Grayboxx, which ranks local businesses based on the number of mentions they receive on online consumer services, has finally launched, almost a year after I first wrote about it. The service, which assumes that people generally only mention services they like, has repositioned itself as the rating service for small towns that couldn’t hope to get enough users to individually sign in and rate services.

To my eyes, it looks great. It is elegant and intuitive, and it is really nice to see every category heavily populated with lots of listings — even in tiny Burlington, VT, population 38,000, which is its first market. Grayboxx’s system has 12,000 “neighbor recommendations” on more than 3,000 of Burlington’s businesses.

But do the mysterious algorithms really produce reasonable results? To find out, I was going to call Michael Wood-Lewis, the Burlington-based hyper-local guy at Front Porch Forum who writes the Ghost of Midnight blog. But then I thought I’d just read him. Wood-Lewis says the results are pretty awful.

Wood-Lewis notes that he checked out a wide range of categories, including jewelers, taxis, computer repair, groceries, computer dealers, newspapers, shoes and pizza. “As a local, I haven’t had one search produce what I would call ‘good advice from a neighbor.’ Makes me wonder about the chef’s secret recipe (mysterious ranking criteria) … hard to trust when initial tests come up with what I’m seeing.

“Burlington, and all of Vermont, is so reasonably scaled, that lots of this kind of information is near at hand. Ask a few co-workers, friends, etc. Indeed, this is one of the most common types of messages posted among neighbors on Front Porch Forum. People get real ‘neighbor recommendations’ in Burlington everyday this way.

“At this point, I’d rather ask a couple hundred neighbors for a computer repair recommendation through FPF than turn to this kind of service. Or I’d sooner take a peek at the local successful reader survey that our weekly alternative paper runs, the much coveted Daisies, by Seven Days.”

Using the Web to drive customers to restaurants via online ads, 2-for-1 coupons, certificates, menus and/or reservations is a big idea that hasn’t totally arrived but is getting closer. There has definitely been some progress in the space. For instance, OpenTable, the high-end reservations manager, appears to have finally secured its niche.

Restaurant.com hopes it has similarly broken through for mid-level eat-in dining establishments with tables to fill. The 125-employee service is based primarily on selling heavily discounted $10, $25, $50, $75 and $100 certificates. Consumers pay an average of $13.

To date, more than 8,000 restaurants have agreed to accept the certificates. Many were roped in by a field sales force of 75. Some leads were initially generated by sales affiliates such as Sysco, the leading food distributor to restaurants.

Since all sales proceeds go to Restaurant.com, it has the power to discount as heavily as it likes. The restaurants, meanwhile, get new customers, as well as a number of value-added features, such as customer feedback, name and e-mail database management, and reservation tools.

It can be a good deal for users and restaurants alike, especially when the value-added features are weighed in. The rule of thumb is that food ingredients cost $1 for every $3 charged. So a $25 steak entree, for instance, costs the restaurant about $8. On top of that, customers will end up exceeding the certificate value by $10, perhaps spending around $35. That makes the cost of a lead — potentially, a lifetime customer — about $7.

According to the company, it attracts a broad-based demographic. That’s a good thing, because a discount service based on fixed income users probably wouldn’t go far. It also has slightly more women users than men.

A secondary part of the business model, accounting for roughly 20 percent of its revenues, is the sale of the restaurant certificates as sales inducements. For instance, Home Depot offers certificate for people who order kitchen cabinets. Since the corporate program was introduced two-and-a-half years ago, companies such as Staples and United Airlines have taken part, as well as financial planners and mortgage brokers.

President Cary Chessick says the service learned the hard way that restaurants are willing to participate in the core certificate program “but you have to quantify results.” The service does that by encoding every certificate so. “It is a profit improvement system,” he says.

When originally launched in 2000, however, the company was more of a restaurant directory and placement on the results page. “They didn’t buy in. They never heard of Restaurant.com,” says Chessick. While restaurants have never heard of the service, the irony, of course, is that the URL is a good type-in. Consumers will often find the service by accident.

