As The Wall Street Journal reported in detail this week (subscription required), Google is planning its most ambitious attempt yet to pry money out of the local business advertising market. It’s a competitive incursion that should concern anybody who makes a living selling advertising to local businesses. But we think local print media – Yellow Pages publishing in particular – are likely to be scarred more deeply by Google’s aggressive gambit than local cable.
Here’s what’s happening, followed by the reasons we think Yellow Pages publishers are vulnerable.
Google is blending several advertising products into a unified offering that involves advertising on the Google.com search engine, presence on special local business pages, social media elements, customer feedback loops, a Groupon-style daily deals offering, loyalty/reward programs, and a payment mechanism tied to smartphone transactions. The combination will be marketed to local businesses starting this summer.
Taken together, the products create a potentially powerful mix of digital media and interaction elements that operate at every meaningful step along the retail ecosystem, from awareness to purchase to feedback. For example, a customer might learn about a local landscaping business via Google’s search engine and Google’s AdWords campaign program while conducting an online search for landscaping services. The customer can then dig deeper into discounts or offers via the landscaper’s page on Google+, the Facebook wanna-be that Google hopes to use as a bridge between consumers and businesses. The business might then offer a loyalty or rewards component to the buyer via Punchd, a business Google bought in 2011.
The individual elements aren’t new, of course. But Google is breaking new ground at the local-ad level here by tying them together in what could be a cohesive, end-to-end offering that Google, according to the Journal article, “hopes eventually will bring in billions of dollars a year in new revenue.”
Time to bar the doors, local cable ad people?
Yellow Pages vulnerability
Not exactly. The early victim, if Google is successful, is likely to be a Yellow Pages industry that’s already reeling and has struggled to gracefully integrate digital media adjuncts, despite years of trying.
Buffeted by forces including declining circulation and a sense that old-style print directories are increasingly irrelevant in the digital age, publishers will find it difficult to match Google’s digital offering breadth.
Yellow Pages publishers have had difficulty attaining traction for digital offshoots including online Yellow Pages directories, website development/hosting, and especially local online search. At the same time, an unstoppable decline in print yellow pages revenue has major publishers backed into a corner.
“The intensely negative view of the legacy Yellow Pages business (somewhat overdone in our view, given the residual value in the print product) will lead some companies to consider shutting down their print operations just so they can be valued as an online rather than a legacy business,” commented industry analyst Kelsey Group in an April blog post.
Although publishers are looking to digital for salvation, the category now represents only 29% of revenue for an industry that is expected to experience 1.5% annual revenue declines through 2015, according to a projection by BIA/Kelsey. Meanwhile, U.S. local search revenue is projected by BIA/Kelsey to grow to $8.2 billion by 2015, a 10% CAGR over five years.
While Yellow Pages publishers are making gains in the online space, they’re not enough to offset steep declines on the print side, says Sean Luce, whose Houston company, Luce Performance Group, advises cable advertising and broadcast TV sellers about sales strategies. Luce says online growth of 15% a year isn’t nearly enough to make up for declines in the much larger print Yellow Pages category. “If you take $22 billion and drop it by 5%, it’s a lot different than taking $4 billion of online yellow pages and applying a 15% increase. Online is never going to catch up with their decline,” Luce says.
Thus, the trend lines beg a question of who’s better-suited to lead the new wave of local digital advertising? Legacy Yellow Pages publishers, or newer, digitally savvy entrants like Google, Yelp and Groupon? That’s clearly the battlefront, and Google’s new attack is destined to hit Yellow Pages publishers hardest, at least initially.
Local cable advertising providers are unlikely to feel strong tremors from the upcoming battle, because Yellow Pages and online search categories generally tap a different set of ad budgets than those that typically flow to local TV and radio, Luce says. Advertisers regard Yellow Pages and local search as “ground-level” vehicles that can direct consumers to merchants, but have little impact on initial awareness.
“If you look at how people make buying decisions, 45% will go to the first place in the top of their mind. And only TV and radio can create that awareness,” Luce says.
Even so, he advises cable ad sellers to prey on Yellow Pages weaknesses by pointing out to clients the practice of grouping competing advertisers on the same or adjacent pages, and by noting that the large majority of consumers already have decided where they’re going to buy before even looking at a printed directory.
Our take: Google’s powerful position in online search makes it a formidable foe to Yellow Pages publishers. But cable won’t be unscathed. As we’ve reported, several cable advertising organizations are working to play a role in online coupons and deals categories that may be tougher to crack as Google infiltrates. Also, while local cable advertising is effective in generating local buyer awareness, the industry’s absence as a player in local search is notable. If local cable ad groups hope to extend their presence in search, the best avenue may be a partnership with Yelp, Google or another local search specialist, rather than a homegrown proposition that may be a non-starter.
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