The Praized Blog

AT&T released their second quarter 2009 results yesterday morning. Like Greg Sterling did, I had to dig down in the Statements of Segment Income (excel) document to find detailed information about their directory business. No information was directly provided in the press release.

Directory operating revenues were down 12.5% in Q2 2009 (vs. the quarter one year ago) at $1,231 million and segment income was down 27.5% (also vs. Q2 2008) at $314 million. No online advertising data was provided.

In related news this week,

• Yahoo! announced a partnership with AT&T Interactive (read YellowPages.com) to start selling Yahoo! local display ads to Yellow Pages advertisers. As the release says, “The agreement between AT&T Interactive and Yahoo! is the latest addition to the longstanding strategic relationship between AT&T and Yahoo!, which runs across many Yahoo! products and services, including portal and mobile services, as well as powering Yahoo! Local with advertiser content from YellowPages.com.”
• YellowPages.com introduced a new version of YP.com, the URL they acquired from Livedeal late last year. They’re experimenting with a more user-focused online directory site there, but nothing ground-breaking yet.
• Finally, in a strange and ironic twist of editorial fate, the Yahoo! Small Business blog was explaining to its readers yesterday ”When to Pull the Plug on Yellow Pages Advertising“. Bad timing guys!

Merchant review functionalities and sites are all the rage currently in the Yellow Pages industry. In the last 2 months, amongst others, we have seen:

1. Truvo launch their own social site under the Truvo.com URL
2. Eniro launch a beta social site under the Rejta.se URL
3. AT&T Interactive announce the launch later this year of a social Yellow Pages site under a different brand than YellowPages.com
4. Herold, the Austrian directory publisher, make an investment in Tupalo, a Yelp-like destination site.
5. Canpages, the independent Canadian directory publisher, acquire assets from ZipLocal, a Canadian merchant review site.

Often called Social Yellow Pages sites, the biggest representatives of that category are Yelp (US, UK, Canada) and Qype (most of Western Europe). Both are independent, venture-funded companies. As of June 2009, more than 22 million people had visited Yelp in the past 30 days according to published internal numbers. Yelp users had written over 6 million local reviews. Qype had 9M+ unique users in May 2009 (+350% in 12 months) and 1M+ reviews.

Impressive usage numbers but an important challenge remains for these sites: monetization. For example, even though Yelp has been extremely successful from a user point of view, revenues are still low in proportion. Articles from 16 months ago mentioned Yelp’s revenues were “rumored to be sub $10 million/year” (I discussed Yelp’s monetization strategy here.)

On the other side, directory publishers, even though they’ve had for the longest-time advertiser-focused web sites, have been extremely good at generating revenues out of their web sites. For example, Yellow Pages Group (Canada) generated $C 247 million in online revenues in 2008. Over the same period, Pages Jaunes Groupe (France) achieved 471 million euros in online revenues. In the US, Yellowbook’s online revenues were up a spectacular 97.5% to $US 227 million in the last fiscal year.

Why is that? Yes, we could obviously underline the fact that these publishers represent trusted media brands, that they have large sales forces and that regular merchant contacts all play a big role in their financial success. But I would posit the moment in the consumer purchase decision process when online directories are used plays a bigger role in monetization potential.  Looking at the traditional decision process (see diagram below), online directories are clearly used when consumers are doing information search and evaluation of alternatives. Consumer reviews only happen at the end of the whole decision process, at post-purchase evaluation. Consumers will obviously look at past reviews as a proxy when doing information search but I don’t think it’s as attractive a real estate for advertisers.

Figure: Consumer Purchase Decision Process (source: Tutor2U)

I’m definitely not saying consumer reviews are useless from a strategic point of view. Consumers love to provide feedback and they love to read comments on merchants to make up their mind. I’m saying directory publishers should see reviews as one of the elements on which they build their social media strategy and one that happens at the end of the purchase cycle. It should be integrated within a more complete social media consumer purchase decision process strategy.

