The final day of The Kelsey Group’s Drilling Down on Local conference featured a keynote by Merrill Brown of MMB Media. Brown is an industry guru with a history of developing groundbreaking media strategies and operations. Among other things, he has been editor-in-chief then SVP of MSNBC.com. He also created Court TV along the way.

Brown’s comments served as a fitting capstone for much of the conference – or given his morning time slot, perhaps I should say a prequel to the conclusion.

Brown thinks the various “revolutions” that are shaking up online market-making and marketplaces are in their early stages. Specifically, he believes:

• The newspaper industry is just beginning a period of wrenching restructuring (of its content strategy and business model).
• Verticals will continue to grow apace, to the point where online vertical markets will play a vital part of our quotidian online experience.
• Web 2.0 capabilities (e.g., social networking, video) will become closely woven into online markets.

What was most interesting about his remarks, however, was his overall tone. Brown spoke with the urgency of someone (a guru) who senses we’re in the early stages of a real revolution, and we need to be aware of the magnitude of the changes to come.

The first day of the Kelsey Drilling Down on Local conference included a somewhat unusual panel with four entrepreneurs in verticals. They talked about the nuts and bolts of building truly local verticals. These vertical pioneers shared their war stories and loads of practical advice. Some of the commonalities to their experiences:

• They worked hard to get advertisers — against heavy odds, in most cases.
• All are now in a heavy growth mode.
• Their expansion tends to be “node by node” (market by market).
• They each took great pains to understand the business models and requirements of the SMBs in their vertical. Most of them have had to adjust THEIR model, as they’ve learned more about the needs of their SMB advertiser clients.

Their stories reminded us that being an entrepreneur is rarely glitz and glory. Real entrepreneurs have calluses and dirt under their fingernails. You could feel their pain, when they told about pounding the pavement and dragging some of these SMBs, practically kicking and screaming, into online advertising. It’s a long, arduous, time-consuming process (which may be monetized someday in the form of a handsome multiple of revenues paid by an acquirer like, say, Yahoo! — or not).

Summaries of the four presentations:

Mark Britton, CEO, Avvo

Avvo is a legal vertical, used by consumers to find attorneys. (The litigious-minded among us probably already have it bookmarked.)

The legal industry is a $225 billion industry in the U.S. The industry spends about $4.5 B annually on marketing. (In print Yellow Pages alone, attorneys spend about $1.3 billion annually, making this the largest single revenue category in print Yellow Pages.)

Avvo provides profiles and ratings for every lawyer in practice (in the states in which they operate). It obtains basic content from its Web crawlers. It also permits individual attorneys to upload information to embellish what is obtained by crawling.

One of its more clever approaches to obtaining content is this: It poses a typical legal question in the “Avvo Answers” section of the site, and several attorneys will post their answers. Of course, this is a “win-win-win” for Avvo, the responding attorney, and the consumer. Avvo gets free (and quality) content, the attorney gets “free” exposure (quasi-advertising), and the consumer gets his or her question answered.

“We’re tearing a page from Expedia’s playbook,” Britten said.

This is also the same thing that Zillow is doing: Going into a highly inefficient market where there is an inherent “asymmetry” of data between the service provider and the consumer, and creating a more level playing field by providing abundant, empirical data to the consumer.

Steve Cissel, CEO, 10-20 Media

Cissel is the CEO and founder Lawn & Garden Search (LGYP.com), a vertical for everything about lawns, gardening, landscaping, etc. He said LGYP.com is the first effective vertical in this space.

He pointed out that the lawn and garden vertical (which includes 11 categories in print Yellow Pages) is a $200 billion industry (total annual sales of products and services). It’s the only major vertical that hasn’t yet been really “Webified.” A key reason for this is the fragmentation of the lawn and garden industry. (Arguably, this fragmentation is driven by the inherent localization of the “raw material” for this industry – flora.)

Seth Gardenswartz, VP, SpaBoom (of BoomTime)

The day spa industry has about $10 billion in revenues. About one-third of its revenues come from gift certificates. SpaBoom makes it easy for spa owners to offer their own “private-label gift certificates” that they sell from their own Web sites.

Spas, of course, are a luxury, high-end business, with a high level of personal service. Perhaps because of this, spas “don’t give a damn about online.”

