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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