cdixon: The problem with online “local” businesses
Jeff Pester
· 2 months ago
Hey Chris,
I did almost two years of research in to this market and I can tell you what one of the primary problems is from the perspective of the SME owner; They've had every Tom, Dick, and Harriet stop by their store and tell them that they have to be online - The Yellow Pages rep, the Citysearch rep, the Super Pages guy, the Yahoo rep, the Google reseller, yadda yadda yadda. Do they need to be on all the platforms to be successful? If not, how do you know which one to pick. Do they pick Adwords, pay-per-click, pay-per-call, what? Most that have tried one or more say the increase in traffic/revenue (if any), wasn't worth the time and energy expended.
The fact of the matter is that SME are time and budget constrained. And after their experience of the last decade they're going to need to see REAL demonstrated returns from online programs, not just threats that being absent will allow their competitors to take their business away from them.
Having said that, I firmly believe that the accelerating adoption of Twitter and Facebook is going to have a huge and positive effect on this marketplace. What's needed is a drop-dead simple CRM for the SME market that leverages Twitter and Facebook that would essentially be "sold" mostly by the customers of the SME themselves (since customer acquisition costs in the SME market are mostly deal-killers).
The easiest way to increase revenue is to get a larger share of wallet from existing customers. The second easiest is to get existing customers to refer their friends/colleagues to your service. The third is to make it easy for new customers to find you. Twitter and Facebook are perfect funnels for this type of marketing - and SME's are starting to figure it out. I think the time might finally be right for a solution to "The Local Problem".
The problem with existing Social Media integrations of Twitter/Facebook is that they've got the model inverted, they're not going to work as simple bolt-ons to existing platforms. It takes a different approach in order to be successful with the SME's. If anyone is interested in my research and/or other aspects of the project - Urban Radar - let me know.
allenburt
· 2 months ago
I agree. And to use the example of restaurants, we are already seeing young chefs "tweet" their daily menus, or engage in conversations with customers about new experimental dishes.
The online conversation btw customers and local business is rapidly growing and it's the new generation of small business owners that are leading the charge - aka they recognize the value.
Jeff, love to grab some info about your Urban Radar project.
Marcos Polanco
· 4 days ago
Google Goggles is the game changer here. To take the point of restaurants, you'd better believe owners will get religion when they see families "goggling" in front of their establishment and choosing accordingly. The "drop dead simple" CRM is certainly the way to go, but critically it will largely be under the control of the "C" in CRM.
Brian Puckett
· 2 months ago
Jeff: I am working on a 'geosocial' web applications that I believe leverages twitter and facebook exactly as you describe in your post. I could not find Urban Radar in a Google Search. I would love to read more about your research or project and share information about Hungry Garden. Help@hungrygarden.com
Tyler Willis
· 2 months ago
I'm really interested in this space, would love to learn about both urban radar and hungry garden. willis.tyler@gmail.com
Dave Blanchard
· 2 months ago
While most of this points to the problems of local today, I don't think the same problems will exist tomorrow. Many of these businesses are generational, and I don't think the next generation of dry cleaners, pubs, and laundromats will view technology as irrelevant.
As reservations, payment, etc move to the mobile world vendors will leverage technology because it is simply easier. No more stops to the dry cleaners without knowing whether my stuff is ready. No more trips to the laundromat to find all the units in use.
Much of this has to do with legacy systems I think: the lifecycle of the hardware. Once all forms of hardware are networked at a marginal cost to buyers and software exists that doesn't make every development job custom for these businesses, companies like Foursquare and Loopt are a natural place not only for discovery but for merchant processing.
I think OpenTable serves as a good example of networked hardware monetizing local.
But I'd love to hear about it if you think I'm wrong.
chris dixon
· 2 months ago
Long term, I think you are definitely right. With these kinds of tech transitions, the big question is always whether its 2 or 10 years away (in the first case your startup with thrive, in the second it won't).
ShanaC
· 2 months ago
Certain things aren't hardware- you are mentioning OpenTable, yet my favorite cafe is self-seating.
All of this is a huge pyschological shift as well. One of the reasons there can be huge amounts of churn in hyper-local businesses is that hyper-local businesses are relationship businesses: they are can be as much dependent on technical skills that have to be displayed well as they are dependent on technologies.
Craft local jobs have to be cultivated and displayed, it's one of the major reasons there is churn. I don't, and no one I know, judges a dry cleaner purely on when I get a shirt back...It's whether the owner is nice, and if the shirt is pressed correctly with no stains, in a convenient location to what I need to do, and priced correctly. Perhaps it would be nice to be text messaged about picking up my shirts, or that the other guy press shirts for a somewhat cheaper price. At the end of the day, I'm still particular about the men shirts I "borrow" to wear as tunics over dresses, or my women's dress shirts that I get from Jcrew, and who's handling them. Convenience is not the only triumph here.
paulbaudisch
· 2 months ago
Local SMBs don't want to advertise online. What they do want is leads and sales from the online channel. The difference is huge.