Through sheer tenacity and shoe leather (at least major change in its business model) SpaBoom has achieved about 12 percent penetration of day spas in the U.S.

It plans to take its format (gift certificates) to additional verticals as well. Gardenswartz announced that the next vertical it will enter is the restaurant vertical. It will be focusing on higher-end restaurants, where gift certificates are likely to resonate with the clientele. It is partnering with Zagat (which was announced today, at this conference).

Robert Johnsen, Director of Sales and Marketing, Mywedding.com

The wedding industry is about $66 billion this year. Mywedding.com is the No. 3 online wedding site. The company is 6 years old, and now has a total of 54 local wedding guides. Revenues were up 43 percent over last year.

It serves a variety of local SMBs related to weddings (florists, photographers, bakers, wedding planners, etc.). It took Mywedding.com about 3 years to build its current base of advertisers. On average, its advertisers spend about $600 on the site annually.

For couples typing the knot (let’s hope it isn’t a Gordian one), Mywedding.com provides a free wedding Web site to handle those oh-so-important details of the modern wedding.

In a session called “The Online City: Close Up on Seattle” here at Drilling Down on Local, The Seattle Times’ Patricia Lee Smith reiterated a point made earlier by the LA Times’ Rob Barrett, which is that online newspapers cannot compete on technology. The only way for newspapers to carve out a unique position online is to leverage not just unique local content, but also unique local understanding. 

“We at the newspaper co have a uniquely local lens. we can’t compete in technology, but we offer a uniquely local perspective,” Smith says. “At any given time, people in two newsrooms in Seattle are asking what information matters most to people in this community.” 

Through NWsource.com, The Times has created a hyperlocal site that seeks to understand the local consumer, and combines professional and consumer-generated content. 

Smith told the audience that NWsource, while generating less traffic than The Times’ other online brands, produced three times the clickthrough rates as the main Seattle Times site, because of its relevant content that drives to the neighborhood level. 

Matt Berk from Marchex talked about how his company, which operates more than 150,000 local domains, described a much different approach to a similar objective, using content aggregation and sophisticated technology to build a very relevant experience for a consumer looking for information in Seattle. For example, Marchex has aggregated about 32,000 local business reviews in the Seattle area from a variety of content partners.  Berk acknowledged it is still early days in creating and monetizing the optimal hyperlocal experience. “We are at the beginning of learning what it means to target locally.”    

Matt Booth and I had the chance to meet with Topix at its Palo Alto headquarters last week to unearth some of its user data, as well as some heretofore unannounced content partnerships.

Late last year, the site redefined itself as an aggregator of ZIP code level news and community forums. As recently argued from the ups and downs in hyperlocal sites, the right formula has to be found and sometimes it’s out of your hands as a function of the direction users take it. Topix has mostly found the right formula in its new model, as evidenced by a 2x year-over-year increase in page views in March.

Meanwhile its forum posts also doubled during the same period, and the site is averaging 100,000 posts per day across 20,000 U.S. towns (see heat map below). ComScore also puts it in the top five trafficked online news brands. To further qualify this traffic, it has proved to be relatively engaged, shown by 3x page views for forum users compared with news readers, and 5x session lengths (per Google Analytics).

Local Forum Activity (Click for larger, live, map)

Quantity + Quality?

Another important qualifier is that the forum content is mostly original and non-overlapping with newspapers or other hyperlocal sites. The company now gets somewhere in the neighborhood (bad pun) of 60 percent of its total content from user-generated posts. It’s seeding this activity with sticky features like user-generated polls, of which there were almost 9,000 created in March, generating almost half a million votes.

So forums essentially amount to ad inventory with engaged local users, which on this scale is somewhat rare in the local space. Others such as Marchex and Local.com have done a good job building valuable local inventory, albeit not as focused on community forums. Meanwhile there is some debate over advertiser interest in UGC content, which CEO Chris Tolles addresses here and here.

Previously Topix’s ad revenue stream was primarily text ads via AdSense, but VP of Sales Mike Linton is on a charge to bring in more display ads from national advertisers that wish to target locally. This is a growing opportunity given the realization among some brands and agencies that conversions are taking place locally and offline. We believe more agencies will come to see this, though the majority currently don’t.

