The Wall Street Journal today wrote about the challenges that newspapers have in trying to sell to small local businesses. Beth Lawton at the Newspaper Association of America kindly asked us to add some context to the article (subscription required). Here is our piece.

… As The Wall Street Journal article highlights, many newspapers are looking “downscale” to the high volume of smaller local advertisers to make up for their permanent losses in retail and classifieds. About 30 percent of an estimated 10 million local small businesses put the bulk of their marketing dollars into the Yellow Pages. They are “directional advertisers,” and more interested in making sure their phone rings than how many impressions their ads deliver. In fact most would have no sense of the CPM they are paying.

Are Yellow Page publishers vulnerable to such entreaties from newspapers and other local sellers? Sure, but it isn’t going to be simple to take them on. While some portion of small-business advertisers have left the Yellow Pages (typically, more retail-oriented businesses), there is no wide-scale abandonment at this point. Depending upon the category, the return on investment can be remarkably high — even with an average annual spend of $4,800. In addition, Yellow Pages publishers have another advantage: Advertisers want to keep their position, year to year. Consequently, most efforts will be to grab budgets allocated to supplemental books or upsell efforts.

More importantly, at the local level, it is no longer an exclusive club of newspapers vs. Yellow Pages. Local advertisers are increasingly supplementing their YP buy with search engine optimization, search engine marketing, targeted e-mail, featured listings, video production and links, and online promotions. Many are also investing more in their Web sites.

Yellow Pages companies can (and do) provide such products. Many are selling seven to eight products, and because their own sites don’t provide enough traffic, they are syndicating traffic to a wide host of players. In this regard, they are way ahead of newspapers, which are still a world onto themselves — even with smaller and smaller local shares.

Yellow Pages publishers, of course, are not the only ones selling such capabilities. There are a lot of ways of buying Google. A number of other third-party resellers are seeking to sell such services to local businesses, in competition or partnership with Yellow Pages companies. In some cases, they are seeing large monthly budgets of $3,000 to $5,000. Some of these companies (i.e., ReachLocal, WebVisible, Orange Soda, Spot Runner and Yodle) are already working with newspapers, leveraging their strong local brands.

Ultimately, we see that newspapers have strong opportunities to enter these new areas of businesses and expect to see a great deal of new activity in this field. It will go beyond building a few vertical directories. The challenge, as the WSJ article correctly points out, is to get their sales and support activity to scale. While self-serve efforts are rapidly improving, many small-business owners are not ready for a self-service option.

The Kelsey Group forecasts that 25 percent of local online dollars will come from “marketplace” dollars (verticals and classifieds) by 2012. But positioning these marketplace dollars as replacement dollars for traditional newspaper revenues doesn’t do anyone a favor. They are, in fact, exciting new lines of business. As newspapers focus more on their niche and vertical strategies, all this has to become a larger part of their game plan.

The U.K.-based online directory Brownbook, which recent announced international expansion, sees itself as something of an anti-Yellow Pages. The company operates on a shoestring, with fewer than a dozen employees, while taking a decidedly user-generated approach to building an online local business directory. The company isn’t following a shoestring approach out of necessity as much as out of a philosophical view that remaining lean and mean is critical to its success.

Brownbook runs against the grain of conventional wisdom, which sees print publishers’ large sales organizations as a key competitive advantage for traditional players. To Brownbook, the sales force is an albatross that wraps all decision-making around the need to support an expensive sales channel. It sees itself more like Craigslist, which operates entirely on a self-service platform, and Wikipedia, which relies on the wisdom of the crowd to enhance basic listings with rich content.

Brownbook launched in the U.K. back in February, and earlier this month it announced it had expanded its base set of listings content into the United States, Canada and Australia.

Here is how we described Brownbook when it launched:

Operating as an open-source site, Brownbook takes advantage of community editors who can add or update listings and post comments/reviews about any business in the U.K. Businesses can claim their profile for GBP5 per year as well as add additional features such as bold or highlighted listings, expanded profile pages, photos and videos. Taking advantage of community editors and businesses that choose to participate and manage their content eliminates much of the costly database management expenses typically incurred by publishers. By leveraging a prepopulated database of 2.2 million business listings, a basic foundation has been put into place to encourage additional database growth. This is a fundamental Web 2.0 strategy that allows for the creation and extension of an up-to-date, content-rich database that is uniquely owned by the site.

