As the Kelsey Group has been studying the sales approach in the local media space, what has struck me is the lack of innovation on the part of the Yellow Pages. In the past, the Yellow Pages sales force has been viewed as a competitive advantage because of its size and depth of existing clients. What we’ve observed of late are a few chinks in this armor, not only in the U.S., but overseas as well. 

One of the key drivers of weakness has been the shorter contract periods of online products. Many SEM products are working off a 90-day contract, while others require additional support and attention because of seasonality or various promotions throughout the year. As more online products are added, small businesses are moving away from 12-month contracts requiring more contact with the salesperson. This level of constant contact has not been part of the Yellow Pages sales strategy or skill set. 

We have also observed local media making a slow change over from transactional selling to a more solution-focused consultative approach. The years of new product development and online feature and benefit training have led to a sales force ill equipped to answer the fundamental question of small businesses: “How does all of this fit together to help my business?”

In our survey of the sales channel, 48 percent of small businesses see this as the true value of working with a salesperson. Local business are asking salespeople to be platform neutral and show them how to put together a media approach that maximizes their budget and provides the number of leads they need to stay in business and be competitive. With the variability of the compensation between print and online products, platform neutrality gets in the way of where salespeople are making money, further complicating the current situation. 

The directory segment still has the advantage of size and customer depth, but the 2009 sales results definitely highlight the need for a sales approach revolution. We can always blame the economy, but if we take the time to listen to the needs of the small business, I think a different story of why directories are losing revenues might emerge. How are directory companies addressing this issue and how are salespeople themselves working to better meet the needs of their advertisers? We’d like to hear from you.    

I’ve spent the past few months in talks with Skype about how the company would like to diversify its product model, and better position itself as a tool to generate leads for local businesses.

Perhaps the timing couldn’t be better for a redefinition like this. Months of speculation over eBay’s divestiture of Skype culminated with this week’s announcement that it will spin off the company in an IPO next year. As an independent company, perhaps it will be better equipped to realize this vision.

In the meantime, the wheels are turning. The idea was born with Nick Corr, Skype’s senior product manager of e-commerce, and first got going in talks with an undisclosed (NDA protected) visionary at a European Yellow Pages company. Corr, a former Yellow Pages guy himself, knows how to speak the language.

Calling for Change

The idea is that Skype is used by 405 million global subscribers to make free and cheap calls. Why not position it as a complementary tool to help find and drive calls to local businesses too? This was the same idea behind the launch of SkypeFind (which we covered here), but takes it a step further.

Essentially it broadens this to the larger Web, where most local search activity is already happening. What the idea requires is that phone numbers that show up throughout local search results be hyperlinked to launch a Skype call.

Skype is already halfway there, given that Skype 4.0 users have an automatic browser plug-in that lights up any phone number in the browser window for a Skype call (see screen shot below). The downside is that the use of these links is limited to SkypeOut subscribers — those who pay to call out to landline or mobile phones.

So what Corr is proposing — a departure from Skype’s strictly subscription revenue model — is that calls to local businesses be made free. They’re instead ad supported, with Yellow Pages publishers being the source of advertisers in need of calls.

The way this is playing out in initial stages is that YP partners purchase discounted wholesale calls from Skype. They then essentially own these Skype links to drive calls to their advertisers. They also can derive performance metrics about how many calls they delivered.

Of course this concept is nothing new for YPs, having done a lot of call tracking already in print and online. But the difference here is that these Skype links aren’t unique tracking numbers that just reside on publishers’ own sites. They’re businesses’ own numbers that appear all over the Web.

“Through Skype’s contact mechanism, it basically turns all of these numbers into metered calls,” says Corr. “We can measure right down to how long the call lasted, time of day and stuff like that.”

The beauty is that these numbers are appearing in Google searches and in the famed local “10 pack” that’s gotten so much attention lately for expanding its frequency of appearances. This all comes down to the simple fact that the 10 pack’s design includes phone numbers with each listing.