A key feature of the service is that it contacts consumers after they’ve eaten to get feedback on the experience. To date, the service has aggregated 500,000 reviews. They’d be valuable on Google or Yahoo!, but Chessick says they’ve been kept for the exclusive use of the restaurant. That could change in the future, but there are no firm plans to do so.

“The restaurant is our partner,” he emphasizes. “If someone has something negative to say, the owner can contact the customer right away, and offer a free desert” or similar inducement to come back.

I have some personal experience with the service. Last year, a group of my friends bought a certificate for friends who were moving to the Sacramento area. We paid $50 for $150 worth of dining. My friends were totally delighted, and it worked perfectly.

The number and quality of the eating establishments, however, varies from market to market. In my neck of the woods, in north San Diego, Restaurant.com has only been operating for a year. The choices in my 92009 ZIP code are pretty much limited to schlocky tourist traps. Stronger markets with more years of experience include Chicago (the service is based in suburban Arlington Heights), Northern California, San Francisco, New York and Atlanta.

Every Yellow Pages publisher is trying to answer the question of how to increase revenues through the addition or enhancement of an Internet Yellow Pages product. The larger publishers are able to hire a team of highly skilled and increasingly experienced experts who can help them develop the optimal IYP product and become media integrators for their customers. It’s not an easy task, but their management clearly knows the importance of positioning themselves for an increasingly electronic world.

Smaller publishers face a different challenge because they can’t employ a full-time group to manage their IYP operations. Still, these companies know they need some form of IYP to generate new revenues, diversify their revenue stream and prepare for the future. In preparation for a presentation I am giving at the ADP’s annual mid-year convention in Salt Lake City, Sept. 6-9, I interviewed executives from the four companies that have the lion’s share of business relationships with smaller publishers: Steve Mitchener of Dirxion, Edie Carver of Information Pages, Bob Burger of Innovectra and Julius Meaux of Local Matters. I asked each of them a simple question: If you were a Yellow Pages publisher with sales of about $10 million, how would you build your IYP so you could compete with Superpages.com, Yellowpages.com, YellowBook.com and DexKnows.com, as well as Yahoo!, Google, AOL, Microsoft, Ask and Local.com?

Not surprisingly, each of these four executives said it is urgent that every publisher establish an online presence. All four considered themselves strategic partners to publishers to help them grow their businesses. It was interesting how their strategies diverged beyond that, suggesting to me that there is a difference between these four industry suppliers.

At the annual ADP convention earlier this year, Todd McKnight of Names and Numbers, chairman of the ADP’s Interactive Committee, asked the publishers in the room how many of them had an online presence. He reported that three-quarters of the hands went up. When he followed up with “how many of you have a plan for Internet Yellow Pages and online services?”, only 10 percent raised their hands. In other words, publishers have some Web presence, but they don’t really know what they can and should do with it. That is what we’ll be exploring at the ADP convention next week.

Video search and monetization has been a hot topic lately, following in the wake of the general hot topic of online video (as advertisers invariably follow the eyeballs). This was accelerated by YouTube’s announcement last week that it will integrate inline video ads.

We’ve explored this nascent field several times in the past, in looking at what a few technology developers are doing to use voice recognition and other technologies to figure out what a piece of video is “all about.” The thought is that as these technologies develop, we end up with better video search and better ability to add contextually relevant ads to videos.

This coverage has centered on YouTube, Blinkx and Adap.tv, following conversations with these companies. But we’ve only given passing references to ScanScout (see past blog comment to this effect). Today, I finally had the chance to speak with CEO Doug McFarland, who has some interesting thoughts on the direction of this developing field.

Like the companies mentioned above, ScanScout employs complex algorithms to determine context that take into account (weighted in no particular order) adjacent content, speech recognition, image recognition, color, sound and other variables.

From there, it inserts ad overlays that allow users to respond by clicking an ad or viewing a separate video window. Given TKG data from User View (Wave IV) showing that online video elicits high percentage response rates, this will continue to be an important area of development.