Brownbook is a test case for the notion that an online business directory can be entirely “peer produced” — no teams of content scrubbers and editors, no call centers or premise reps, very little management. In a recent discussion with The Kelsey Group, Brownbook’s Dave Ingram and Marc Lyne, both veterans of the U.K. directory industry, talked about how their business “heroes” influenced the kind of property they hope to build.

In addition to Wikipedia and Craigslist, Ingram and Lyne mentioned Hotmail, Facebook and Zillow as sites that have influenced the creation of Brownbook. From Wikipedia comes the idea of consumers editing content and from Zillow, the notion of “claiming” a listing. And like Craigslist, Brownbook operates on minimal overhead and expects to build content by making the site almost completely free.

In addition to building a robust consumer site, Brownbook also hopes to generate revenue by white labeling its platform to companies with large customer bases that need to create large business directories.

The economy isn’t doing too well, but that hasn’t hurt the hiring picture for Yellow Pages and local search sales pros, according to YP veteran Ken Clark, who put out an interesting promo for his recruitment firm, Hawthorne Executive Search.

Clark says hiring via Hawthorne is up 25 percent in 2008. Publishers continue to expand in both print and local search, with SEO/SEM experts in especially high demand, as well as community managers.

Churn at pure local search adverting providers remains high, adds Clark. But that doesn’t necessarily mean sales slots are quickly filled. He notes that candidates can’t sell houses to relocate, they can’t pay for gas for jobs that are farther from home, they run away from uncertain entrepreneurial opportunities, and they see all the negative industry press.

R.H. Donnelley posted its first-half results today. While ad sales are clearly trending negative, the company was able to report modest revenue and EBITDA growth. Ad sales, however, are the best indicator of how the business is performing.

The following are some highlights from this morning’s earnings call.

• RHD posted a 6.7 percent drop in advertising sales for the first half of 2008 to $1.396 billion, which the directory publisher attributed to the overall weakness of the U.S. economy and the toll it has taken on cash-strapped small-business owners.
• The company once again revised its outlook downward for 2008, calling for a drop in ad sales of 7 percent to 8 percent, compared with the “mid-single-digit” declines it projected in May. RHD executives said the revised guidance reflects the view that the next two quarters will look a lot like Q2.
• Despite its drop in ad sales, RHD saw modest increases in both revenues and EBITDA. Net revenues for the first half inched up 0.8 percent to $1.34 billion, and EBITDA grew 2.9 percent to $698.9 million.

The Kelsey Report will soon issue a detailed write-up of RHD’s first-half results.

Frank Jules believes there is a clear shift from print to online taking place. And the best way for publishers to make a successful transition is to move from selling individual products to selling a bundle of products based on the number of calls or leads they can be expected to deliver.

As president and CEO of AT&T Advertising & Publishing, Jules runs the world’s largest Yellow Pages company. He will be one of the featured speakers at The Kelsey Group’s upcoming Directional Media Strategies event, Sept. 15-17 in Atlanta.

Last year, revenues topped US$5.8 billion, though they are tracking lower this year in part due to the sale of The Berry Co. assets, which closed in the second quarter. AT&T Advertising & Publishing posted its first-half results July 23, in which robust online growth failed to completely offset a sharp decline in print revenues.

In a recent interview with TKG, Jules was asked if current challenges were more cyclical (economy) or secular (migration to online), Jules had this response:

“AT&T believes there is a big move to the Internet. We are showing 40 percent growth on Internet in terms of Yellowpages.com, and continuing growth in terms of monthly searches. We will probably have north of 2 billion searches on YPC in 2008. So we see incredible growth and incredible migration to the Internet, being driven by mobile search, mobile search devices, broadband, Wi-Fi, WiMax, etc. We are embracing that growth. And we are finding that it is going to be good for our business long term.”