So essentially, these are all numbers that are eligible for Yellow Pages companies, in partnership with Skype, to take over and drive calls to their advertisers. This is big if you consider the degree to which the 10 pack has displaced local search companies that vie for Google organic traffic (see Citysearch and Yelp in the above screen shot).

It’s a wicked clever idea and is currently in trials with two of Skype’s new YP partners. Corr’s vision was first seen and executed by a smart product person within a European YP outfit, which is currently in trials with Skype and under NDA (I’ll reveal the secret identity as soon as I can).

The other partner is Yellow Pages Group New Zealand, which is very bullish on the new capability and seeing strong results in trials so far.

Proving It Out

So how will YPs monetize this, and how will Skype make any money from it? It will depend a great deal on what trial results continue to show about high-value categories and advertisers, according to Chintaka Ranatunga, corporate business development manager at YPG-NZ.

“It can fit in as a retention or ROI improvement for their existing package,” adds Corr, “And then as they learn more around who’s getting value and where the leads are worth more, they can start to price it differently based on what making the phone ring is worth to [each] advertiser.”

Though he can’t yet discuss specifics, Corr tells me that trials are showing a significant increase in calls made to businesses through their system. Interestingly, there’s also an increase in domestic calling. This could show the potential for local search to join Skype’s well-known branding as an international calling tool.

But more importantly, it could be a revenue diversification move, leveraging its massive user base to tap into the $32 billion global Yellow Pages pie. According to Corr, most of the YP deals will be set up as revenue shares and he’s confident that current trials will serve as a proof of concept for more publisher deals.

Depending on user uptake and conditioning to see Skype as a local search tool (presumably less of a challenge overseas), this could represent a big opportunity for the company — and at just the right time.

Last week, Yell Group issued its nine-month earnings report (the company’s financial year ends March 31) and most of the news was sobering. Organic growth is expected to be in the negative double digits in its fourth quarter, and small-business advertisers are paralyzed by uncertainty over how long the downturn will last and how bad it will get. Still, company leaders say first-quarter canvasses so far suggest a leveling off in the rate of print declines.

Yell Group is one of the world’s largest directory publishers, with market leading positions in the U.K., Spain and Latin America, and a strong U.S. competitive platform with Yellowbook.

For the nine months ended Dec. 31, 2008, Yell Group generated revenues of GBP 1.65 billion, up 7 percent over the same period in 2007. However, the growth was all driven by exchange rates. At a constant exchange rate, revenues were down 2.4 percent, which reflects groupwide online growth (at a constant exchange rate) of 40 percent and an overall print decline of 7 percent. In the U.K., print revenues declined 9.4 percent. In the U.S., print was down 5 percent and in Spain, which is facing a particularly difficult economy, print was off by 13.4 percent.

The company expects things to get worse before they get better, and getting better in this environment simply means a slowing rate of decline.

Yell CFO John Davis said on last week’s earnings conference call that group organic results would be down 12 percent in the fourth quarter, which ends March 31. This means print results will be more dramatically negative, given the company currently generates 15 percent of group revenues from online, which continues to grow at a double-digit pace.

Yell Group CEO John Condron painted a bleak picture of the current mood of small businesses, noting that canvasses are increasingly “back-end loaded” as SMBs delay spending decisions until the last possible moment. However, he did offer a slightly brighter picture of the company’s first quarter. Both Condron and Davis went to lengths to avoid being misinterpreted as predicting recovery. They merely said there is evidence the rate of decline may be slowing a bit. That is what passes for good news in this media environment.

Condron also offered some revealing comments on the U.S. competitive environment. Yellowbook is generally the second player in a given metro market in terms of revenues, with competition up the ladder from incumbent publishers and down the ladder from smaller independent publishers.

For years, Yellowbook led the consolidation of the smaller independents but has all but ceased its acquisition program as market conditions have deteriorated.

“There is no surprise that we are getting more and more rescue calls [from independent publishers] begging use to save them from imminent collapse. The model doesn’t work when faced with an organization as well organized as ours and with an economy as tough as this,” Condron said. “And most are experiencing a double whammy because they do not have a credible Internet offering and they cannot make the investment for the future.” 