ReachLocal, Yodle and the online yellow pages enable small businesses to more easily spend money to advertise online. But they simply drive traffic to SMB Web pages that aren't designed to convert that traffic into leads and sales.
Those services fall short because they don't directly help SMBs generate prospects and sales. And that's why ReachLocal et. al. have the churn problems they do.
Until our industry makes directions connections between the online channel and SMBs' cash flow, "online local" will remain illusory.
ShanaC
· 2 months ago
Honestly, I think this is true for every business. What business wants to just advertise? That would be strange.
brooksjordan
· 1 month ago
I met with the CEO of an SMB last week with about 20 locations and $35M in revenue.
He said ReachLocal has been delivering him about 400 phone calls a month, about half of which became paying customers.
You should have seen his face light up.
And on top of that, he was using all of those recorded calls to do trainings with his employees. He visits one of his stores, pulls out his laptop in the conference room and goes through the calls with the employees there.
It seemed like a great example to me of "online local" coming into focus.
joemedved
· 2 months ago
Scaling local ad sales is a huge challenge, but I'm curious to see if a service like foursquare can solve that issue by making its users a sales channel.
The mayors and other frequent visitors of local businesses, who are likely well known customers, are the direct beneficiaries of foursquare discounts and promotions. If they can engage a local business to participate, they're likely to increase their activity with that business. This symbiotic relationship could make foursquare users the company's most valuable sales tool.
chris dixon
· 2 months ago
yes, that's an interesting possibility.
heif
· 2 months ago
Chris, Meetup is sustainable (profitable) by charging people (users) for a very local service. And Craigslist charges local biz. Also, thousands of Meetup Groups have signed up their own local sponsors. The independent community groups act as their own call centers. Hopefully some lessons in there for those reading this thread...
chris dixon
· 2 months ago
Good point. But back when u tried to charge restaurants etc it was hard, right?
heif
· 2 months ago
YES, very hard, but it was early in the evolution of online adv
chris dixon
· 2 months ago
My point, btw, was not to say there aren't great local businesses. Meetup is certainly one of them. I'm just continuously surprised at how many pitches I hear where the founders think getting users is the main challenge and don't realize there is a whole other huge challenge.
vrikhter
· 2 months ago
I tried my hand in this space as well and really came away with an understanding that this space will take a while to crack for a couple reasons. First is culture and second is location (I'll explain..). SMBs by trait are not going to be gazelle style businesses, they are off on their own as entrepreneurs, but in a lot of cases these entrepreneurs are putting everything they have into a business that will probably not even break the $1M rev mark (maybe someone has numbers on the SMBs that are over $1M in rev/yr?). They are doing it because its either all they know or they wanted to make a better living working for themselves ($30K employed vs. $70K running SMB). In some cases its a passion related business, but even those will fall into categories that are necessary on a location only environment (ex. a local sandwich shop).
The second point is location. There are thousands of dry cleaners, restaurants, shops, etc all over the country. There is one on every street corner, they are convenient. That is part of the issue, why should these people have to bother spending money on marketing tools when the majority of their marketing is their location to begin with? Sure, maybe a dry cleaner can add an additional 10% to their top line revenue by doing some hardcore online marketing, but that's a stretch. Nevermind the time and effort spent by the owner to try and figure this all out vs. spending time making sure his businesses is actually running. SMBs are very sensitive businesses and their owners are hands-on more than 40hours, its tough to get away and grow your business when the rewards for doing so maybe very small.
I think overtime the owners will eventually move onto local advertising, but it will become more of 'have-to' rather than a differentiator. Who knows when that will be, next year, 5 years, 10 years. Either way, its still easier for me to go downstairs sometimes and see the restaurants right next door and pick one!
Eric
· 2 months ago
Chris, you are right that Local is hard to monetize. No doubt about that. I don't think the industry has done too much by way of making it easier. Most or many small businesses know they should advertise online, but when they go to Adwords (or somewhere else), the process, terminology and time commitment are still way too daunting. However, businesses that do figure it out often have great success.
Interesting question I like to ask is whether advertising in the SMB market will be "bought" or "sold". Yellow Pages is a lot easier than online, yet even that does not have a self-serve option.