The filter of the consumer purchase decision process is very powerful to see who’s competing against you and to identify opportunities. Google, for instance, is clearly used by consumers when they do information search and comparing alternatives. This explains why the search giant from Mountain View is perceived as a serious threat by most directory publishers.

Enter Twitter and Facebook, the new juggernauts of the real-time conversation and real-time search world. Where do they fit in that purchase decision process? They’re definitely used for information search as well. If you search on Twitter for “Can anyone recommend” or “Looking for“, you’ll see that, every day on Twitter, thousands of people are asking for recommendations and advice. That’s why, by the way, we implemented a social media broadcast mechanism in our Praized-powered Local Answers module (used here by Yellow Pages Group in Canada) to send consumer requests to Twitter and Facebook. But I think what’s even more powerful with this new real-time conversation world is the fact that people are now actually expressing needs to the world. More than 100 people per day on Twitter say:

• their car or someone’s car broke down
• their dog is sick (or they’re sick as dog!)
• they’re moving out
• they (or someone they know) is getting married
• someone they know just died (mom, dad, cousin, grandma, grandpa, aunt, uncle, etc.)
• they (or someone they know) just had a baby
• they (or someone they know) are going to college

All these consumers are facing major life events (or know someone that are facing one) and are amazing advertiser leads for any publishers that can corral them. Consumers now want to express their needs/problems and have people/companies come to them with solutions. As I expressed in my “I have seen the future of local media” blog post, this is a new and important consumer behavior online. That’s why I believe every local media publisher will be introducing locally-relevant real-time conversation and real-time search tools within their Web sites in the next three years. That’s why I believe social media lead generation, customer and reputation management tools will become more prevalent in the next few years. That’s why publishers will introduce social ratings/reviews functionality to allow consumers to close the purchase loop after expressing needs and shopping for options. But be aware that Twitter and Facebook will certainly go after this market. This is probably the biggest opportunity directory publishers have seen since the arrival of the world wide web but it needs to be a complete strategy. Merchant reviews alone do not make a social strategy.

According to this Forbes.com article, AT&T is preparing to launch a social Yellow Pages site to compete against Yelp and likes.

Later this year, AT&T plans to roll out an alternative brand for local search, geared primarily at younger users. The site will feature the same core data–listings and advertiser information–as Yellowpages.com, but differ in how it presents information and how it uses user-submitted information. While Yellowpages.com returns data based on advertisers’ profiles, similar to a directory, the new site will prioritize results based on a user’s social connections and recommendations, says Yoo.

On this new site, a search for a sushi restaurant could pull suggestions from a broad group of friends. A more targeted query, such as one for a pediatric dentist, would be handled differently. Rather than search a user’s entire social network, the site would only provide recommendations from friends and relatives who currently have kids.

What it means: As David Yoo,chief product officer for AT&T Interactive, says in the article, they’ve realized that the Yellow Pages brand appeals to older consumers (Yoo calls them “professionals in their late 30s or older”) but that they need another brand to maintain their relevancy with a younger crowd. They also need a “play” to compete against Yelp who has managed to capture a good share of mind and usage in some of AT&T’s major markets (like San Francisco). It’s not always obvious to launch a new brand but I think it’s becoming more and more evident that it’s needed.

via the official press release found on Yahoo! Finance.

AT&T Inc.  today reported first-quarter results highlighted by improved postpaid wireless growth with a substantial step up in integrated device penetration, double-digit increases in revenues from IP-based and strategic business services, and further AT&T U-verse TV subscriber gains. Advances in these areas and solid cost management largely offset continuing economic pressures on consumers and businesses.

AT&T’s first-quarter revenues totaled $30.6 billion, net income attributable to AT&T was $3.1 billion, diluted earnings per share totaled $0.53 and cash from operating activities totaled $7.9 billion.

What it means: you have to read through the whole release to find specific directory publishing data in the AT&T Q1 2009 results but once you find it, you see that Yellow Pages operating revenues in Q1 were at $1.249 billion, down 10.7% from Q1 2008. At a quick glance, no other information related to that side of the business can be extracted. I’ll try to listen to the analyst call.