TKG Survey Data: Online Video Direct Response

There are two parts to this equation though: the ad format and the contextual engine that sits behind it. We’ve examined the experimentation happening with different ad formats, given that pre-roll ads have been largely determined to be undesirable.

But the onset of inline ads as an alternative, though a step forward, is already becoming a commodity, says McFarland. The contextualization engine sitting behind the scenes is more where the value and differentiation among these products and providers will be decided.

No One Said It Was Going to Be Easy

Determining context with video is a much bigger challenge than it is with other online media, according to McFarland, if you consider the complexity of the content, audio and visual components, and the sometimes racy content of today’s universe of online video content. A great deal of the video content out there today simply isn’t monetizable or contains things advertisers want to steer clear of.

“The first job is to determine what a piece of video is about,” says McFarland. “The second is to figure out if it’s monetizable.” The latter task he claims takes into account a host of variables — analogous to but much more complex than the way a spam filter works — to determine if something is pornographic, racy or distasteful in any way.

The secret sauce, according to McFarland, lives inside the algorithms rather than going the ‘folksonomy’ route explored in the past. This concept, explained to me by Yahoo!’s Bradley Horowitz a while back in light of the company’s acquisition of Flickr, relies on humans’ ability to identify and tag rich media content, rather than algorithms. This is behind many of Yahoo!’s social efforts, including social bookmarking, and could be a key part of video search, according to Horowitz.

But this isn’t as reliable, consistent and scalable for video as algorithmic contextualization is, McFarland believes. Add the software’s ability to improve over time by learning the way the human brain operates, and McFarland claims it has the ability to not only decipher meaning or context but also effectively draw myriad and sometimes indirect associations of product advertising and certain types of content.

Implications for Local

The byproduct of all this innovation for local will be better searchability for the growing ranks of small-business video ads that are being created by the likes of TurnHere and Spot Runner and distributed by Citysearch, Superpages, Yellowpages.com and others. These providers will grow in number, as will small-business advertisers that increasingly see video as an affordable and attractive way to advertise locally.

McFarland also agreed with this point that video is a medium small-businesses understand and value. For certain segments interested in exposure and foot traffic, video might be a less abstract concept than some of the other forms of interactive advertising (read:PPC) that have been thrown their way over the past few years. It’s something that they “get” and for the same reason, Yellow Pages sales reps will have an easier time communicating its benefits and that of bundled ads that include print, online and video.

Interestingly, McFarland brought a new fold into this conversation that I hadn’t heard yet — that many large national advertisers are the same way. One question he’s starting to hear from large advertisers when looking at online video advertising is, “Where can I see the ad?” This was an eye-opener for McFarland that could be an important question to ask of all forms of advertising. Sometimes ROI for the advertiser — as illogical as it sounds — is mentally weighed by his or her ability to tune in and see the ad.

This is nothing new, as a great deal of Yellow Pages advertising and small-business video advertising on television has traditionally been driven by this vanity factor. Small-business owners (and large advertisers alike) want to be able to see their ads, smile, show their families and determine that their ad dollars were spent well. Though not a primary driver, this is an interesting concept that shouldn’t be ignored as the innovation and experimentation continues in online video monetization.

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Related TKG Reports: Online Video: A New Local Advertising Paradigm.

Today I had the chance to speak with a few members of the executive team at MetaCarta, an enterprise software company that has traditionally served, among others, major oil companies and government agencies with geocoded data for oil exploration and other purposes.

The company is now interested in entering the world of local search. Given that its algorithms can detect implicit and explicit geographical relevance in documents and text, the company is moving toward structuring data in a more meaningful way for online newspapers and local search sites.

For example, given a tool that can reliably and automatically geocode news stories to the neighborhoods or regions to which they are relevant (technological background here), many possibilities emerge. These include search engines that can return results about news stories relevant to a particular location, maps that can spatially represent news stories, and e-mail alerts for news content that is relevant to a given location.

All these bring up interesting possibilities for features, widgets and overlays for newspaper content. This applies to articles, as mentioned above, and the next step, according to Rick Hutton, VP of content services, is to apply it to other newspaper content such as classifieds or other things conducive to mapping (think garage sales).