Jules went on to make it very clear that print is and will remain a strong component of the business, particularly in markets with lower broadband penetration. He added that the industry is clearly shifting from a business model predicated on perceived value to one based on quantifiable leads across media channels.

“Our view is, it’s a bundle. If you bundle print, if you bundle Internet, if you bundle what we call search engine solutions; helping a small business get identified when someone goes on the Web, that is what we believe is the answer. Getting our sales reps so they are able to tell that story; getting them trained, making sure they are equipped, making sure they have all of the economics of the value and the return on each of those various media and platforms.”

In the wide-ranging interview with TKG, Jules discussed how the industry and AT&T are shifting from a print-focused to a multi-channel business, and the implications this has operationally. Jules also said that AT&T Advertising & Publishing has high expectations for mobile search. Parent company AT&T has made a big bet on the iPhone as a transformational device that will spur consumers to do more than just make calls and send text messages with their mobile phone.

“What we know from the iPhone experience, which is that when you have a world-class mobile device, which makes Web access and search easy, people will use it. And that is going to continue to grow and grow,” Jules said. “As a device to do search, it blows away everything else in the marketplace.”

Also on the program at DMS ‘08 is David Yoo, chief product officer, Yellowpages.com. Yoo will talk about YPC’s efforts in mobile search on the panel, “Mobile Local Search — What’s the Role for Yellow Pages Publishers?”

Click here to listen to extended audio clips from the Jules interview.

This just in: Microsoft’s flagship search engine unveiled a new home page interface that will include rotating background images with embedded “hot spots” that direct users into various vertical searches when moused over.

This is essentially a visually driven discovery engine for various topics of interest. Live Search now more explicitly blends search and discovery — a classic interplay in online media. No word on whether it will be targeted in any way toward specific users (behaviorally, contextually, socially) as some popular discovery engines, like StumbleUpon, do.

It very well could, as the LiveSearch blog repeatedly states that this is a “starting point” (perhaps double meaning of a search engine home page and a foundation for more product development).

“We think the new design is a great start,” it reads, “but there’s more to come, with lots of interesting directions that we’ll be exploring in our next releases of the home page.” (My money is on video integration.)

This comes one day after Google Maps’ redesign, but is a decidedly more aggressive transformation (and not exactly a parallel product). More notable, it follows a recent line of moves by Microsoft to differentiate itself among core search engine competitors.

The thought is that it isn’t going to gain market share on Google by just doing the same thing (search box, 10 blue link SERPS, etc.). This transformation recently has included its Cashback program, Search & Give and its acquisition of Powerset, and we’ll likely see many more as Microsoft pushes hard on differentiation.

To save costs and reduce reading time, many newspapers have begun to downsize the daily print edition, cut back pages and delete stock tables. They’ve also downsized editorial. Now, several have begun to fold in dedicated sections for various verticals, including business and real estate. (At the same time, other verticals continue to be developed, including food and health.)

The rollback of special sections is a flashback to a previous era, before newspapers realized they could get more targeted eyeballs by having special sections.

The Los Angeles Times is the latest to announce a cutback, killing off its dedicated real estate section on Sundays. In a note to readers, it says that “real estate coverage will continue to appear online throughout the week. Hot Property, Neighborly Advice and the occasional Pardon Our Dust remodeling tale will appear in print as part of the new Saturday Home section. Home of the Week, Southland home-price charts and other features will appear in Sunday Business. Real estate articles will appear in both sections.”

It is likely that the down market and the migration of the paper’s readers to its Internet site had a lot to do with the end of Sunday real estate. The real estate section has been a mainstay of the paper since 1901 and also has real historical significance: The paper began its history as a tout sheet for local real estate.

The Real Estate Industry Watch had the story first. In response to its post, “Northville Real Estate Agent” commented that “Part of me is shocked that the time has come where print advertising is coming to an end, but then another part of me is really not that shocked because I get more and more leads from the Internet than any other source for real estate leads.”

