Why Companies Like Groupon, Yelp And ReachLocal Aren't Dominating The …
The local newspaper and the yellow pages have been slowly dying for more than a decade, leaving small businesses and merchants few options for local advertising. In its place, Internet companies like Groupon, Yelp, and ReachLocal arrived on the scene to reinvent local advertising online – but none has proved to be a digital nirvana for local businesses, because these solutions do not provide a simple and scalable way to connect with consumers who have a real-time need for their services.
Let’s look first at daily deal sites such as Groupon and Living Social. While these sites are good at taking advantage of local disposable income, they don’t particularly help small businesses grow a base of loyal customers who are not just interested in the next lowest offer. On the other hand, consumers that have an immediate need (such as a leaking roof) can’t realistically wait until a relevant offer is available.
On the other hand, while directory sites such as Yelp, Google Places and YP.com may help local consumers in the event of a real-time need, most primarily focus on simple listings and reviews… which means consumers may need to sift through dozens of reviews to find the right service provider. Reviews also may or may not be from a real customer, and more often than not these reviews are getting posted by reputation management companies and friends and family.
Directory sites simply provide raw information and otherwise add little value to consumers; they don’t offer a meaningful and cost-effective opportunity for small advertisers that will translate into a profitable method of building a business.
The traditional internet solution of web search doesn’t quite hit the mark either. For example, if I’m at work when my wife calls to tell me about a leaky roof, I might search for roof repair from my office in San Ramon. Based on my IP address, I’ll be provided a list of roof repair services near my office… 50 miles from my house in San Carlos. As a consumer, where I happen to be undertaking my internet search doesn’t mean it’s the same location I’ll need the service rendered.
The small local advertiser also has major challenges in order to become SEM enabled and profitably marketed on Google or Bing. Think about the complexities of building the database of right keywords, addressing low quality scores and page ranks, investing in website optimization in order to be able to turn expensive clicks into buyers and so on.
So how is a roofer supposed to generate reliable leads from these services? Does he have to run display ads on Yelp just to have a presence on the site at a cost of $600 eCPM (which is arguably one of the most ineffective ways of generating ROI from marketing on the internet)? Is he supposed to become a search engine marketing (SEM) expert and know the thousands of keywords that he needs to bid for in order to get just the right local customer who is in need of his services at the right time?
And while companies like ReachLocal try to make this process less complicated and offer to do the work on behalf of the advertiser, the junior support staff assigned to these accounts simply takes an ineffective solution for local advertising, primarily SEM, and make it less effective by adding their overhead and markup.
The outcome of all these ineffective offerings is that local businesses try them all for a short period of time, and then they stop. These services in return keep on hiring more sales people to sign up more new advertisers to make up for churn and hopefully grow. The bigger they get, the bigger their problem.
Here is what is really needed to have a successful local advertising model:
1. Perfect Matching: We need to create the next generation of Google Ad Words specifically for local; a platform that is designed for perfect matching between a consumer’s demand and the advertisers capacity to offer the specifically requested service in the specified geography. No more guessing, but rather perfect matching in order to avoid wasted ad dollars which has turned SEM into an ineffective solution for local.
2. Simplification: We need to simplify online marketing. By simplifying I mean massive simplification. Local advertisers are intelligent entrepreneurs who are active on social sites such as Facebook and LinkedIn. If they are given the appropriate tools, they can do their own advertising on the internet without the need to get ReachLocal’s junior staff involved. But the tools need to be designed for them and allow them advertise profitably.
3. Digestible Formats: We need to sell traffic to local advertisers in a manner that they can digest such as leads, calls and appointments. Sure, some local advertisers are able to monetize their website traffic, but most cannot. Most small business owners are interested in real opportunities to offer their services. They are not interested in something abstract such as purchasing clicks or display ads.
4. Auction Based Pricing: Lastly, we need auction based pricing for units of traffic digestible by the advertiser. After all, performance based marketing has always been the promise of the internet. Until online marketing companies treat local advertisers in the same manner they would treat large advertisers, small business owners will not commit to spending significant money with them and do so for the long-term. Local advertisers can no longer be an exception but rather we need to build platforms ideally designed for them.
Local represents a massive opportunity. It represents an opportunity ignored by most major players, and many of the early solutions in the space have mistreated and misled local advertisers with their gimmicky offerings and solutions that make no economic sense. The local market is ripe for companies that are willing to extend the promise of online marketing to businesses of all sizes.
Payam Zamani is Founder, Chairman, and CEO of Reply.com Inc., the leading marketplace for local advertisers