It should be pointed out, however, that geographically targeted news is nothing new online and has been accomplished by the likes of Topix, Outside.in and others. The difference is that MetaCarta claims to do this in a more effective, automated and scalable way (and is a platform, rather than a destination, that can be utilized by online newspapers). We’ll have to take a closer look at the product in action to see if this is the case.

Getting There

So how will this come to fruition? MetaCarta will seek partnerships with newspaper publishers and news outlets that wish to add such a consumer-centric tool to their expanding stable of online offerings. The time could be right for Metacarta to be talking to newspaper publishers, given the varying levels of realization across the industry that online is something that can no longer be executed halfheartedly or in haste.

“What we bring to the table to news organizations is allow[ing] them to pull out or extract information about where the news is happening in an automated way,” says Hutton. “News is about who, what, when and where. We have something they don’t, which is the ability to ferret out the ‘where’ information in their content and then present it to users in a way that is actionable.”

With some online news, such as The Wall Street Journal, this targeting can already be accomplished with registration data that readers provide upon signing up. But for the majority of online newspapers for which registration data erects an adoption barrier (past commentary on this here), this geographic information is harder to come by.

Applications based on MetaCarta’s technology can conversely allow users to specify what geographies they are interested in, not only providing them a service but also gaining this valuable data in the process.

“This can ultimately provide a degree of targeting so [newspapers] can better understand what the user is interested in and where the user is interested in from a geographic perspective,” says Hutton. “It allows them to more effectively personalize their [online] service in a geographic manner.”

Next Steps

This makes sense, but the value of such a product would be fully realized with the requirement of an ad serving technology or network that can better utilize these data by serving ads that are relevant to geography, in addition to context and behavior. The next step is also to develop applications (mapping mashups, e-mail alerts, etc.) that are based on this underlying technology.

A few apps and partnerships are in the works and a couple of announcements are forthcoming that I can’t talk about yet. Otherwise, the company will continue to seek out more meaningful ways to bring its technology to local search, and it will develop its own local search destination, in incubation, on its Web site in order to gain traction around the product in the meantime.

We’ll take a closer look and provide more when these announcements are made and the product has a home.

R.H. Donnelley announced today that it will partner with Yahoo! to give its advertisers a more substantial presence on Yahoo! Local. This will come in three flavors.

From the release:

• Featured Listings — Sponsored listings with guaranteed placement on the first or second search results pages for broader exposure in a specific geography or category
• Enhanced Listings — Sponsored listings that offer the ability to add a detailed business description, photos, tagline and coupons to create greater online visibility for businesses and enhance their appearance within organic results
• Yahoo! Maps Business Listings — Sponsored listings within the context of a map-based view

This is part of RHD’s “triple play” effort — putting its own spin on the term that has also been used for the video, voice and data service bundles of MSOs and telcos. For RHD, this includes print (Dex), online (DexKnows) and distribution through online partners. The latter includes this deal and other online distribution it gets from LocalLaunch!, which it acquired a year ago.

More importantly, the new addition gives the sales channel another tool in its toolbelt — one that advertisers are increasingly asking for — for a better cross-platform product. As examined in TKG’s Local Search and IYP forecast released in March, IYPs will see a greater CAGR than the aggregate local search market, because of their physical sales channel, and the ability to execute more effectively on cross platform sales strategies.

This also joins other deals that have been formed in the past, such as that between Superpages and Google; and you can expect directories and IYPs to increasingly develop online distribution and better ad bundling efforts. Today’s deal applies to the 14-state region (Western and Midwestern states) in which Dex distributes its print directories.

New local search destination Grayboxx launched today in its first locality of Burlington, VT. As mentioned in Grayboxx: A Sneak Peek, the site will have a staggered launch starting in small towns and cities where it believes it has a competitive edge over other local search destinations that focus more on larger metros (see rollout schedule here).