As for your 40% number, it is way off. There are 23m SMBs in the US; ~3.5 million that advertise in the Yellow pages (>13m listed); there are 600k new SMBs started every year and 500k that fail (of the 23m, not the 600k). If your point is that churn is an issue, it is certainly true.
chris dixon
· 2 months ago
Yes, on second thought that 40% number was goofy. So goofy I took the unprecedented (for me) step of editing the post. It was a churn % I heard, not going out of business %. Thanks for point it out.
paulhlee316
· 2 months ago
Chris,
Interesting insights here. We've studied the space for quite some time and really, we've come to similar conclusions, monetizing local is very difficult on a national scale.
One model that has worked offline and I believe can work online is the notion of the franchise model. I'm surprised I haven't seen many business plans pitching this concept. Would really be interesting to think about...
Ryan Graves
· 2 months ago
Fred Wilson often talks about that being an area of investment interest for USV, "taking the web offline". I really like the notion and do think there is serious potential in it. The key is that the web is now mobile.
With the intro of smartphones with decent web browsers, people can "check in" find reviews on the fly. I love seeing the Yelp stickers in bar windows because it tells me that the owners care what customers say and that's important to my experience at that venue.
The web is moving away from just the office or home pc and moving into the actual establishment.
Consider this: I walk into my local pub, I check in, pub tender is monitoring twitter or Foursquare, she see's that I showed up, pours my drink... yea I'd pay an extra couple bucks for that. The information that venues can now access is awesome and will continue to increase. IMHO, they'll definitely pay for it.
chris dixon
· 2 months ago
In your Foursquare scenario, who pays Foursquare? you or the restaurant? how much and how would the pricing work?
Ryan Graves
· 2 months ago
If a bar or restraraunt had my food or drinks ready when I arrived I'd pay extra, staying in tune with my check-ins or tweets they could provide that. The key is what could a venue do with information that would provide more value to the customer (that they would PAY for) Similar to Twitter the obvious path for foursquare is to license that info to businesses
allenburt
· 2 months ago
In your example, it sounds like a significant use of manpower and resources for a small restaurant to monitor all customers - for a marginal gain in profit. Would foursquare then receive a portion of that increased price of food? If so, the marginal gain in profit for the restaurant decreases that much more, further resulting in a decreased incentive to monitor and predict customer actions.
I understand the value of providing customer demographics and information. However, in the case of foursquare, the customers using foursquare are frequent customers that the establishments are aware of anyway - meaning they understand that demographic already. Where's the value in receiving information about what they already know?
I think foursquare is a fascinating business that is leading the charge of connecting the online and offline worlds. However, I have yet to hear a legitimate revenue model.
Ryan Graves
· 2 months ago
The money for foursquare may come from the packaging and licensing of that data.
Hypothetical: A bar could find out what other bars they are most directly in competition with. What specials and menu items are working for competitors would extremely valuabe. This type of actionable info just doesn't exist yet.
Then bars could reach out to people who have attended there competitors but not yet attended their establishment.
This is just the bar/retaraunt example... I believe there are many more verticles that foursquare could be a major player.
ShanaC
· 2 months ago
I really honestly don't think for foursquare that's the end goal. One of the most innovative parts of FourSquare is that there are essentially badges being given out.
Who says the badges have to be tied to anything in particular in the points system? What about secondary badge markets?
Ryan Graves
· 2 months ago
I totally agree. Venues could pay for badges to give out. Customers who get those badges could get deals. Great idea.
It's a little over half a year old, but still valid in my mind. I still contend that this is the right business model for them (use the badges as promotional incentives that solve the model of "proving" people went to the venue), I'd also note that most small business owners like to ask "how do I know that person wasn't gonna come in here anyway" which could be answered by analyzing user history.
My belief that 4[] has a good market opportunity in front of them doesn't make the argument that local is rife with problems any less valid. If you don't have an innovative approach that is going to solve the problem of acquisition and retention, you should just hand your investors their money back.
dlifson
· 2 months ago
Ebay and Etsy would disagree. One of the most magical things about Etsy is that their sellers print business cards with their Etsy URL on it - "myjewelryshop.etsy.com" - because they feel like they own it. It's their home on the internet. I don't know how many active sellers there are now (it's been a year since I worked there) but I'd guess around 300k. Many of these sellers also self-organized into groups ("Etsy Teams") to trade advice and pool their money to purchase larger tables at craft shows.
Reaching the internet-ignorant businesses you speak of, like house cleaning services and gardeners, is a huge problem, I completely agree. Which was why I was flabbergasted at the success of Redbeacon at TC50 this year. I wrote about it here: http://caterpillarcowboy.com/post/189369465/red...