Beefing Up and Beefing Out

To further attract this advertising and grow user levels, the company is pushing hard to augment UGC content with feeds in certain classified verticals. These include autos, tickets, pets, roommates, relocation services, events, new home builders and personals.

This has been the department of VP of Business Development Dave Galvan, who in the past few months has signed on (previously unannounced) Apartments.com, Oodle (autos & tickets) White Fence (relocation services), Informa (mortgage leads) TinBu (horoscope & lottery data) and PA Sports (sports stats). These join existing content deals with Trulia, and SimplyHired, among others.

On the other end, Galvan has been working hard to find distribution partners to take in Topix’s Local news feed, and has recently landed OurTown, AccuWeather and ESPN. These join AmericanTowns, CNN, Ask, and others that have shown interest in ZIP code level news feeds that basically aren’t available on this scale from anywhere else.

Meanwhile, it’s getting a fair amount of distribution for its forums by feeding into parent sites including Tribune, MediaNews Group and NBC Universal. Some of this will be discussed next week during the Drilling Down on Local conference in Seattle, where Galvan will join a panel discussion on classifieds. Stop by if you’re at the show.

In light of BostonNow’s closure this week (apparently for investment-related reasons), I’ve been mulling over the future of free metro papers in the U.S. The Chicago Tribune, The Washington Post and The San Diego Union-Tribune are among newspaper companies that have developed free (or discounted metros). Some have done so in response to a deep-pocketed effort by billionaire Philip Anschutz, and his Examiner papers, to storm their markets.

There are now Monday-Saturday print editions of Examiners in San Francisco, Washington, D.C., Baltimore, Seattle, Denver and other markets. They seem to be geared up to have regional offices. Its Internet editions are published in 57 markets, and now reach 2 million unique visitors, according to Examiner collateral.

When initially launched a few years ago, on the backbone of the dying San Francisco Examiner, the papers did not have an Internet strategy, according to company insiders. But now, synergies with a snappy Internet edition are clearly are main part of the strategy. This is combined with a red-line philosophy that focuses its print distribution on upper demographic households. Seventy percent of its readership is college educated; 85 percent have a household income over $75k.

Content-wise, the newspapers largely make do with wire copy for news, sorted under various “examiner” themed sections (i.e., “Automotive Examiner,” “Right Side Political Examiner,” “Go To Education Examiner,” “Celebrity Examiner”). For local flavor, they are building a strong base of columnists/bloggers in several markets. Baltimore, for instance, appears to be among the most developed.

On the Web sites, the local information is filled in with syndicated content. Traffic information, for instance, comes from Traffic.com and Outside.in (providing conversations about traffic — nice). Events come from Zvents. Yellow Pages are provided by Yellowpages.com. Movies are provided by Fandango. Shopping is from ShopLocal.com. And weather comes from Weatherbonk.com.

There are also links with other Anschutz projects, such as Christian-themed Walden Media (“Adventures of Narnia” movie) and The Foundation for a Better Life, as well as his AEG Worldwide entertainment conglomerate. The links alone would never pass the objectivity tests of most newspapers.

But most of the package is fairly attractive and compelling — especially for a generation getting their headlines on Yahoo! Mobile. It is a nice 1-2 print/online punch with a breaking news factor that isn’t always emphasized enough in local news/blogger aggregator sites (Topix, Outside.in, OurTown, AmericanTowns).

Examiner is currently advertising for account executives for auto, real estate and recruitment. Auto dealers are getting the biggest push and are provided with significant discounts over local dailies. That’s not hard to do. But are the dealers dying to support another newspaper effort? It is still hard to establish the readership value of these metros.

My own free metro in San Diego, Today’s Local News, comes from The San Diego Union- Tribune. It is delivered to every household that does not subscribe to the flagship paper from Wednesday to Sunday — whether they like or not. My neighbors usually have several copies littering their driveway by the end of the week. But I like it. The problem is I only spend about 45 seconds on it. Is that a good place for Hoehn’s Honda to advertise? I read The LA Times for over 25 minutes.

There are a number of new or re-energized hyperlocal efforts out there, trying to crack the code. New efforts are expected shortly from Outside.in and SmallTown. Ongoing efforts are being made with AmericanTowns, which counts Idearc as a lead investor, and Dallas’ Pegasus News, which is owned by Fisher Communications. CitySquares in Boston continues to build its model. Topix has also remade itself into an aggregation of local news and hyperlocal commenting.