The 32-company-strong Yahoo Newspaper Consortium, which covers 41 percent of Sunday newspaper circulation, has 700 to 900 reps selling Yahoo inventory, with a couple of the newspapers selling more than $1 million in annual inventory, reports Yahoo’s Lem Lloyd, who we know from previous stints with Oodle and Knight Ridder Digital. We talked to Lloyd for a new Advisory for Kelsey Marketplaces clients and are excerpting highlights here.

Lloyd says the consortium has already rolled out products on several fronts, including the initial co-brand effort with HotJobs, national advertising and search. Some midsize newspaper sites are getting “four digits” a month from search alone, he notes.

Yahoo also has a program of distributing newspaper headlines throughout the portal. AH Belo’s Dallas Morning News, for instance, says that there have been days in which 27 percent of page views and 65 percent of unique visitors come from the portal placements. “We send millions and millions of referrals every month,” says Lloyd. “They monetize that. We don’t [require] a revenue share.”

In Q3, a behavioral targeting effort will launch, starting with Hearst’s SFGate and MediaNews Group’s Mercury News. It is expected to be the consortium’s most ambitious effort. By zeroing in on customer prospects, newspapers may fetch super-premium rates for auto advertising and other major ad categories.

Marchex has announced the launch of Marchex Connect 2.0, an updated version of its private-labeled local ad platform that is used by local ad resellers such as AT&T and Yellowpages.com.

The new version’s highlights include integration of call tracking (from the company’s VoiceStar subsidiary) and a new templatized landing page offering that can be customized and integrated with search marketing campaigns. These features are also meant to appeal to businesses that don’t have Web sites, enabling them to either get online in an easy way or have phone leads delivered to them rather than clicks. Both factors are common among service-based businesses.

“Calls are the currency that small businesses want,” says Leigh McMillan, senior vice president of marketing, echoing the stated reasons we heard when Marchex bought VoiceStar (and when AT&T bought Ingenio last November).

The new additions together also represent a move toward giving the platform wider appeal among not only resellers and IYPs, but also any national organization that can deploy a local ad platform to a large group of localized constituents or franchises. In this way, the many components to the platform can be customized for each reseller.

“A lot of focus on resellers tends to be on Yellow Pages publishers,” says McMillan, “but there is more than that, and the way we have put this platform together — to serve it as a whole or a la carte — can serve any number of resellers.”

The deal Marchex did with Cobalt in the auto vertical is a good example of this, and the platform can be likewise applied to a number of verticals. A national company like Roto-Rooter, for example, could use it to scale an ad platform across many local affiliates (insurance agencies also come to mind). Here, landing pages, which are templatized but unique to different locations, can be attractive (example below).

Along with this launch, the company will organize its VoiceStar and TrafficLeader subsidiaries into one business unit called Digital Platform Group. This will provide ad campaign management as well as consulting and sales channel training for its resellers. This follows the launch of Marchex’s AdHere pay-per-click platform last month, which similarly sought to unify some of its business units under one digestible product and advertiser brand.

“This is the second phase of our brand streamlining,” says McMillan.

Michael Rogers, The New York Times Co.’s futurist-in-residence, told Inman Real Estate Connect attendees last week that over the next few years, “mobile [will be] the most important piece of the interactive space.” Largely driving the adaption of mobile will be the integration of GPS, and its ability to know location.

“It is incredibly important, especially for real estate,” says Rogers. “Real estate is the very first mobile application for The New York Times. We said we got to do that right out of the gate.”

In other comments, Rogers dismissed “the myth that there is a new kind of cognition.” While many people are multi-tasking, “what we are really seeing is ‘continuous partial attention,’ ” he says, citing research by CPA and Microsoft. The new generation also likes to participate in conversations, but it isn’t especially adept at spreading communications, despite its widespread use of instant messaging and social networks.

A Times study into how news of the Virginia Tech massacre spread showed that the new ‘millennial’ generation was the last to hear about the shootings, across all the time zones. “Gen X and Boomers got it first,” he says.

One key to building products for the next generation is to factor in “the decline in importance of reading, especially long form reading,” adds Rogers. “This is a really visual generation.”