Anyway, I think you're right, right now, but times are changing. Look how many businesses have heard of Facebook and Twitter now vs. 2 years ago. The morass of self-proclaimed "social media experts" are doing a decent job of educating local businesses, regardless of how badly they may rip off naive unsuspecting business owners.
chris dixon
· 2 months ago
When I say "local" I mean restaurants, dry cleaners etc - businesses that truly just serve their geographic area - not necessarily small jewelry makers who can profitable send stuff across the country or world. Agree Etsy and Ebay have done a great job at that.
dlifson
· 2 months ago
Gotcha. There are a few categories of local businesses who have been able to take advantage of the real time nature of social media, like bakeries who tweet when cookies are fresh out of the oven or real estate brokers who email as soon as a new listing comes on the market. But you're right, it's a tough sell and requires a large sales team. Still, if Yellow Pages can make money, there is some need that is being filled.
Adrian Bye
· 2 months ago
Seems like the ancient yellow pages have done a much better job of monetizing local business than the web!
Daniel
· 2 months ago
One of the major challenges in local is the inevitable clash between consumer users and your customers the local businesses. Acquiring consumers usually means building a service that tips the power to the consumer but when it comes to time to monetize the businesses want control over their online presence. Striking that balance early on is really tough and something I think that doesn't get talked about enough when it comes to local. I'd like to see more verticalization in the local space in one of the many under serviced verticals, like pets. Taking on individual verticals lends credibility when approaching customers and creates authority when acquiring consumer users.
Elie Seidman
· 2 months ago
Online businesses that target offline transactions are inherently more difficult than those where the transaction is online. The "river of money" is not directly accessible. The reason banks do so incredibly well - aside from gov't handouts and downside insurance - is that they are sitting directly on top of the river of money. The local business has no online river of money. Great team against a bad business - bad business wins. Local business - business where you spend your money face to face - are almost by definition offline. If they were not, then the fact that they are in location A and not B largely ceases to be relevant.
chris dixon
· 2 months ago
True, although a lot of startups have done well bringing offline businesses online - e.g. in the leadgen space. The difference is that a, say, auto loan dealer is used to paying for leads, analyzing lifetime value of customer etc.
Greg4
· 2 months ago
Eric's "bought" or "sold" comment is an important one. I think a lot of local businesses can be profitable with a customer pull model, where you're essentially spending close to nothing for acquisition. The problem is very low revenue density, so you have to resign yourself to a small piece of the pie and a very low burn rate. Craigslist might be the epitome of this approach, but it's not usually attractive to VC's and fire-breathing entrepreneurs.
The flip side is actively selling. You can probably get much higher conversion rates, but at the expense of customer acquisition costs and vulnerability to churn. The Yellow Pages obviously made it work, so maybe the key to that model is scale.
I wonder how many categories of small business would present opportunities for supplier-side micro-payments. I'm thinking of OpenTable here. Seems unlikely at first glance that a similar concept is doable for most businesses, but perhaps some clever startup will think about it harder than I have. I wouldn't have thought FarmVille would work either.
chris dixon
· 2 months ago
Opentable took many years and had to build reservation machines for startups to use. Not saying it won't happen but it is hard.
RichardForster
· 2 months ago
I'm not sure its so hard, the small hotel industry was in that situation in early 2000, they embraced online booking pretty quickly and adopted supplier-side micro-payments alongside.
Greg4
· 2 months ago
Yeah, seems like businesses with highly perishable inventory and customers open to booking online are a no-brainer in hindsight. The local dry cleaner or clothing store should be a much harder sell.
Local services (e.g., nail salon, massage therapist) probably make more sense online with something like time-based specials to fill open capacity, but it would be hard to tell whether you're really attracting incremental customers or just making people time-shift to cheaper periods and hurting your profitability.
Alex
· 2 months ago
While this data point might not be local enough for the point you are trying to make, here's recent a report that estimated 74% of Facebook's ad revenues were coming from local advertisers: http://www.insidefacebook.com/2009/07/20/report..., which would lead me to believe local advertising model can succeed.
khanan grauer
· 2 months ago
don't know if you've seen Yext present at the tc50.
focus on phone calls (as you mentioned) and pay per action metric as opposed to pay per call.
chris dixon
· 2 months ago
yes, from what I can tell they are similar to reachlocal and yodle which are also killing it.
i suspect the home page is a headfake - this is their real business http://www.yext.com/yextcalls.jsp which i bet you they promote via robocalls / call center
nikiscevak
· 2 months ago
Completely agree with everything in the post but Yodle and ReachLocal aren't killing it. They churn through an amazing amount of customers every year. Your 40% is actually conservative. Here is a report that estimates 80% annual churn: http://www.clickable.com/Corp/ContactUs.aspx?qT...
