Tuesday, September 20, 2011

Comparative: Internet versus Yellow Pages

A month ago I commented on the attempted ban of Yellow Pages in San Francisco.  Last post I talked about resilience and how the local Yellow Pages book reflects, to a great degree, the resilience of a community.  This week I plan to discuss how the vastly different media of Yellow Pages and Internet-only advertising serve different business interests.

Many people thought that the internet would be the great leveler in the advertising world.  Suddenly, a small mom-and-pop store could put up a web site and compete in the global marketplace with the big international conglomerates.   Even today, internet advertising as a stand-alone product is sold with this underlying premise.   

To be fair, the internet had given many entrepreneurs a place to start; the simplicity of setting up an on-line store allowed a new generation to experience running their own business.  From simply selling a few items on Ebay to setting up a dedicated online storefront, the dream of self-determination became attainable for many more people than ever before.  From the quiet confines of a spare bedroom, thousands of individuals pursued their dreams of a better label, that of self-employed businessperson.  Some purchased stock, photographed it, listed it, lovingly packaged and shipped it, all over the country.   Others simply set up fronts for drop-shipping companies and waited for the orders to come flooding in.

Most found out that business was not that simple.  Finding customers - in other words, good business leads - has been the challenge for businesses since the invention of commerce.  Even the best web site is worthless if there are no leads to convert to sales.  

Lucky for the internet startup, there is a not-ostensibly-evil company that loves to connect people looking for products and services with suppliers: Google.  All an entrepreneur has to do is create the perfect site optimized for the search engines like Google, Bing, Yahoo etc, and watch the leads come in.   

As many have found out, this “Search Engine Optimization” (SEO) is not easy. For a start, the rules always change.  Or to put it into technical terms, “Google changes the algorithm.” A site that is top of the page this week may be nowhere to be found by the time the next blog post comes out.  A competitor may design a better site tomorrow, or the parameters may change.  Maybe you have a fast, slick, text heavy site that works well - then next week, video SEO becomes more important in the calculation somewhere in a server farm and, it is back to the web site drawing board.  Well not exactly. Most sites can be improved fairly easily, with good advice from an SEO consultant like Andrew Shortland, or even by following one of the better SEO blogs.

So who has the greatest resources to throw at SEO?  The home business examples outlined above? The Wall-Street backed mega-warehouse set up in a state with no sales tax? The big box stores you find at the local retail park?  Somehow I don’t think the start-up in the spare bedroom has the development resources to take on Target, Walmart, Amazon et al in the SEO arena.

But even without the resources to develop a site that can compete with the big players, the entrepreneur may get lucky in design and get to the top of the SEO rankings.  That does not mean that they are the first result on the page.  That is usually reserved for paid positions, a system called “Search Engine Marketing” (SEM), a placement at the top of the Google search results that varies in cost between ten cents to almost fifty five dollars ($ 54.91) per click (assuming the user thinks that result is relevant and clicks on the link). 

Do a Google search for popular products and you will find results including the regular big box stores like Target, Walmart, Kmart, etc.  Many times you will find the top result is a paid listing from one of the big box stores.  A search for “autumn wear” today will have Nordstrom, Target and TopShop in the paid results.  That is worth thinking about.  Corporations who can afford to have teams of SEO specialists on staff, constantly changing the website to give the maximum positioning, STILL pay to be on the first page of Google results.  SEO in itself is subject to the whims of those who write the formula - those who rely on formula alone are rolling the dice.  The Search Engine businesses like Google and Bing know this and know that businesses will buy that traffic from them.

So it’s pretty obvious that small businesses do not have the resources to compete with the larger, national and international chains in the internet marketplace.  They end up spending money either on the SEM paid listings or using a third party marketplace like Ebay, Amazon, or when the margins get too thin, Craiglist.   Rather than being the great leveling marketplace, the internet gives distinct advantages in retail to large chains over the small, local businesses. 

Not all internet advertising is dominated by national players, though.  The service industry, by its nature, tends to be more localized.  So let’s pick the fourth most expensive search terms and look at how the internet stands up:  Attorney.

If an individual in San Francisco needs an Attorney and goes to the internet, searches for one, and clicks on the top result, then that business lead may very well have cost the partnership $ 47.00.  That’s the price Google is currently charging to direct a person searching for an attorney to their web site. That's just for the click-through to the website.  At this point the person searching is just looking around, seeing if this business might meet their needs. On average, maybe one in twenty will pick up the phone or send an email.  So for each phone call or email the attorney received, it is likely to have cost him or her more than nine hundred dollars.   

If a person had picked up a Yellow Pages, the cost of displaying that ad was around 10 cents per issue for the largest, full color page!  Okay, that’s only potential customers, though, not everyone who received a Yellow Pages will need a lawyer, even in San Francisco.  Luckily, the Yellow Pages industry has a way of tracking usage:  We pick a test case, put a different number in the book, and forward telephone calls on from that number to the regular business number.  Thus we know exactly how many business leads an advert of a particular size generates in a market.  So how many business leads would the most expensive Yellow Pages Advertising create, and what is the cost per qualified lead?  Examples over the last couple of years shows that a full page package under Attorney can bring in upwards of 1200 leads at around $ 30.00 a phone call to the attorney in San Francisco. 

Yellow Pages, an industry that creates the artwork, proofs it, modifies it, gets customer approval, then prints a physical product and distributes it to over 600,000 places in the city, can do so on two-thirds of the cost per lead of what it takes to get Google to provide a simple link.  The sales, production and distribution of the Yellow Pages also provides many jobs for the residents of the city.  It provides a local search function that does not externalize the costs onto the public and the industry goes out of its way to be sustainable, both as a product and as a business model in the community.  Internet-only models externalize costs while charging far more providing nothing of resilience. 

More importantly, the Attorney in this example who is advertising in the local book is likely to be living in San Francisco, paying local state and city taxes, contributing to the local community and has an interest in the well-being of his or her community. 

Now there will be other categories of business that Google can provide leads to that are cheaper than Yellow Pages.  Those cheaper leads, however, are being chased by the same national and international players. In the same way as the economies of scale of national chains can use the availability of cheap energy to undercut the prices of locally owned businesses, Google has the ability to give big SEM spenders (those with large internet advertising budgets) a competitive advantage that drains money out of local communities into Wall Street.

Of course, the internet should have a place in the advertising strategy of any business today.  However, it does not have to be costly or paid for at the expense of more traditional and time-proven media.  To work effectively, local businesses need to work together, to network in a way that leverages the local aspect of their markets, and to promote their common, local interest.  That’s what the Yellow Pages have always done, sharing the production and distribution costs of the original Search Engine between all the advertisers contained therein. 

Next blog post, I’ll bring the conversation back to peak oil and how these models will stand up to the challenges we face in the twilight of the oil age.        

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