local businesses is extremely difficult. And scaling is difficult because all the momentum and credibility must be recreated in each expansion market, unlike nationally focused sites.

Backfence originally received $3 million in VC funding, made some dubious strategic choices (in retrospect) and simply ran out of cash. But no one should dismiss the underlying phenomenon that Backfence is a part of because it didn’t succeed financially.

User-generated content and community sites are now a permanent fixture of the Internet. Not only do people respond to user-generated content, they especially want it about local markets. But the development of local sites must be subsidized by funding or an existing advertiser base or sales channel before thinking about selling ads to SMBs. Launching a consumer site (or network of sites) and building ad sales at the same time is very difficult — perhaps impossible.

Partly for this reason, newspapers are hypothetically in the best position to execute successfully on the strategy laid out by Backfence. I’ve argued that community features are one of a few “must-haves” for newspapers and their sites going forward. Many of them already do to varying degrees. But they can add the community layer or create new sites that are more community oriented and use existing advertisers and sales channels to monetize those efforts.

There’s the perpetual question, however, about whether newspapers can execute and about their speed in doing so.

Nobody thinking about or currently operating a local consumer site – unless you’ve already done it or have tons of cash – should be building a sales force, although a sales force is what it takes to sell successfully in local. (Telephone sales channels might be something of an exception.) Site owners should think about tapping into existing ad networks or sales channels as part of broader, geotargeted Internet distribution networks.

Indeed, ad networks are the answer to the question of fragmentation in local.

Not to minimize the challenges of building a great consumer destination, but ad sales are much harder. It’s almost impossible to get SMB advertisers to “look up” and buy ads on any particular site with so many publishers coming at them. Google, Yahoo! and Microsoft face similar challenges.

Eventually, assuming a modest cost structure, there will be an ad infrastructure, now starting to emerge, that will allow for monetization of local consumer sites and will remove some of the pain that site owners currently experience on the ad sales side. For example, ad exchanges, if they truly catch on, may eventually offer even the smallest site owner the opportunity to plug-in and receive targeted ad distribution. Today, however, you must pass certain traffic thresholds to gain advertisers and ad revenue. But traffic growth typically will have to be subsidized for some time before monetization can truly kick in.

Alternatively, subscriptions may make a return. Angie’s List, for example, doesn’t have to sell that many ads because it relies on consumer memberships as its primary revenue stream. In a competitive environment of free online information it’s hard to sell subscriptions of course. But the model is worth a second look from some — provided they have something unique and compelling to sell to consumers.

What would be really valuable to others is if Backfence co-founder Mark Potts posted (as Andy Sack generously did when Judy’s Book changed its model) about mistakes and his reflections. I’ll encourage him to do so.

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15 Responses to “Backfence Suspends Operations”

  1. Mark Potts Says:

    Greg: Thank you for the offer, but so much of what happened at Backfence was unique to the company’s situation that it’s probably not beneficial to anyone to rehash it. Probably the best post mortem is Paul Farhi’s excellent story from the current issue of American Journalism Review. (http://www.ajr.org/Article.asp?id=4343). As Farhi chronicles, success in this field is extremely difficult, and despite a lot of interesting experiments and bold claims, nobody has figured out yet how to make a successful, scalable business out of hyperlocal.

    Nonetheless, there is no question that local audiences are hungry for information about the world closest to them, and that they are interested in sharing what they know and discussing it with their neighbor. There’s also no question that there’s a large pool of local advertisers interested in reaching that audience. Bringing the advertisers and audience together in a scalable form is the challenge.

    Will newspapers figure out how to do this? Will it come from an innovative startup? Will it involve social networking? Will it bring together different forms of media? Will it be driven by Yellow Pages? Or classifieds? Or ad networks? These are all valid questions, and many smart people are working to come up with answers for them. Backfence was a pioneer in this field, but the last word is nowhere near being written.

    I still believe very strongly in the potential for making a business out of user-generated hyperlocal content. Indeed, I’m currently pursuing multiple ventures in that arena as an entrepreneur and as a consultant. As with so much of the media revolution that’s happening all around us, it’s very exciting and I can’t wait to see how it plays out.
    Mark

  2. Danny Says:

    “Site owners should think about tapping into existing ad networks or sales channels as part of broader, geotargeted Internet distribution networks.”

    What are the top ad networks or sales channels for local? Can you give some names?

  3. Russ Says:

    Mark,

    Sorry to see BF making an exist from the hyperlocal space, you guys have made a great contribution to this whole evolving field.

    To follow-up on Greg’s comment on “to attract enough advertisers these sites must meet certain traffic thresholds” – it seems some of the BF sites do have sufficient traffic to justify advertisers to reach out the local audience.

    Was getting scaleable sales channels the most challenging aspect? Your insights or comments would be greatly appreciate as we are also prepare to venture into this space.