It's really hard for local businesses to understand the worth of a click on their website because that click isn't tracked to the person's eventual in-store consumption. One way to address this is to make consumers pay for things online and just pick them up offline. Then, biz owners would know exactly what clicks were worth and be willing to pay for them.
One way we are seeing this happen is the quickly growing number of sites getting consumers to buy coupons online for offline local transactions (see groupon.com, livingsocial.com). They aren't revolutionizing the local industry overnight but it's a step in the right direction.
I just was talking to someone about GroupOn and the relationship it is having to his local Business (IWish.com)
Both of you are on the mark, it is very clear that all of these newer services have to be very clearly driven by good understandings of local metrics. And those are very different than say national metrics. One of the reasons something like Groupon works is that a SMB knows how many people bought the coupon for Groupon. Their is a minimum starting point for that churn to measure against. Most businesses don't even get that.
Mobile is definitely going to be where it's at as far as getting local business to embrace online technology. Much of the local economy is based on impulse purchase and the transactions are of a far more personal nature between the business and the consumer than the average internet transaction. Mobile fits that type of transaction far better than pc.
I don't think local business will be slow to embrace a technology once they see competitors and peers actually benefiting from it. If someone produces a killer app (the likes of foursquare are probably a good staring point) that produces tangible visible benefits to the small business owner then they'll jump on it.
We have several nightclub and bar clients that broadcast offers by sms on a given evening to try and drive traffic into their venues. Whilst the strategy works quite well the problem is that it is not location based. It would be far more effective if it was targeted at people who were actually out in the area of the venue on that particular evening and who were open to receiving a voucher for a free drink or entry to a club. There may already be an app for that but if there isn't .....
restaurantzoom
· 2 months ago
We find that with restaurateurs there is a learning curve involved like one would expect. There seems to be a lot of confusion out there. Also, they are constantly bombarded by salespeople who are arrogant as well as ignorant.
Ethan Anderson
· 2 months ago
Chris, I think this is changing faster than you're giving local businesses credit for, and that it is possible to make money in local with the right product and business model. Of course I'm biased, but consider these two facts.
First, the penetration of digital/online media has now exceeded that of traditional media among small and medium-sized business advertisers for the first time. Penetration of digital/online media increased from 73 percent in August 2008 to 77 percent in August 2009 (Source: http://www.foxbusiness.com/story/penetration-on...).
Secondly, consider ServiceMagic, which most people in the industry agree is a poor experience for consumers and service providers alike. Consumers get called (and sometimes harassed) by multiple service providers who paid $50 for the lead. Since ServiceMagic generally sends the lead to 3 providers, they clean up with $150 in revenue while (at least) 2 of the 3 providers are left holding the bag. ServiceMagic is doing 100x the revenue of Yelp per user. My estimate from the IAC 10Q is that they're making $60/user and making about $148M in revenue/year. Also, despite the recession, ServiceMagic is on track to grow about 14% this year (Source: http://ir.iac.com/secfiling.cfm?filingID=104746...).
hometowntimes
· 2 months ago
Being able to aggregate revenue nationally, and from national brand companies that don't have the attrition rate at the local level that independents have, is a model that works. That's why Hometowntimes.com is a successful franchise system, leveraging a national footprint, but adding value to the local community, advertisers, and publishers. This extends beyond advertising to also answer, "What's next for local news?", which is better solved with what's next for the community, as well. The correct business model, particularly online, needs to address the career path for the local publisher as well as the content of relevance to both community, readership, and advertisers - local and national brand trying to reach their local customers. Delivery of news, and even great journalism can then be supported and thrive within that context. At hometowntimes.com, we chose a franchise business model to present a proven news site format, combined with the business opportunity for either editors, reporters, or local businesses.
Ethan Anderson
· 2 months ago
donaabo
· 1 month ago
Local is tough, tis true. Our project (focused on local staycations and requiring participation from activity providers AKA small service businesses) has a longer than anticipated sales-cycle for signing up businesses. Primarily providers only sign up when the promise of 'FREE' meets the potential for 'UNLIMITED NEW BUSINESS WITH ZERO OPERATIONAL HEADACHE'. This is a hard pitch to make, but frankly, is what technology is all about. Changing the good old paradigm is still why most of us participate - and Local is one of the last challenges the big boys struggle with - partially by virtue of who they are (wink, wink). In either case I don't believe local will be solved by a quickly scalable approach (we've tried - as has many others) - it will require significant investment and patience beyond most fb/twtr-infused investors attention spans. There are two shining examples other than Yelp that have taken an incredible (and I'd dare - more sustainable) shot at this. The old dog is Chuck Templetons Opentable.com that finally managed an IPO earlier this year - and is still not given valuations like google, but run a good, healthy bricks'n'mortar business as a service provider to restaurants. Sure it took time, but they were in the game long before Saas was even an acronym. The other is Andrew Masons GroupOn, spin-off from the brilliant, but hardly monetizable Thepoint.com. Both found ways to create significant value for the local business AND the consumer - and thus are paving the way for a) acceptance in the small business community and b) investors re-ignited interest in and appreciation of the potential in local. And - of course - let's not forget that Facebook, Twitter and before them - the dear boys at the Google-plex were there to open the door to local in the first place - and further back 10-12 years ago - the onlinization of yellowpages by Citysearch, Digital cities, etc.Thanks to those early days SMBs today understands the power of online, oh, but they do! They are simply waiting for someone to show the right path forward.