The source of this competitive edge is its ranking algorithm for businesses that is built on “implicit reviews.” This pulls together consumer activity to glean votes of confidence in businesses, and accordingly ranks businesses in quantitative measures. The key is that this “preference scoring” formulates rankings for businesses in categories and locales that don’t garner enough explicit reviews (traditional narrative reviews generated on sites like Yelp), such as plumbers in small towns.

“It’s an algorithmic and scalable way to rank businesses, not just restaurants and night life but every category. And the nice thing about that is that we have results just as well in Moscow, ID, and Bridgeport, CT, as we do in Chicago,” CEO Bob Chandra told me. He added: “Places like Yelp are social networks for foodies. I’d love to see a social network for people interested in plumbers.”

(click image to expand)

This is a nice point of differentiation for Grayboxx — something that is definitely required in the hyper-competitive local search world. It will utilize this to attract viewers, but as mentioned in the previous post, it could also provide the technology and/or the ratings content to other local search sources such as IYPs.

This is the classic destination vs. platform distinction. It could attempt to be both, but for now is primarily a destination. The destination experience itself is different and, to me, useful. However, it requires that you type in a ZIP code for Burlington, VT, but doesn’t allow you to type in the city name. This requires a separate search to find out Burlington’s ZIP code if you don’t know it (I’ll save you the trip, use 05401). I imagine this will change though.

Check it out for yourself and let us know what you think.

In case you missed any, Here are some greatest hits from the past week of blog posts. Click below to read each post in full.

Yelp Integrates Event Listings in 10 Cities
Yelp has added events to its listings, maps and user reviews in 10 cities — San Francisco, New York, Los Angeles, Boston, Seattle, San Jose, Austin, Chicago, Washington D.C., and San Diego. The feature includes a landing page for each event, a comment board and a “will you be attending” feature. Unlike Yahoo!’s upcoming.org, which is in a separate silo, the Yelp events feature is fully integrated (as Josh Lowensohn at Webware points out in his excellent and comprehensive review) (read more..)

Friday Yellow Pages News and Views
I’ve come across a few items this past week worth noting. Will give a quick take on each here. An article in the Dayton Daily News reports that The Berry Network, the CMR wing of The Berry Co., has landed the Allstate Insurance account. To illustrate what a big win this is for BNI, the company is adding 50 jobs in Dayton, Ohio, to accommodate the new account, which amounts to a roughly 24 percent increase in head count. (read more..)

Of Yellow Pages, Classifieds and Beer Pong
I’m a day late to this because of the natural tendency to get caught up in SES, but LiveDeal announced that it will integrate community discussion boards into its classified engine. This is a good integration for LiveDeal that will not only boost the conversations happening around classified listings, but could also serve to enhance the directory content that was recently brought into the fold via YP.com. (read more..)

AdMission Seeks Middle Ground Between Search and Display
The big picture we’ve all been looking at is that online ad spending for search and lead generation is beginning to plateau. ComScore pegs search’s share at around 40 percent. Google certainly sees it, hence its recent effort to entrench itself into display and video. So does AdMission Corp. A couple of years ago, the vendor switched its focus from virtual tours to image search on demand, hoping to gain more visitors, more looks and longer sessions. (read more..)

Multitasking @ SES: Cutting Through the Clutter of Mobile Search
I’m at SES San Jose today and tomorrow, where there are some interesting local, mobile, social and shopping search sessions going on. I’m in a mobile session now while blogging, responding to e-mail and juggling the bouncy balls they are giving away in the exhibit hall. Many of the sessions are presentation format rather than panel discussion, but some interesting topics have been brought up. The scope of many of the discussions are sometimes more tactical than where my interest lies (how to optimize a mobile Web page using XHTML and CSS), but there are nonetheless important industry issues, user adoption trends, and relevant technological directions that have surfaced. (read more..)

