Friday, June 17, 2005

The Internet Yellow Pages Jockey for Position

The Internet Yellow Pages (IYP) market is a very interesting one. While search is great for finding stuff online, when you want to buy locally the yellow pages help you find businesses to buy from, making them a key influencer of transactions. With 98% of all transactions occurring offline, this is clearly the big market. Needless to say, some big players are fighting over the market.

Here is the current market share breakdown:
Yahoo – 25.5%
Verizon/MSN – 18.4%
SBC/BellSouth ( & – 12%
Switchboard – 7.6%
Infospace – 6.3% – 5.4%
DexOnline – 5.2%
AOL – 5.2%
Other – 14.4%

The regional bells are playing aggressively to defend their print franchises by combining efforts through a joint venture between and the regional efforts of SBC and BellSouth, giving them a virtual share of 17.4%. They have also distribution partnerships with Switchboard and AOL giving them even broader reach. Game on!

The Kelsey Group values this market (market cap not revenues) at $100 billion. It is shaping up as the “virtual” Bells et al. against Verizon and Yahoo. Of course, virtual companies (through joint ventures and distribution partnerships) are notoriously harder to manage and less conducive to innovation than centralized companies or divisions. On the other hand, the Bells have huge sales forces on the ground meeting with and selling integrated solutions (search engine clicks, print yellow pages, IYP, etc.) to the local businesses, with whom they have existing relationships. Therein lies another question; how will the sales force rationalize selling fixed price offline advertising and less expensive pay-for-performance online advertising?

The bigger question hanging over this market is who really owns the online consumer. Because the company that owns the online consumer will, by default, end up owning the advertiser too. In other words, will consumers find businesses through search or through an IYP destination site? That is the $100B question.

If consumers decide to enter “plumber san jose” in a search engine instead of going to their IYP and searching for plumber in their zip code, then the IYPs must either partner with search engines or eventually watch their role and revenues dwindle. [Note: Google and BellSouth have a partnership]. With a $100B market at risk, buying a search engine might even make sense. The search engines would benefit from the feet on the street from the Bells. On the other hand, the search engines can buy the same basic IYP content from InfoUSA or Acxiom, and quickly jump into the market.

Of course, Yahoo has the ideal position of having the Internet traffic, search engine, leading IYP and other services like VOIP that they can weave into the mix. If I were an IYP, Yahoo would be the biggest competitor and Google would be the biggest threat.

In my next post, I’ll spell out some strategies I would recommend to the IYPs to help them bolster their ownership of the consumer. The one thing we have learned from Microsoft is that the company that owns the user interface has tremendous influence (dare I say monopolistic influence). If the IYPs cede the interface to the search engines, then they become invisible and replaceable.