Granted, Condron’s characteristically direct comments reflect an interpretation of events that favors Yell’s interests. However, it does appear that the tide has shifted for many independents, which experienced years of strong growth and plentiful exit opportunities. Now, with an economy in tatters and spending patterns shifting to platforms that are more digital, flexible and explicitly performance-based, it stands to reason that many independents will struggle, particularly those with higher exposure to major metro markets.

TKG will write up Yell’s results in greater detail next week in a Client Inquiry Brief.     

We keep going back to Clayton Christensen and his disruptive technology timeline … and we really don’t see that anything in the local space truly qualifies as the disruptor (although Google is worth pondering). Still, they keep coming.

The latest contender is Brownbook, the free Wiki-based directory that lets anyone submit and edit a directory listing, adding information, recommendations and ratings. The service is based in the U.K., but now has 25 million listings spanning the U.S, U.K., Canada and Australia. More than half its usage comes from the U.S. Users are free to submit listings in other countries as well.

Yellow-Wikis, the now defunct site, plowed some of the same ground in 2006. But the difference with Brownbook is that it is using the listings as an anchor for very low-priced SMB services. That makes it more like MerchantCircle and SMBLive’s efforts with BT Tradespace.

Brownbook started with a $17 “Customize My Page” package, where businesses can claim their listing and add and order a number of features (video, photos, map, etc.). It also recently introduced a $98 “Create My Website” deal.

Founders Dave Ingram and Marc Lyne, who come from the U.K.’s Scoot directory, tell me that the service has done well already with specialized, non-local listings — an area that Angie’s List has started on as well. A hard-to-find Bi Fold Door listing in the U.K., for instance, resulted in $11,000 of business.

Ingram and Lyne calculate they would have a strong business if even a relatively small minority of listed businesses plow $120 into the page and Web site packages. And more offerings will come. They also hope to spur sales by offering a lifelong commission to users who spur sales via recommendations or reviews — an interesting concept.

Looking forward, the Brownbook people might hope to get enough mass usage going to really focus on local offerings, which will always constitute the vast majority of directory lookups. They are getting a lot of local usage via Google, where half its listings are referenced from. But at the moment, the service is not a truly local offering.

So count me intrigued. I’ll look elsewhere for my plumbing emergencies. But it will be interesting to see if this takes off.

One of the things that dawned on me after listening to the many speakers at our recent DMS ’08 conference in Atlanta was that a fundamental aspect of the Yellow Pages business has been lost — exclusivity. During the days before the Internet and the massive sharing of data with Google, Yahoo and others, the content and data of the Yellow Pages were exclusive to the print directories or their online counterparts.

While U.S. publisher Internet Yellow Pages sites bemoan the fact that they do not enjoy healthy traffic levels, when we look to the new breed of local search players like Yellowbot, Yelp and Brownbook and listen to search platform developers like Exalead, they clearly understand the value of exclusivity. The online world, and certainly local media in general, is driven by information and particularly uniquely aggregated information. The power local search sites hold is in the amount of aggregated data they have either uniquely developed or have aggregated into a convenient package for site visitors. IYPs remain in a position to become the end all and be all of aggregated local business and service information, but the window of opportunity is quickly closing due to the efforts of Google, Yahoo and a variety of aggressive local search sites.

With the vast amount of local company data that is continuously updated and enhanced each year, directory companies own a gold mine of local information that companies like Google, Yahoo and local search sites covet — which is why they continue to strike deals to gain access to this information. Collecting and updating local business and service data is an expense that search engines and local search players are not willing to pay. Pick any vertical and you can bet that in most cases the Yellow Pages database has more business listings and content than any other source. 

European players have understood this advantage and have shared far less with the search engines and vertical sites. They have enjoyed more organic traffic levels because of their cautious nature, desire to keep the deepest local content exclusively within their IYP sites and willingness to promote their brands. While some of their advantage lies in Europe’s more closed information sharing practices, publishers in Europe have made a decision to share less with search engines than their U.S. counterparts in order to build their brand.