Om Malik surprised me today by suggesting Yahoo should buy Hulu, the joint venture video portal of NBC Universal and News Corp.  The company was founded in 2007 to create a destination site to present content from TV networks and was a response to the meteoric rise of YouTube.

Malik comes to that conclusion while thinking about the need for a solid number 2 exec at Yahoo! now that they’ve named Carol Bartz as their new CEO. He thinks Jason Kilar, Hulu’s young CEO, is a natural for that role and he suggests Yahoo! buys them.

He says: “With his service growing by leaps and bounds, and advertisers lining up to get on board, Kilar’s only problem is that he doesn’t have enough traffic –- like, say, YouTube. That will change over a period of time; and as we all know, time is an elastic concept. Perhaps this is where Yahoo can help. Or rather, where the two can help each other. Clearly search and search advertising isn’t quite working out for Yahoo; what Yahoo knows best is media and content. Which is why buying Hulu would be a strategically relevant acquisition for the company — it would play to Yahoo’s media strengths.”

He adds to explain why NBC and News Corp. would sell: “You’re probably thinking, why would Fox and GE sell their pet project to Yahoo? Well, why not? After all, they took a $100 million investment from Providence Equity Partners, which means they have an interest in making some sort of a return on this company.”

Wrong. Wrong. Wrong. Hulu is one of the core elements of NBCu and News Corp online video strategy.  They were ridiculed when it was first announced (Techcrunch called it Clown Co., they’ve changed their minds since then) but they proved everybody wrong.  Most people thought a joint venture between traditional media companies would fail, that the user experience would be bad, that no one would use it. According to this article, in September 2008, they streamed 142 million videos, a 42% month over month increase. It’s growing fast and on the verge of becoming a major player online. Selling Hulu to Yahoo! would be like AT&T selling YellowPages.com to Google. Won’t happen, nope. Don’t even think about it. As for return on investment, expect an IPO in a couple of years, not a sale.

And Hulu!  We want access in Canada!

Very interesting slide from Frank Jules’s presentation yesterday.  Jules is President and CEO, AT&T Advertising & Publishing.  In it, he details the high-level strategic imperatives of the AT&T Yellow Pages organization.

AT&T is working closely with Apple to roll out several new and innovative applications that take advantage of the iPhone’s advanced capabilities. For example, AT&T is finalizing YELLOWPAGES.COM mobile for the iPhone, an innovative GPS-enabled application that combines local search with social networking capabilities, giving users the ability to search for information, share reviews and plan activities with friends, neighbors and co-workers.

(seen in Techcrunch, quoting the official press release)

In business blogs everywhere, it’s that time of the year again, when we start looking back at the year that was and we start to forecast what 2008 will look like. In this post, I look back at 2007 and discuss the most significant local and social media news of the year.

1) Facebook

Clearly, Facebook was the number one news of 2007. By allowing anyone to open up an account in the Fall of 2006 (at about the same time they introduced their newsfeed function), Facebook paved the way for the arrival of tech enthusiasts and early adopters/influencers. Silicon Valley got very excited in the Spring and the launch of the F8 platform in May, allowing third-party developers to build applications, brought more excitement. I believe early adopters’ interest in Facebook has peaked (and has even started to decline) but the job is done. More than 55M active users of all ages access the site every month. The social network had a couple of setbacks around the end of the year with the beacon fracas and the launch of OpenSocial by Google but I believe it does not tarnish their luster. Facebook retaliated by opening up their infrastructure. The biggest benefit to the Web in general: Facebook is introducing people to the social web (micro-blogging, blogging, pictures uploading, “friending”), people who will eventually graduate to more complex social applications.

2) The opening up of the social web

Symbolized by the publication of the OpenSocial standard, the web is becoming more social and more open. Additionnally, the announcement by Six Apart that Movable Type, their leading blogging software, is going open source and the launch of the DiSo initiative to create open source implementations of distributed social networking are also important projects. Social will be part of the fabric of the web.