And that’s just a rundown of the hyperlocal efforts that have regional and national aspirations. Some of the best hyperlocal efforts, of course (BaristaNet, WestportNow) are actually tied to specific communities. We also count some well-funded newspaper efforts in that category (LA Times, Boston.com, Washington Post, et al).

This week, The Online Journalism Review covers OurTown, a new hyperlocal chain based in Cincinnati. The site proclaims that it represents “America’s Local Websites. Neighborhood by Neighborhood. Local and Regional Content, Chat, Weather, Maps, Personal & Family Calendar and Community.”

OurTown’s primary business concept is that local editors will sell the local advertising, keeping most of the revenue; $100 monthly contracts for advertising are envisioned. The site will also have paid classifieds (but free classifieds for individuals).

In addition to local ad dollars, the editors will also get 40 percent of national ad dollars. It is suggested that local editors covering two ZIP codes can make between $45,000 and $60,000 per year.

Eventually, OurTown expects to charge a license fee to the local editors, but as a come-on, it is offering a one-year license for free to the first 1,000 takers. Seventy thousand sites are expected in Year One. The site is being advertised on Google, Yahoo!, Craigslist and other Web sites. While an illustrious advisory board of “top journalists” is claimed, there is no link to such a board on the site, or names of management, for that matter.

I’ve spent quite a bit of time over the Easter holiday talking with friends and family about the economy and how they are dealing with the budget crunch we are all experiencing. One of the common threads of all these conversations has been the need to stay close to home, combine shopping trips and call ahead so you don’t waste time and fuel going to multiple stores. 

More and more people are scaling back vacations and long car rides to try to save money. The next logical question is how people are adapting to this need to stay close to home and make every trip more efficient. Many of my friends and family admitted to using the print and online Yellow Pages more frequently as well as local search engines such as Google, Yahoo! and Citysearch because of the mapping features and more detailed information about the stores they were searching for. One friend admitted that if the ad or online profile page content was not specific enough, they moved on, which shows how valuable content is in driving leads. 

Almost everyone I spoke with was calling stores more often to check on availability, price and specific location before they left the house so they had a better plan of where to shop and how best to combine trips. One family member was even reserving merchandise on the phone so they could just pick it up to save even more time. Mapping, it turns out, is becoming a key advantage for online sites as was location specific information and maps in print. 

What does all this mean to Yellow Pages? If the trend is toward more local shopping and the need for directions, local business information and local contact information, then directional media such as Yellow Pages and local search are best suited to address these changing consumer behaviors. These suspicions were confirmed by a more scientific study conducted by Vertis Communications that focused on changing buying habits of grocery shoppers. The study echoes my less than scientific conclusions.

“Economic factors, such as gas prices and the housing market, are changing shoppers’ habits drastically,” says Scott Marden, director of marketing research at the Baltimore-based Vertis. “More than 90% are affected, and many are shopping closer to home, stocking up more and combining shopping trips.” 

Perhaps there is a silver lining for Yellow Pages and other local media in this new economic environment if they can get their reps tuned into this new phenomenon and effectively communicate the opportunity to local business owners.

More and more, people are looking at what Google can’t (or won’t) do. One thing Google isn’t doing is selling a lot of ads on a hyperlocal basis. If you look for a plumber in Tribeca, you are likely to get ads for all of Manhattan. That might simply be an issue of making sure it has enough ads to fill the inventory.

But Google also doesn’t generally get a read on information within a map itself. That’s where LAT49 sees a market. The service, from IDELIX Software, a Vancouver-based company, looks to work with providers of customized maps, leveraging Ajax and Flash, and then sell inventory against it. The company has 20 people, including a five-person sales team for selling travel/tourism, sports and recreation, real estate and local (generally).

In December, the company started working with MapQuest Gas Prices to place advertising along with the regional gas quotes. It also works with various vertical sites, such as mapmyride.com, runningmap.com and oobgolf.com to provide customized maps — and relevant ads — for people seeking a good bike route, jogging path or golf course in Southern California, or wherever they are. The ads also aren’t restricted to specific subjects, typically brands (i.e., Trek bike ads). Instead, they can be for a local bike shop, or a favorite watering hole for bikers.