  4. evans ink » Blog Archive » rip backfence Says:

    [...] couple of insightful bloggers, Krasivolsky and Sterling, have commented on the recently announced demise of Backfence, a high profile, serious run at a [...]

  5. Backfence and Local Lessons « Screenwerk Says:

    [...] and Local Lessons Mark Potts made a brief comment on my earlier post but has declined to write a “what I’ve learned” style [...]

  6. James Says:

    Seems that IAC may have a real opportunity in creating a locally-focussed ad network. IAC has already built up a substantial local sales force as a result of CitySearch and their other local properties.

    I don’t know how much IAC is selling out CitySearch and their other local sites, but if their advertisers are demanding more inventory, creating even a small ad network with a few local sites could be a great source of revenue for them.

    If IAC doesn’t do it, someone else will. But it’s much, much easier if you already have the sales force in place.

  7. bob Says:

    digital city’s 11-year-old pioneering model of member-generated content right down to the ‘hoods of some of 300 large and small cities had modest to decent success… aol is now rolling parts of that model into its search product to deliver similar in a new form. we’ll see if it works.

  8. Perry Says:

    From what I have seen of local ad networks, the “best fit” to date seems to be what Eric Chandler is starting to create at SuperPages. It’s a fairly direct copy of AdSense, but at the “true local” level. The reach of YP is the broadest of any channel, and account & category coverage beat IAC hands down (as of today).

    Two things distinguish the new SuperPages strategy – so far – one, a willingness to be mashed up with any and all, and the related approach of shared revenue. They are related because when you adopt a shared revenue model on performance based advertising you don’t need to monitor and manage the search network performance the way paid per-search models do. (thereby giving you a distribution growth model). That’s the intent behind the strategy, I’d bet.

    Now, both of these points are “just price policies” so this can be easily duplicated by the other national YP networks. The advantage still goes to the fundamentals of the YP providers, and they are beginning to step up.

  9. Online local Monetization Challenges and Solutions - Dave Naffziger’s Blog Says:

    [...] shutdown has been well covered, however wasn’t much of a surprise. Greg Sterling sums up the business model challenges in local: The business model (and specifically sales) is the fundamental challenge in local. Judy’s [...]

  10. Goodbye Backfence « eNeighbors.com Blog Says:

    [...] might have heard — Backfence.com is shutting its doors. As expected, the industry insiders (Greg Sterling, Peter Krasilovsky, etc.) have commented most eloquently. However, Perry Evans has posted my [...]

  11. marcelo antelo Says:

    I´m already doing an hyper-local example of website (in fact since 1996) and at my experience I understand that without Google AdSense and affiliates programs there´s little room to act.

    We are at Copacabana, Rio de Janeiro. To list some, we have the competition of the big guys Yellow Pages, Google (others) and 3 local competitors (all of the 3 publish local printed newspapers).

    The local advertisers, the business owners, are so much involved with their own business and his current problems that they simple don´t have time or, even, understanding of any kind of media (including our internet) that when they think about advertisement they generally think about YellowPages or an outdoor, period.

    At this moment of my site, we have aproached the top of AdSense´s otimization, so we can´t make more money from it, without more traffic, and with it paying clicks of 1, 2, 3, 4 cents is time to change, so we starting to contact the big advertisers aproaching a list of them, mostly national advertisers.

    At the other side to the small business owners we are planning to pay a visit, give’m our card and tell them that their listing is already at the site, give then the URL and ask if they are not interested in a more visible placement. Visits one by one, on a regular basis, by bike from our own salesforce.

    This is will be the 3rd time we are trying to catch the local market, who knows this will be the right momment!

  12. Ross Notes » “nobody has figured out yet how to make a successful, scalable business out of hyperlocal”, and bootstrapping the Mclean Blogosphere Says:

    [...] company Backfence is shutting down it’s 13 community news sites in a few days. Check out the comprehensive write-up at Screenwerk, Terry Heaton has a great “lessons learned” post, and Scott Karp writes [...]

  13. earlpearl Says:

    Some time ago I inquired about buying advertising for my DC region business. In contacting the sales staff the options were limited, the price was high relative to local alternatives/reach/audience, etc. The content didn’t seem to grab a significant population.

    As a small business operator I still get dramatically more consumer interest simply by having high serps rankings.

    Local content with high rankings that can convert to high visibility in SE’s would be the optimal type of site IMHO.

    Dave

  14. Where is My Hyperlocal Welcome Wagon? » The Progress Bar Says:

    [...] founded right here in Boston, doesn’t even have Charlestown listed as a neighborhood. Backfence expired recently burning through $3 million in the process. I or nobody I asked had heard of it until [...]

  15. Hyperlocal: More Than News « Your Suspect Says:

    [...] the recent news about Backfence shutting down, there’s been an awful lot of chatter in the blogosphere about this “hyperlocal” [...]

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