3) The launch of the iPhone and the unveiling of Android

Apple created quite a stir in June by launching the iPhone, a beautiful device that changes the way we see mobile web access. It’s not a perfect machine by any mean (still very closed) but it’s a game changer. The Android mobile platform by Google is also potentially very disruptive and paves the way to an interesting 2008 in that field. Local mobile search, the famous holy grail of local search, is on the verge of becoming reality.

4) The acquisition of Ingenio by AT&T/YellowPages.com

This purchase is a critical move for YellowPages.com and it clearly signals to the rest of the directory industry that call-tracking/pay-per-call will be the unifying standard in local product bundling, allowing a single sales force to sell multiple media formats. In the same vein, Marchex acquired Voicestar earlier this year.

5) The Radiohead “pay what you want” experiment

Even though it wasn’t as radical as industry watchers wanted it to be (Radiohead is still going to release a CD version of InRainbows), this trial by one of the most preeminent alt-rock group generated a lot of discussions in the blogosphere. Consumers were allowed to pay whatever they wanted to pay for the download including not paying at all. ComScore released some disheartening information about the percentage of people who paid for the album but that was quickly shot down by Radiohead’s management. In any case, the music industry needs more bleeding edge experiments like this one to find their future business model(s).

6) Reality check in the local search industry

The last two Kelsey conferences offered a sobering and realistic look at the realities of local search. Local is tough, hasn’t been cracked yet but offers tremendous opportunities. Stakeholders are realizing that partnerships will be needed to succeed. Two senior executives from the print directory industry talked openly about the opportunities and challenges of being a traditional media publisher and it was the first time that we heard that kind of discourse publicly. Google, Yahoo and Microsoft are all courting traditional local media companies that possess large sales forces to help them increase local revenues. I think we’re getting close to the “acceptance” stage of the Internet grief cycle and we should see a lot of action next year on the local search front.

I’d love to get your feedback on 2007 events. Anything important I forgot?

AT&T held an analyst conference today and Ray Wilkins, Group President – Diversified Businesses, was presenting the “advertising and search” portion of the allocution. The presentation shows that YellowPages.com currently generates approximately $550M in revenues and that AT&T is aiming at more than $1B in revenues in 2010 for the site. They also expect a good revenue lift from advertising appearing in U-verse, their interactive television product.

Other interesting data points include:

• Print and Online Ebitda margins in the mid-40% range in the next three years
• Mobility advertising starting end of 2008
• 2 billion search queries in 2008 and 3 billion by 2010.

You can find the slides (.pdf) here.

(found on PaidContent.org)

The Wall Street Journal reports (via ZDNet) on Google’s efforts to disrupt the wireless industry.

Of note:

“Within the next two weeks, Google is expected to announce advanced software and services that would allow handset makers to bring Google-powered phones to market by the middle of next year, people familiar with the situation say.” (…)

“The Google-powered phones are expected to wrap together several Google applications — among them, its search engine, Google Maps, YouTube and Gmail email — that have already made their way onto some mobile devices.” (…)

“Developers could, for instance, more easily create services that take advantage of users’ Global Positioning System location, contact lists and Web-browsing habits. They also would be able to interact with Google Maps and other Google applications. The idea is that a range of new social networking, mapping and other services would emerge, just as they have on the open, mostly unfettered Web. Google, meanwhile, could gather user data to show targeted ads to cellphone users.” (…)

In related news, it looks like Google is the first choice among wireless developers for developing location-enhanced application.

In another related news, YellowPages.com (owned by AT&T) announced the release of a version of their site for the iPhone. According to iLounge, “the new web app can be used by visiting yellowpages.com on an iPhone or iPod touch”

What it means: if I read between the lines, I think Google is trying to get the better of Facebook via their mobile strategy. Google is clearly designing a mobile development platform that will include basic Google applications like search, video, maps and e-mail. Developers will be able to build additional features and functionalities on top of these building blocks (like Facebook apps). Combined with the GPS-enabled phones, you will truly be able to create local social networks.