One of the company’s unique attributes is the ability to place ads on top of maps, rather than having them run alongside as with most sponsored search. Chloe Morrow, vice president of operations, says that with most sites, maps are “too small because they have to make room for the ads” — a lose-lose situation.

The ad placement also frees the advertiser from a specific location. With LAT49, for instance, an REI ad is merely placed near a park, because it has an outdoor context. It doesn’t have to be at REI’s downtown location. Starbucks has similar efforts.

The company also says it benefits from being able to move the ad context as people mouse up the map — north, south, west or east. Many people who are planning a trip might take in huge swaths of geography, but always see the same ads from the origination of the search — something that may have become irrelevant (by the time they get to Phoenix).

The CBS-TV owned and operated stations are making a pitch to local bloggers and hyperlocal sites to add value to their sites with various news headline and video widgets, and take a share of ad revenues.

The CBS effort to land bloggers and find a way to compensate them is part of a growing trend among traditional media sites. Several newspapers and social sites are also looking at ways of incorporating (and paying) bloggers.

Mostly, the CBS package is designed to extend CBS’ local (and vertical) reach on the Web. That is a key thing for CBS and other local sites that don’t have enough premium inventory to go around, but still tend to under-perform on the Web due to lower online rates.

The CBS deal has been put together by SyndiGO, an arm of Seevast — an ad services holding company that is a direct descendant of Kanoodle. SyndiGO already has local deals in place in various markets with AT&T, Honda dealers and Liberty Mutual Insurance. Examples of participating bloggers include Urban Spoon, The Landry Hat and David Eisenthal.

Seevast exec Jaan Janes (who I consulted for when he was with NFL.com), says the new network takes all the pain out of putting ads on blogger sites. Built on Doubleclick’s backbone, the network recruits the sites, automates the service and provides customer service. It also screens blogs and other sites for suitable content — an important consideration for TV stations.

Another important thing about SyndiGO is it takes care of all payments, and provides a much higher CPM than the networks, according to Janes. He estimates the CPMs will climb above 50 cents –far higher than small local sites would receive from national ad networks such as Advertising.com, Blue Lithium and ValueClick. These sell remnant advertising for CPMs as low as 2 cents.

In our estimation, some sites are likely to get pretty good money from this that may go beyond subsistence. The vast majority of local sites, however, receive little traffic and would get less than $100 a month.

Janes adds that Martha Stewart has gone the same home grown route for Martha’s Circle (although that was done by Adify, a competing ad service). Looking forward, he expects to be working with a wide range of vertical sites in addition to local sites. He is specifically focusing on health, financial services and travel.

Yelp! has announced that it got $15 million in a fourth round of funding led by DAG and existing investors.

The company also sent some growth metrics:

October ‘07 — 5M Unique Visitors
December ‘07 — 6M UVs
January ‘08 — 7M UVs
February ‘08 — Numbers aren’t in yet but there were 8.3M UVs in the past 30 days.

Total number of reviews posted to the site = 2.3M.
It took 2 years and 3 months to reach 1M reviews (May 2007).
In the past 8 months an additional 1.3 million reviews were posted.

In its short history, Yelp has become something of a model for how to build a local review site and has become a clear favorite of the twenty- and thirty-something urban “foodie.” Its success has also spawned a number of similar models in Europe, such as Qype, Welovelocal and TouchLocal.

The challenge for Yelp will be to replicate itself in new cities, broaden (and deepen) its base of users, and spread its ad support beyond restaurants and bars into the services arena — something it says it has been having success with.

It’s clearly strongest in hometown San Francisco, and it has good traction in New York. It also sells ads in Los Angeles, Chicago, Seattle and San Diego.

So –what will it do with its new money? We’d guess it is likely to be used to expand to new markets, add new verticals, make minor acquisitions and do more marketing. The company has certianly used some interesting marketing tactics to seed reviews in San Francisco such as providing “People on Yelp Love Us” stickers for businesses to put in their windows, or lobbying the SF City Hall to establish a “Yelp Day” in the city (there has also been a small but interesting Yelp backlash as there is with any social phenomenon). Expect more of this kind of marketing in new markets.

To help this growth in New York, the company is also in the process of opening an office there. I plan to talk to Yelp CEO Jeremy Stoppleman later this week to dig deeper.