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The Directory Driven Commerce conference kicked off tonight with a session to discuss many of the points raised in Charles’ previous post. Earlier in the day, we spent some time at the Santa Monica offices of emerging SEO/SEM provider for directories MatchCraft (more on that soon).

TKG’s Neal Polachek and Charles Laughlin led a panel discussion that also included Paul Ginocchio, CFA, Deutsche Bank Equity Research, and Maurice McKenzie, VP and senior analyst, Signal Hill Capital Group. Like many of the pre-conference sessions in the past, this discussion had a financial component, led by the insights of these speakers.

A challenge facing the Yellow Pages industry, and echoed by both panelists, involves pressure on margins imposed by online competitors and a fragmenting local search space. The corresponding challenge, according to Ginocchio, is to continue to extract value from the sales channel in transitioning to new online and offline products. Both panelists agreed that the forms of directional advertising will continue to change, while the value proposition in understanding local communities will remain. Executing strategies to best leverage and deliver that understanding will be the key to success and even survival.

Alliances are one way to execute online strategies, contended McKenzie. Consumers will continue to look for local information in many places online, so consolidating those choices and gaining strengths of channel partners can be a way to retain or grow market share. Margins must be shared with channel partners in such a strategy, but they can conversely grow the top line.

Branding and differentiation were also resonant topics. There is a great deal of end user confusion, according to McKenzie, about what book to pick up, and what differences there might be across competing books. Differentiation, therefore, can be an important strategy, particularly in building an online user experience (stay tuned for our upcoming IYP comparison report). Incumbent publishers can also use the resources of their affiliated RBOCs as a point of differentiation toward this strategy.

The panelists also recommended investing in the sales force — with the qualification that it can result in short-run financial hits but long-term revenue growth. BellSouth was cited as an example for the top-line growth it is currently seeing based on the recent addition of about 1,000 reps to its sales force.

The notion of the "continuity of contact" in reaching local advertisers was also echoed by leaders in the directory publisher space, including keynoters Ike Harris and Dennis Payne (check out the podcasted audio interviews we did with them here.)

Publishers throughout the room also batted around a perennial debate over whether the sales force should be unified or divided into separate units to sell print and online products. The main takeaway is that it depends on the size and stage of the business, but in any case advertisers largely prefer one point of contact rather than many sales calls for different media. The challenge, however, is the time and cost associated with training the sales force to sell an end-to-end solution.

Consolidation in the industry will continue as there is still some room for it and some opportunities for economies of scale, according to Ginocchio. Offering a preview of tomorrow’s panel on the convergence of classifieds and Yellow Pages was a discussion of the drivers and advantages for bringing together the two media. At a high level, most of the opportunity to converge classifieds and directories is present online (offline, Yellow Pages and newspapers conversely have very different sales organizations, which makes synergy difficult). Market factors overseas also make this convergence more attractive there than in the U.S. — the reason most such activity thus far has happened in Europe.

Mobile search and marketing was also an important topic that will gain increasing airtime over the next few years. Hardware will continue to improve, GPS will reach ubiquity in mobile devices, prices will come down, and we’ll begin to move further up the adoption curve. However, merchants — particularly SMEs — are still largely unaware and uninterested in mobile advertising, according to our most recent wave of the Local Commerce Monitor. But those attitudes are predicted to change as mobile search and advertising use gains traction with the help of other market factors.

What needs to happen, according to Nokia’s VP of Multimedia Experiences, Ralph Kunz, is a dialogue between the people who have the information (most of the publishers in the room) and those who have the technology. This is not happening as much as it should, contended Kunz, because this type of dialogue can result in a better product for the customer. There will be a session tomorrow on mobile search and marketing that will dive deeper into this discussion. There will in fact be lots of good stuff to take in tomorrow that include — but are certainly not limited to — all of the above. We’ll post the most interesting bits here. Stay tuned.

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