The print Yellow Pages product has definitely lost its relevance worldwide to a large segment of its once loyal users. If the print book could again become a source of vital local information that was exclusive to its bound pages alone (not even to its IYP site), that would certainly build relevancy and a desire to use the product. The industry needs to get busy with the task of figuring out what demographic groups it wants to own, figuring out what content and user features those customers want in both print and online, and then implementing and heavily promoting those exclusive features and user benefits. These are the steps critical to winning new print and IYP users, enhancing the relevancy of the product line and increasing the ROI for advertisers.

I’m here in Athens this week at the European Association of Directory Publishers’ annual congress. Nice line-up of speakers thus far, many of whom are echoing the themes that we heard emerge at The Kelsey Group’s DMS ’08 conference last week in Atlanta.

European Directories CEO Cornel Riklin was one of the keynote speakers to open the event today. Among his key messages to the group of mostly European directory publishers and vendors was not to look at their businesses as just print or online, but instead to view them as focused on generating leads for their advertisers.

Riklin used a variety of statistics from his company’s operations in eight countries to make the case for his overall key messages, which included the following:

• “Our business is lead generation.”
• Strategy and execution: Good execution can grow print usage/stabilize print growth, and aggressive strategic direction can grow online.
• Directory publishers can compete effectively: Strength and differentiators are the sales force and multimedia product offerings.
• Consolidation will strengthen the industry.

Riklin followed speakers that included David Smith, economics editor for The Sunday Times, and ABN AMRO’s Julian Moore, who painted a less than positive view of the global economy and media industries. Riklin, however, shed some light on how his sales force of 2,500 and total employees of 5,000 are executing on his key messages in eight diverse countries (and Gibraltar) that achieve revenues approaching 800 million euros and EBITDA of about 300 million euros.

Riklin allows print operations to be run locally while online is run from the center or corporate side of things. He sees daily how competition is increasing in key markets such as the Netherlands and acknowledges that “the industry is under siege.” He remains incredibly upbeat about the industry’s prospects even in an environment that he believes has experienced a polarization of share price performance and overall financial performance of directory publishers around the world. Riklin concludes: “It’s all about execution.”

The CEO’s vision includes a 50-50 distribution of revenues by 2011 between print and online and overall revenue growth. In an effort to achieve such growth he has rolled out a more specialized sales force that offers more packages or bundles and does so aggressively. He echoes sentiments we heard at last week’s DMS ’08 conference that get to the heart of a consultative or one-stop-shop multi-product sales approach. Consolidation, too, is part and parcel of his plans, although there were no hints of the publisher’s next target. European Directories, of course, has its hands full as it integrates its most recent acquisitons — Ditel in Poland and Gouden Gids in the Netherlands.

Riklin’s presentation was followed by U.S.-based Local Insight Media CEO Scott Pomeroy, who provided a similar message about his company’s “relentless focus on execution.” As the company’s chairwoman, Marilyn Neal, noted during her presentation at DMS ’08 last week, Local Insight Media is one of the few major publishers in the world experiencing print revenue growth. Pomeroy, too, cited economic forces, but noted key differentiators for his company such as its investment in and management of its sales force. Local Insight Media is trialing new ways of doing business, such as pay for performance, and working with new digital platforms that help set it apart.  

Sami Kassab, analyst on the European Media Research Team at Exane BNP Paribas, gave a data-laden, insightful perspective on the many of the world’s largest Yellow Pages publishers in “The Financial View” panel at Directional Media Strategies 2008.

Highlights of Kassab’s remarks (presented ticker style):

… Directory publishers have underperformed the broader media sector in both absolute and relative terms … exceptions are PagesJaunes and YPG Canada … The recent decline in print revenues is a little bit both structural and cyclical … The declines in print usage and revenues will accelerate … In valuing publishing companies, the growth in EBITDA is more important than the EBITDA margin per se … The economics of a large publisher selling search products for others (e.g., Google) are questionable (it’s probably cheaper for them to generate their own traffic) …

Kassab delivered this sobering assessment with such cosmopolitan savoir faire that not a ripple of frisson was heard in the audience.