Gannett Says ‘No’ to Planet Discover’s Outside Work
Planet Discover, the pioneering local search and Internet Yellow Pages vendor, won’t sign new contracts with local media outlets that compete with Gannett newspaper and TV properties, according to sources. Gannett purchased Planet Discover in May 2006, but up to now has not interfered with its business development. Gannett’s decision leaves the local search field to competitors such as Local.com, Innovectra and HarvestInfo. (read more…)

YouTube Debuts Inline Video Ads; World Listens
YouTube has launched a new video ad format it has been testing for months (see past post). These ad units, known as inline ads, involve translucent windows that are overlaid on video content for about 10 seconds near the beginning of a given clip. Experimentation with more integrated and less cumbersome video advertising has flourished in the wake of the somewhat recent realization that consumers largely don’t like pre-roll ads. This innovation has gotten much further than YouTube’s ad overlays have taken it, as we’ve reported, from the likes of Blinkx, Adap.tv and ScanScout. (read more..)

Peter Horan’s Grand Canyon of Local
We have been discussing the issue of the potential for Internet Yellow Pages offered by print publishers. The question is whether IYPs can be sufficiently significant to merit the necessary investment. At our recent Drilling Down on Local conference, one of our keynote speakers, Peter Horan, CEO of IAC Media & Advertising, gave a speech titled “What’s Local Really About?” He said we are “now in the second decade of local: So much promise. So much logic. So little progress. How come?” His answer was that we are in the age of Internet-driven media where local isn’t about reading, it’s about doing. (read more..)

A Step Closer to Interactive Product Placement
There is no doubt that online video is blowing up. With increased online use and investment levels on the supply side, have come innovation and experimentation with respect to monetization opportunities, such as dynamically placed inline ads being developed by the likes of Blinkx and Adap.tv. The NewTeeVee blog reports on a new form of online video ads centered on product placement (developed by product placement firm Delivery Agent), known as Shopisodes. Watch the video to get a full sense of what they’re trying to accomplish. (read more..)

Online and Offline Come Full Circle
We know well that online search has considerable effect on local offline purchasing behavior. Likewise, it’s clear that the majority of retail purchases happen offline, while a growing percentage of research is occuring online. Now, iProspect has released interesting figures that show conversely how offline factors affect online search activity. More specifically, the data show how advertising in various offline media affect search engine use. (read more..)

Here is an article on the bond offering for Yellow Pages Group New Zealand. The company’s owners are cutting back on its size to improve demand. This is certainly a sign that at least for now, conditions are not good for private equity deals. Makes us wonder if we will see any more PE deals in Yellow Pages in the near future. YPGNZ is a solid company with dominant market position and high EBITDA. This is less about the company than about the worldwide credit squeeze.

Yelp has added events to its listings, maps and user reviews in 10 cities — San Francisco, New York, Los Angeles, Boston, Seattle, San Jose, Austin, Chicago, Washington D.C., and San Diego. The feature includes a landing page for each event, a comment board and a “will you be attending” feature. Unlike Yahoo!’s upcoming.org, which is in a separate silo, the Yelp events feature is fully integrated (as Josh Lowensohn at Webware points out in his excellent and comprehensive review).

The question remains whether an organic events effort will ever get traction over pro-level event listers. In hometown San Francisco, for instance, Yelp launches with just 230 events.

Zvents leader Ethan Stock notes in his Onotech blog that “Zvents has 43,000 events in San Francisco. Granted, that’s one of our better metros — in Boston we have a mere 47,000 events, in Detroit we have a bare 13,000 events, and in Chicago, a snip at 7,900 events. Sigh. Gotta work on Chicago.”

Stock also notes that “ ‘search’ is a fairly important part of local search. If you click on that link to Zvents’ open search for San Francisco between now and noon Saturday, you’ll see that the Beastie Boys show in Berkeley that Josh mentions comes up first. Why? Because one of the several flavors of secret sauce that our dynamite search team has baked in the Zvents relevance algorithms is popularity, including both click and search query factors.

“If you didn’t know that the Beastie Boys were playing this weekend in Berkeley (I know, it happens to even the most-informed of us) Zvents will help you discover it — and many other events besides,” he says. “And if events aren’t your cup of tea? How about a quarter-million restaurants, or over a million movie showtimes?”

My take on this is each of the services will remind you that the Beastie Boys are in town. But a service like Zvents will help get you to the more obscure things like … a dance concert.