Friday, August 05, 2005

The Pending Death of Directories & Newspapers?

A reader asked me which would die first, newspapers or yellow pages directories. First let me state that the leaders in both of these industries have the time and money to redefine themselves or simply buy into the new media world. I doubt that they will roll over and “die”. A good example of this is News Corp.’s acquisition of Intermix, parent of MySpace. Other examples include Gannett/Knight Ridder/Tribune acquiring Shoplocal and Clearly the newspapers are feeling the heat from Internet upstarts and they are actively partnering and acquiring companies to fill that need.

The publishers of directories are not yet feeling the heat to the degree newspapers are. They have seen Yahoo’s Internet Yellow Pages take a dominant leadership position, but the printed side of the directory industry has not yet felt the Internet breathing down their necks like the newspapers have.

The traditional directory publishers have teamed up among themselves in an effort to make their the leader in the space. has also partnered with AOL and Switchboard to better enable them to go after Internet Yellow Pages (IYP) leaders Yahoo and Verizon/MSN.

The fact that they are focused on distribution and internal partnership, instead of attempting to buy outside technologies, is an indication that the directory business is not yet feeling the heat from the Internet, like newspapers are. They aren’t as desperate and seem to be moving more cautiously. There are other factors to consider as well.

Shelf-life/Contract Cycles:
Two factors, which go hand-in-hand, are the shelf-life of the product and the length of the advertising contracts. Newspapers have a one-day shelf-life, while directories have a 12 month shelf-life. This is further reflected in their advertising contracts. The majority of the advertising contracts for newspapers range from daily (one-time) to monthly. This means that advertisers, presented with a better solution, can switch rapidly to exploit Internet solutions. For directories, the contract runs 12 months. Advertisers are locked in to the contract, so switching isn’t as quick.

Switching/Testing Costs:
A newspaper advertiser can easily test an Internet alternative, because if it fails to meet expectations, that advertiser can easily re-engage the newspapers advertising again, getting into the following day’s paper. However, if an advertiser declines to advertise in the printed yellow pages, they must wait 12 months before they can get back in. Because of this, directories have higher switching/testing costs.

Instead of leaping into an Internet alternative to the printed directory, the prudent advertiser might scale back their directory ad, say from a half-page to a quarter-page, while they try Internet alternatives. This has a buffering effect on the financial impact on directory publishers.

Competitive Threat:
The competitive threat to newspapers is very high, because the user experience is dramatically better online. The news is fresher, typically free, classified ads are more comprehensive (often times including pictures) and in many cases free, coupons are more convenient (and improving), Blogs provide more detailed and hyperlinked information from specialists in the field. Basically, everything a newspaper offers is much easier and better online.

The improved online user experience is taking its toll on the newspapers. For example, look at the classified ads segment. In 2003 there were 120M classified ads in newspapers in the US. At this same time, there were 602M listings on eBay. Craigslist and others present a growing threat to printed classified ads, so newspapers are facing an immediate threat.

Directories don’t have that level of threat yet. The experience is not yet that dramatically better online. Yes search is nice, being able to link to their website is nice, but the user experience with a printed directory isn’t too bad. As a result the competitive threat isn’t that serious yet. But it is coming. Search engines are all testing local search, and local search is the new front-end to directory information. Local search must keep the traditional directory folks awake at night…it should.

Tipping Point/Event:
There is often an event that wakes people up to a new technology and enables that technology to achieve critical mass or mass mindshare. For Blogs, it was the combination of the Rather-gate scandal and the 2004 election cycle. In both of these cases, the blogs had the news well ahead of the mainstream press and provided more detail than the press. As a result, people woke up to the entire concept of getting news and editorial from blogs. Combine this with feed subscription a la Bloglines and people can assemble their own ad hoc newspaper.

We haven’t seen an event that will provide a tipping point for online directories just yet. The integration of local search into general Internet search may be that tipping point. Adding some significant value such as a large number of online coupons or some other capability or event is needed to push Internet directories to their tipping point, otherwise it will take some time.

The confluence of these factors means that the impact to newspapers is more of a clear and present threat to their printed revenue streams today. This is accelerated by declining readership of newspapers, a 20 year trend. At the same time, these factors describe why I have suggested that directory publishers are probably 3 years out from feeling the impact of the Internet on their bottom line.

The Speed of the Transition:
But there is another aspect of this question that demands consideration, and that is the speed of the transition from print to digital content. In other words, once the transition to online solutions starts, or even once it hits the tipping point, how quickly will it siphon readers away from its hardcopy brethren?

We have seen a fairly rapid transition for classified ads, with Craigslist and eBay soaking up most, almost all, of the growth. This will continue to grow and printed classifieds will soon start declining. But newspapers offer a diverse set of offerings. Having seen the impact on their classifieds, they are learning and applying this knowledge to other areas, including coupons, city guides, editorial content/blogs, etc. This diversity and their painful lessons in classified ads, and news, are helping them make the transition to diversified local portals.

The yellow pages don’t have this luxury. They are, for all intents and purposes, one-trick ponies. When the Internet starts to siphon readers away in earnest, what do they do? They are trying to build a local portal, much like newspapers, but the newspapers are way ahead. When online directory information is available through your mobile phone, VOIP phone, PDA, iPod, Internet search engine, etc. and it provides richer information such as hours of operation, areas of specialty, user ratings, user reviews, coupons, etc. and it hits the tipping point, the impact on directory publishers will be more rapid than the impact on newspapers.

So while I don’ predict the death of the industries or even the companies, I believe that both newspapers and directories will, over time, shift to a predominantly online delivery mechanism. I believe that the newspapers will feel the impact sooner, and have felt it sooner. But once it starts to really impact printed directories in earnest, their fall from leadership will be more precipitous.

…but hey, I could be wrong. What does your crystal ball say?

BTW, I was on vacation, but I'm back and will be puiblishing more frequently again...

Tags: localadvertising internet business, IYP, yellowpages, newspaper, strategy