He went on to answer a number of tough questions with a diplomatic aplomb. Example: Are some publishers overleveraged? Response: “We’ve seen the damage that over-leverage can do.”

Kassab said the imperatives for restoring financial health include:

• Repairing balance sheets (typically accomplished through downsizing)
• Selling assets (e.g., non-core publishing properties)
• Defending print revenues. For example, PagesJaunes lowered its rate card prices in selected highly competitive markets, which added credibility to its pricing structure and stemmed further erosion.
• Growing Internet revenues. Example of Eniro’s introduction of an online price comparison service.

All in all, a formidable challenge even for the mightiest.

While investors and Yellow Pages pundits continue to bang the drum telling everyone that the “younger generation” isn’t using print Yellow Pages to the degree it should, and that without this younger demographic of users the book can’t deliver value to small and medium-sized businesses, they may in fact be ignoring the book’s greatest strength. The usage habits of 18- to 30-year-olds are of concern, but the reality is that this younger generation may not in fact be a significant contributor to the financial success of local SMBs.  

Are we saying the Internet generation with its desire for new technology and penchant for name-brand merchandise isn’t the main driver of the local economy? The simple answer is — not to the degree that most people and marketing organizations seem to think. The real controllers of spending and the influencers of spending are the baby boomers. 

According to the Generation BUY survey conducted by Viacom and TV Land: 

“Not only are 40 and 50 year-olds spending more on themselves per month than Millennials and Gen Xers but more interestingly they are spending twice as much as their younger cohorts on others in their lives. With so many people to shop for, Boomers are making several multi-generational purchase decisions at once and — contrary to common assumptions — they are far less brand loyal than Millennials and Gen Xers.”  

With boomers in the sweet spot of Yellow Pages’ current usage, the value of this audience is being overlooked not only by investors and pundits, but by Yellow Page organizations as well. The traditional sales message of Yellow Pages focuses primarily on the massive local audience the book delivers based on the total distribution of the book. So as fewer people keep the book, particularly younger Internet consumers, popular logic assumes it must be less influential and drive less value to local SMBs. However, when demographics are taken into consideration, the book is in fact drawing in the largest block of income and spending influencers in the market. As Larry W. Jones, president of TV Land, points out, “Knowing that this generation has so many dependants, the means to buy the products that appeal to them and the willingness to try new brands is powerful information to share … “  

Many boomers waited to have children and more often than not have teen children in their households, which significantly influences their spending habits. Add to this the fact that many boomers now also care for elderly parents and you can begin to see the influence this audience has in the local economy. 

“With the large amount of purchase decisions they are making for others spanning multiple generations, they are ‘Promiscuous Purchasers.’ The Generation BUY study found that people 40-59 spend more than three times the amount of money per month on spouses ($514) than adults under 40 ($169). Additionally, they spend nearly twice as much per month on kids ($295 vs. $158) and three times the amount per month on teen children ($494 vs. $136). With so many purchase decisions to make for the household, these ‘Promiscuous Purchasers’ are an important marketing sector even when they are not the prime target.”  

While educating and winning over the next generation of local shoppers is important, the Generation BUY study suggests that the Yellow Pages’ prime user continues to wield significant financial power in the local marketplace. Given this new supporting information, it would be prudent for Yellow Page marketers to focus their print marketing and R&D efforts with boomers as their main focus and the younger generation as their developmental audience rather than the other way around. Using demographics to market the print directory would focus even more of the sales conversation on the value and influence of the directory, further bolstering its position as a major local media vehicle delivering ready-to-buy customers who are also significant influencers of additional purchase considerations. While marketing to the Internet generation is popular and sexy, the smart marketer goes where the money is.    

The Dutch competition authorities today approved the planned merger between the Netherlands operations of Truvo (Gouden Gids) and European Directories (DeTelefoongids). This approval clears the way for the merger to move ahead.