I do believe that's a challenge lending itself quite nicely to visionaries, fools and entrepreneurs in general!
All Comments
I did almost two years of research in to this market and I can tell you what one of the primary problems is from the perspective of the SME owner; They've had every Tom, Dick, and Harriet stop by their store and tell them that they have to be online - The Yellow Pages rep, the Citysearch rep, the Super Pages guy, the Yahoo rep, the Google reseller, yadda yadda yadda. Do they need to be on all the platforms to be successful? If not, how do you know which one to pick. Do they pick Adwords, pay-per-click, pay-per-call, what? Most that have tried one or more say the increase in traffic/revenue (if any), wasn't worth the time and energy expended.
The fact of the matter is that SME are time and budget constrained. And after their experience of the last decade they're going to need to see REAL demonstrated returns from online programs, not just threats that being absent will allow their competitors to take their business away from them.
Having said that, I firmly believe that the accelerating adoption of Twitter and Facebook is going to have a huge and positive effect on this marketplace. What's needed is a drop-dead simple CRM for the SME market that leverages Twitter and Facebook that would essentially be "sold" mostly by the customers of the SME themselves (since customer acquisition costs in the SME market are mostly deal-killers).
The easiest way to increase revenue is to get a larger share of wallet from existing customers. The second easiest is to get existing customers to refer their friends/colleagues to your service. The third is to make it easy for new customers to find you. Twitter and Facebook are perfect funnels for this type of marketing - and SME's are starting to figure it out. I think the time might finally be right for a solution to "The Local Problem".
The problem with existing Social Media integrations of Twitter/Facebook is that they've got the model inverted, they're not going to work as simple bolt-ons to existing platforms. It takes a different approach in order to be successful with the SME's. If anyone is interested in my research and/or other aspects of the project - Urban Radar - let me know.
The online conversation btw customers and local business is rapidly growing and it's the new generation of small business owners that are leading the charge - aka they recognize the value.
Jeff, love to grab some info about your Urban Radar project.
As reservations, payment, etc move to the mobile world vendors will leverage technology because it is simply easier. No more stops to the dry cleaners without knowing whether my stuff is ready. No more trips to the laundromat to find all the units in use.
Much of this has to do with legacy systems I think: the lifecycle of the hardware. Once all forms of hardware are networked at a marginal cost to buyers and software exists that doesn't make every development job custom for these businesses, companies like Foursquare and Loopt are a natural place not only for discovery but for merchant processing.
I think OpenTable serves as a good example of networked hardware monetizing local.
But I'd love to hear about it if you think I'm wrong.
All of this is a huge pyschological shift as well. One of the reasons there can be huge amounts of churn in hyper-local businesses is that hyper-local businesses are relationship businesses: they are can be as much dependent on technical skills that have to be displayed well as they are dependent on technologies.
Craft local jobs have to be cultivated and displayed, it's one of the major reasons there is churn. I don't, and no one I know, judges a dry cleaner purely on when I get a shirt back...It's whether the owner is nice, and if the shirt is pressed correctly with no stains, in a convenient location to what I need to do, and priced correctly. Perhaps it would be nice to be text messaged about picking up my shirts, or that the other guy press shirts for a somewhat cheaper price. At the end of the day, I'm still particular about the men shirts I "borrow" to wear as tunics over dresses, or my women's dress shirts that I get from Jcrew, and who's handling them. Convenience is not the only triumph here.
ReachLocal, Yodle and the online yellow pages enable small businesses to more easily spend money to advertise online. But they simply drive traffic to SMB Web pages that aren't designed to convert that traffic into leads and sales.
Those services fall short because they don't directly help SMBs generate prospects and sales. And that's why ReachLocal et. al. have the churn problems they do.
Until our industry makes directions connections between the online channel and SMBs' cash flow, "online local" will remain illusory.
He said ReachLocal has been delivering him about 400 phone calls a month, about half of which became paying customers.
You should have seen his face light up.
