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Battle of the Digital Directories

Local business directories could be the next old-style business consumed (and empowered) by digital networks. The prize is big and the competition is already fierce

Oct 1, 2007

by Darren Krause

The feverish dot-com revolution of the mid-1990s is still fresh on the mind of entrepreneur Mark Ruthenberg after more than a decade. He merged onto the information superhighway with his initial web venture, Uwannawhat.com, which catered to individuals travelling to Calgary and Edmonton, providing information on tourist-related activities and businesses.

Two years later, Ruthenberg found himself trudging down the same path as many dot-com entrepreneurs. He wound down his site after pouring $1 million of his own money into it and began calculating his next move. After another two years and several lessons learned from uwannawhat, Ruthenberg still believed there was a need for a localized directory online. It just couldn’t necessarily be focused on tourism – and out-of-town visitors.

“Too many opportunities were being lost,” Ruthenberg said. “So, we broadened our reach and our relevance.” Ruthenberg’s new venture, FoundLocally.com, now casts an all-purpose net over 24 Canadian cities from coast to coast. Ruthenberg thought the key to this market was to be something larger competitors would struggle to be: a multi-faceted knowledge base merged with a local business directory.

His sites provide business listings, along with a wide variety of information, including events calendars, business ratings, regularly updated coupon offerings, job openings and local activities – options that can be changed by his clients instantly. Used as it’s meant to be, it’s like an old, paper Yellow Pages directory on steroids. The one million estimated visits per month, according to Ruthenberg, are proof of the site’s popularity.

The tantalizing feature of this system is that specific categories are linked together with local businesses. Click on “Pets & Animals” and you have the option of finding information on pet types, pet care, travelling with pets and pet groups and associations – or a search option for businesses that provide pet care – and you can do this on over 33 categories or by keyword search.
Here’s the kicker: it’s free for local businesses to sign up. Revenue is generated by national advertising. Ruthenberg says it just makes more sense to open it up to all businesses because it provides more value to people who visit the site – which in turn provides greater traffic for the businesses listing with him. He believes it is a win-win situation for everyone.

Unfortunately for Foundlocally.com, it’s far from the only company – or even the only company in Alberta – trying to dominate the online directory space while the field is still open. Just up the road, Edmonton Web Pages (Edmontonwebpages.com) mixes the traditional directory-based Yellow Pages approach with the personal touch. General manager Ken McKinstry believes there is a significant opportunity in the localized online directory marketplace. It prompted him to develop and implement his web-based approach to providing local businesses with a cost-effective avenue for advertising.
“A lot of the people, for example, such as startup companies, have a lot of overhead and they want to be able to advertise like the big companies but don’t have the budget,” said McKinstry. So his company does the advertising for them, drumming up traffic for his site with a $500,000 marketing budget. The strategy: pool your resources and get more bang for the buck.

Edmonton Web Pages is still a business directory first and foremost. What McKinstry says sets his company apart is the cost-effectiveness. When compared to approximately $4,000 per year for a static, business card-sized Yellow Pages advertisement, the $1,500 charge on his site seems a bargain. Then there’s the flexibility to personalize and change ads to reflect current sales and promotions – instantly. McKinstry believes local businesses are receiving excellent exposure for the dollars they are spending, with 16,000 hits on the site per day.

Each armed with a different strategy, Edmonton Web Pages and FoundLocally.com are vying for a piece of what appears to be a rapidly growing segment of the interactive marketing industry. A Kelsey Group report produced in March 2007 pegged last year’s worldwide print and online directory advertising revenue at $30.6 billion. It predicted an increase to nearly $40 billion by 2011, “with online growth leading the way.” While it is expected that print-based directory revenue will remain relatively flat, a significant 22% ($11 billion) jump in revenue will arrive as a result of online directories, mobile directories and local Internet search hubs.

RBC Capital Markets analyst Drew McReynolds sees huge growth in online directory advertising. “I think [the potential] is pretty enormous,” he says, noting the ever-expanding variety of ways to approach customers electronically. While he admits the competition for a piece of the online advertising pie will be fierce, the media industry analyst says the pie itself is only going to grow.
In Canada alone, there are 20.9 million Internet users, with Nielsen ratings showing that 8.8 million people are considered “active Internet users” – which means they access the Internet at least one or more times per month. With the increasing comfort in making purchases online ($7.9 billion worth in 2005), businesses need to have a presence where Internet users are going to see them. Online business directories, which can also be accessed from mobile devices, are one way to make that happen.

Companies including Foundlocally.com and Edmonton Web Pages are poised to capitalize on worldwide local search hub income that is expected to grow from $922 million in revenue in 2006 to a forecast $2.6 billion in 2010 – one of the largest increases in the sector. It’s an exciting opportunity, an opportunity that is attracting a lot of attention.

or the startups, though, there’s one major hitch: the incumbents. Directory companies from the days of paper, led by The Yellow Pages Group, aren’t going to bow out of this competition without a fight. They already have a lock on the traditional directory advertising and expect to be the standard in online directory advertising, just as bricks-and-mortar stores, exceptions like Amazon and eBay notwithstanding, have come to dominate online retail.

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