According to an announcement from Howrey LLP, the firm that represented Truvo in the deal, the regulators were initially wary of the deal, based on the view that allowing two direct competitors to merge reduced competition, which was bad for consumers and advertisers.

However, the commission was apparently swayed by evidence that the two publishers were less competitive than they appeared.

” Despite the apparent similarity between the Gouden Gids and De Telefoongids directories, the NMa found that they do not exert significant competitive pressure on one another. Market evidence, including surveys and past customer behaviour, clearly shows that very few advertisers switch between the two directories (e.g. in response to a price increase). They rather switch to online media or even stop advertising in directories altogether without switching to an alternative. Therefore, even if in terms of product characteristics, Gouden Gids and De Telefoongids look similar, they are not each other’s prime competitors.”

The regulators also recognized the significance of online advertising in deciding whether to approve the deal.

“Whilst it finds that not all businesses currently see online platforms as an alternative to directories, it notes that users are switching away from traditional directories to online search in significant numbers. The NMa finds that this must in time influence where businesses spend their advertising budgets, and that this will constrain the merged entity post-merger – another implication of the two-sidedness of the market.”

By “two-sidedness” the regulators meant the virtuous circle of usage driving content and content driving usage. The regulators seemed to conclude that Truvo and European Directories would encounter significant challenges with migration going forward and would handle those challenges more effectively as one company rather than two.

Having been through the post 9/11 advertising downturn with a Yellow Pages sales agency, I can attest that 2001 and 2002 saw a dramatic increase in bad debt and slow-paying customers. Some publishers in the U.S. went from 2 percent to 3 percent bad debt and slow-pay customers to 5 percent to 8 percent in the first six months after 9/11.

Since that time many publishers and local media companies have instituted a fairly aggressive pre-qualification requirement for advertisers as well as purging long-term problem accounts from the system to improve cash flow and aid the sales force in writing sales quotas. Many publishers went so far as to create special collections teams to get advertiser payments up to date and clear them to go into the next edition.

The real danger of increasing numbers of bad debt and slow-pay customers is they become a drag on the current sales campaign because their accounts must be brought up to date. In major markets, some sales campaigns began day one of sales with as much US$3 million in debt while still carrying a 3 percent to 4 percent objective. If a sales team has to make up US$3 million just to reach even, it is extremely difficult to then bring in enough increase and new revenue to make a 3 percent to 4 percent objective.

While post 9/11 was a difficult time with increasing bad debt and slow-pay, some publishers are saying the current economic situation has pushed the bad debt and slow-pay levels beyond 15 percent to 20 percent in some markets. Combined with general SMB reluctance to invest too much more in current marketing programs, increased levels of bad-debt and slow-pay advertising customers pose a serious threat to current earnings potential for many of the major publishers both in the U.S. and in Europe.  

A recent article in Bytestart.com, covering a new study conducted by Credit Management Research Centre (CMRC) produced by Leeds University Business School, reported that U.K. bad debt has more than doubled for both major companies and SMBs. The article points out that to replace this lost income requires Herculean efforts:

Bad debt amongst larger firms has almost doubled, so they now face, on average, £88,000 worth of unpaid invoices every year. At a 5% profit margin these losses would require additional sales of £1.76 million to cover the shortfall. If the profit margin were 1%, then the turnover would need to increase by a staggering £8.8 million!

SMEs, on the other hand, write-off, on average, £14,000 in bad debt at a 5% profit margin they would have to drum up additional sales of £280,000, or £1.4 million with a 1% profit margin to make up for the loss.

The tendency of the sales force during down marketing investment periods is often to relax or “bend” some of their credit approval or due diligence procedures in order to put as much revenue into play as possible. The real danger in this approach is further loading on potential bad debt, slow pay and advertiser turnover well into 2009/2010, which would extend the current revenue challenges.

While it is often easier to sell with fewer restrictions, selling on value to advertisers that are good credit risks is a wise strategy that will position directory and local media companies for a successful (and shorter) recovery when the current economy improves.