And on top of that, he was using all of those recorded calls to do trainings with his employees. He visits one of his stores, pulls out his laptop in the conference room and goes through the calls with the employees there.
It seemed like a great example to me of "online local" coming into focus.
The mayors and other frequent visitors of local businesses, who are likely well known customers, are the direct beneficiaries of foursquare discounts and promotions. If they can engage a local business to participate, they're likely to increase their activity with that business. This symbiotic relationship could make foursquare users the company's most valuable sales tool.
The second point is location. There are thousands of dry cleaners, restaurants, shops, etc all over the country. There is one on every street corner, they are convenient. That is part of the issue, why should these people have to bother spending money on marketing tools when the majority of their marketing is their location to begin with? Sure, maybe a dry cleaner can add an additional 10% to their top line revenue by doing some hardcore online marketing, but that's a stretch. Nevermind the time and effort spent by the owner to try and figure this all out vs. spending time making sure his businesses is actually running. SMBs are very sensitive businesses and their owners are hands-on more than 40hours, its tough to get away and grow your business when the rewards for doing so maybe very small.
I think overtime the owners will eventually move onto local advertising, but it will become more of 'have-to' rather than a differentiator. Who knows when that will be, next year, 5 years, 10 years. Either way, its still easier for me to go downstairs sometimes and see the restaurants right next door and pick one!
Interesting question I like to ask is whether advertising in the SMB market will be "bought" or "sold". Yellow Pages is a lot easier than online, yet even that does not have a self-serve option.
As for your 40% number, it is way off. There are 23m SMBs in the US; ~3.5 million that advertise in the Yellow pages (>13m listed); there are 600k new SMBs started every year and 500k that fail (of the 23m, not the 600k). If your point is that churn is an issue, it is certainly true.
Interesting insights here. We've studied the space for quite some time and really, we've come to similar conclusions, monetizing local is very difficult on a national scale.
One model that has worked offline and I believe can work online is the notion of the franchise model. I'm surprised I haven't seen many business plans pitching this concept. Would really be interesting to think about...
With the intro of smartphones with decent web browsers, people can "check in" find reviews on the fly. I love seeing the Yelp stickers in bar windows because it tells me that the owners care what customers say and that's important to my experience at that venue.
The web is moving away from just the office or home pc and moving into the actual establishment.
Consider this: I walk into my local pub, I check in, pub tender is monitoring twitter or Foursquare, she see's that I showed up, pours my drink... yea I'd pay an extra couple bucks for that. The information that venues can now access is awesome and will continue to increase. IMHO, they'll definitely pay for it.
pay extra, staying in tune with my check-ins or tweets they could
provide that.
The key is what could a venue do with information that would provide
more value to the customer (that they would PAY for)
Similar to Twitter the obvious path for foursquare is to license that
info to businesses
I understand the value of providing customer demographics and information. However, in the case of foursquare, the customers using foursquare are frequent customers that the establishments are aware of anyway - meaning they understand that demographic already. Where's the value in receiving information about what they already know?
I think foursquare is a fascinating business that is leading the charge of connecting the online and offline worlds. However, I have yet to hear a legitimate revenue model.
that data.
Hypothetical:
A bar could find out what other bars they are most directly in
competition with. What specials and menu items are working for
competitors would extremely valuabe. This type of actionable info just
doesn't exist yet.
Then bars could reach out to people who have attended there
competitors but not yet attended their establishment.
This is just the bar/retaraunt example... I believe there are many
more verticles that foursquare could be a major player.
Who says the badges have to be tied to anything in particular in the points system? What about secondary badge markets?
who get those badges could get deals.
Great idea.
It's a little over half a year old, but still valid in my mind. I still contend that this is the right business model for them (use the badges as promotional incentives that solve the model of "proving" people went to the venue), I'd also note that most small business owners like to ask "how do I know that person wasn't gonna come in here anyway" which could be answered by analyzing user history.
My belief that 4[] has a good market opportunity in front of them doesn't make the argument that local is rife with problems any less valid. If you don't have an innovative approach that is going to solve the problem of acquisition and retention, you should just hand your investors their money back.
Reaching the internet-ignorant businesses you speak of, like house cleaning services and gardeners, is a huge problem, I completely agree. Which was why I was flabbergasted at the success of Redbeacon at TC50 this year. I wrote about it here: http://caterpillarcowboy.com/post/189369465/red...
Anyway, I think you're right, right now, but times are changing. Look how many businesses have heard of Facebook and Twitter now vs. 2 years ago. The morass of self-proclaimed "social media experts" are doing a decent job of educating local businesses, regardless of how badly they may rip off naive unsuspecting business owners.
able to take advantage of the real time nature of social media, like
bakeries who tweet when cookies are fresh out of the oven or real
estate brokers who email as soon as a new listing comes on the market.
