Circling Back to RHD-LocalLaunch

The image “” cannot be displayed, because it contains errors.Donna Bogatin posts about Google VP of sales Sheryl Sandberg’s comments to investors in New York on the local opportunity and Google’s interest in it. Putting aside the numbers cited by Sandberg (50% of small businesses don’t even have a website, etc, etc), it’s an indication of Google’s ongoing focus on the local market and the fact that it will continue to develop products and opportunities for small businesses.

That of course begs the immediate and familiar question about how effective you can be locally (with SMEs) without a sales channel. Many in the YP industry believe the channel is everything and that self provisioning (e.g., AdWords, Yahoo! Search Marketing, MSN adCenter) will never attract real numbers of local advertisers. I don’t entirely agree.

I’m going to go out on a limb here, but my view is that in five or so years we’ll see 10% of small business online advertisers doing some form of self provisioning. The traditional channel is a critical asset today, and perhaps in the medium term, but over time it becomes less critical, especially as the products become simpler to adopt and use and a new generation of business owners comes online. But this gets into a long discussion of particulars that are complex. (I’ll “go there” another time.)

Enter the yellow pages sales force and search marketing. This is where I circle back to yesterday’s announcement that RH Donnelley (RHD) acquired LocalLaunch. This “simplified search engine marketing” model (or some version of it), which I first wrote about at The Kelsey Group in October, 2004, is the way that SMEs will gain a marketing presence on the Internet in the near term and maybe for the long-term foreseeable future.

RHD, preceded by SuperPages and YellowBook, has done a smart thing in bringing this sophisticated marketing capability in house. It would have been extremely difficult for RHD to develop a comparable technology platform and competency on its own.

This extended marketing capability – driving off-directory leads to local businesses – is going to be a required core competency of directory publishers and newspapers (soon). Traditional local media controlled their respective markets by owning the entire value chain: sales, content creation and distribution. At the risk of repeating myself, that “monopoly” is done online. But many newspapers, for example, haven’t awakened fully to the implications of that.

RHD’s online properties can only generate so much traffic and thus only so much revenue on their own today. As a crude proposition, more traffic equals more revenue. The major engines and portals have massive scale and so are making money hand over fist on advertising, on a per-unit basis – at least in the search context – that costs much less in real dollar terms than traditional media. In the CPM world things are a bit different, but scale/traffic still matter hugely.

Like all IYPs, RHD will seek to build out its destination properties to be competitive with Google, Yahoo! and so on, while using LocalLaunch to sell into Google and Yahoo! distribution and extend the YP value proposition for the local advertiser. This is the exact same model that the newspapers are in the process of considering or testing: destination + third party distribution.

LocalLaunch is one of the top firms in this “local SEM” segment. Justin Sanger and Co. really seem to know how to cost-effectively aggregate traffic (SEM, SEO, Calls) and so RHD is very smart to pick them up. Everyone keeps asking me how much the deal was worth – I don’t know. I could guess a range but it would be “seat of the pants” speculation.

More interesting but little explored in all the immediate coverage is how LocalLaunch’s technology platform also potentially openc the door to many other intriguing possibilities for RHD. Since LocalLaunch can drive traffic effectively (and now more cost-effectively for RHD) the YP publisher can consider building a range of non-YP sites (e.g., verticals) that may be sold at a premium to local and even national advertisers. There are a range of interesting pathways the company could go down. Thus I think the strategic implications of this for RHD are larger than most industry observers and the media realize.

As I said yesterday, AT&T remains now the only major YP publisher that doesn’t literally “own” this SEO/SEM capability. It has been working with Marchex to drive traffic and leads but buying Marchex (even though that would bring a range of additional assets) seems unlikely. The latter’s market cap is $600 million. There are other firms out there that offer the capacity to drive traffic (SEM or SEM+SEO) that would cost less for AT&T to acquire.

Other independent firms are:

LocalLaunch will continue to operate as a separate entity from the perspective of the marketplace and hopes to compete for other YP and non-YP business going forward. To that end, I know they have some news coming up.

As newspapers move into this “local SEM” world too the battle for small business ad dollars online becomes more intense and more interesting. That doesn’t even start to get into what Google and Yahoo! and MSN may be up to.

But, as I said in my “windows” update post, SMEs no longer have to be convinced of the importance of being online or the need to market themselves to Internet users. The “why” is done; the only question now for them is “how.”

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