But you're right, it's a tough sell and requires a large sales team.
Still, if Yellow Pages can make money, there is some need that is
being filled.
The flip side is actively selling. You can probably get much higher conversion rates, but at the expense of customer acquisition costs and vulnerability to churn. The Yellow Pages obviously made it work, so maybe the key to that model is scale.
I wonder how many categories of small business would present opportunities for supplier-side micro-payments. I'm thinking of OpenTable here. Seems unlikely at first glance that a similar concept is doable for most businesses, but perhaps some clever startup will think about it harder than I have. I wouldn't have thought FarmVille would work either.
Local services (e.g., nail salon, massage therapist) probably make more sense online with something like time-based specials to fill open capacity, but it would be hard to tell whether you're really attracting incremental customers or just making people time-shift to cheaper periods and hurting your profitability.
http://www.techcrunch.com/2009/10/01/the-25-mil...
focus on phone calls (as you mentioned) and pay per action metric as opposed to pay per call.
i suspect the home page is a headfake - this is their real business
http://www.yext.com/yextcalls.jsp which i bet you they promote via robocalls / call center
On Yext, it's the college kids making the calls: http://www.yext.com/recruiting/sales/
One way we are seeing this happen is the quickly growing number of sites getting consumers to buy coupons online for offline local transactions (see groupon.com, livingsocial.com). They aren't revolutionizing the local industry overnight but it's a step in the right direction.
Other sources of local affiliate links are sites like restaurant.com, seamlessweb.com and opentable.com. If people know of others, we would love to hear about them.
Both of you are on the mark, it is very clear that all of these newer services have to be very clearly driven by good understandings of local metrics. And those are very different than say national metrics.
One of the reasons something like Groupon works is that a SMB knows how many people bought the coupon for Groupon. Their is a minimum starting point for that churn to measure against. Most businesses don't even get that.
I don't think local business will be slow to embrace a technology once they see competitors and peers actually benefiting from it. If someone produces a killer app (the likes of foursquare are probably a good staring point) that produces tangible visible benefits to the small business owner then they'll jump on it.
We have several nightclub and bar clients that broadcast offers by sms on a given evening to try and drive traffic into their venues. Whilst the strategy works quite well the problem is that it is not location based. It would be far more effective if it was targeted at people who were actually out in the area of the venue on that particular evening and who were open to receiving a voucher for a free drink or entry to a club. There may already be an app for that but if there isn't .....
First, the penetration of digital/online media has now exceeded that of traditional media among small and medium-sized business advertisers for the first time. Penetration of digital/online media increased from 73 percent in August 2008 to 77 percent in August 2009 (Source: http://www.foxbusiness.com/story/penetration-on...).
Secondly, consider ServiceMagic, which most people in the industry agree is a poor experience for consumers and service providers alike. Consumers get called (and sometimes harassed) by multiple service providers who paid $50 for the lead. Since ServiceMagic generally sends the lead to 3 providers, they clean up with $150 in revenue while (at least) 2 of the 3 providers are left holding the bag. ServiceMagic is doing 100x the revenue of Yelp per user. My estimate from the IAC 10Q is that they're making $60/user and making about $148M in revenue/year. Also, despite the recession, ServiceMagic is on track to grow about 14% this year (Source: http://ir.iac.com/secfiling.cfm?filingID=104746...).
In either case I don't believe local will be solved by a quickly scalable approach (we've tried - as has many others) - it will require significant investment and patience beyond most fb/twtr-infused investors attention spans. There are two shining examples other than Yelp that have taken an incredible (and I'd dare - more sustainable) shot at this. The old dog is Chuck Templetons Opentable.com that finally managed an IPO earlier this year - and is still not given valuations like google, but run a good, healthy bricks'n'mortar business as a service provider to restaurants. Sure it took time, but they were in the game long before Saas was even an acronym. The other is Andrew Masons GroupOn, spin-off from the brilliant, but hardly monetizable Thepoint.com. Both found ways to create significant value for the local business AND the consumer - and thus are paving the way for a) acceptance in the small business community and b) investors re-ignited interest in and appreciation of the potential in local.
And - of course - let's not forget that Facebook, Twitter and before them - the dear boys at the Google-plex were there to open the door to local in the first place - and further back 10-12 years ago - the onlinization of yellowpages by Citysearch, Digital cities, etc.Thanks to those early days SMBs today understands the power of online, oh, but they do!
They are simply waiting for someone to show the right path forward.
I do believe that's a challenge lending itself quite nicely to visionaries, fools and entrepreneurs in general!