TechCrunch reported this week…
Yelp, the popular local review site, will soon announce a new $15 million dollar round of financing led by DAG Ventures. The valuation is rumored to be in the $200 million range. Yelp says that they will be using the money to expand geographically, add onto their sales team, and establish an office in NYC (they are based in San Francisco). This is Yelp’s fourth round of funding since their founding in 2004. Yelp is also boasting some impressive stats: 8.3 million uniques in the past 30 days and over 2.3 million review.
Yelp has become a poster child for how to build a local reviews site and has become a clear favorite of the twenty and thirty-something urban “foodie”.
And Greg Sterling offers…
Yelp’s success is about its “personality” and “transparency.” The site has managed to create a brand as a result of offering content that people have come to value and trust.
This brand identity is what now lifts it above many or most of its competitors.
But it’s the comment area on TechCrunch that starts to get at the most interesting points. E.g.,
Comment No. 12 says in part…
Local interest websites are always non-viral, because they operate in the disjoint “internets” of each metropolitan area. So one needs to wait a very long time before they reach decent size. For Craigslist, it took 7-8 years. VCs will not wait that long. To accelerate this, you can throw money at the distribution/marketing. I do not know what the timescale for them will be in NYC, but VCs may get impatient, especially because this business is very recession-prone, and the recession is coming.
Comment No. 15…
i’m no expert, but $200mm for sub-$10 million revenue, no profits, and difficult to scale growth (building a community in a new metro area takes time and local ad sales takes sales manpower) seems really generous. i guess yelp is essentially the market leader and probably does get high return traffic from those who do use the site… maybe you can argue a decent ltv for each user?
And comment No. 37…
I helped start a review site that was funded at the same time as Yelp, InsiderPages, Judysbook, etc. After building the feature set, we set forth to capture the YP advertising market. Kelsey Group and other industry pundits were playing up the pending “massive” migration of local advertising from offline to online. We all wanted to be there to capture it.
There was one big problem with capturing those ad dollars: the cost of sale. Reaching out to local businesses costs money, a LOT of it. I’m not sure what Yelp’s rate in customer-review-leads-to-advertiser equation looks like, but here’s some back-of-the-envelope math:
2.3 million reviews
Assume average of 1.5 reviews per business location (this is generous)
yields
1.5 million businesses reviewed to dateBreak down those businesses:
60% local, 40% regional or chain (some split along those lines)The ad dollars are in the “national-local” or “regional-local” businesses. They have bigger budgets, and they’re familiar with the web play. But if you’re in the local review business, how many of your users will enjoy ads from Applebees and Home Depot?
So, you go after the “local-local” businesses, because that’s what brings the value of your site (Yelp) over the big guys (Yahoo Local, Google Local). Reaching out to these folks? You have to put feet on the street, and the cost of the sale just doesn’t pencil out.
Because of this, Yelp’s strategy is obvious acquisition. But at those numbers and a fourth round, they need to be eclipsing the {portal-name-here} Local properties in traffic. In short, good luck.
Front Porch Forum is not a local review site (although many of our subscribers do use it for reviews), but many of the points above apply. We launched in our pilot area about 18 months ago and it gets a little easier every day in ways that money can’t buy.
Greg Sterling reports this week…
The IAB reported its estimate that 2007 saw 25% growth in online ad revenues for a total of $21.1 billion vs. $16.9 billion in 2006. You can expect the distributions to be similar to 2006:
- Search — 41%
- Display — 32%
- Classifieds (which includes directories) — 18%
- Lead Generation — 8%
And TechCrunch offers more data.
In another post, Sterling pulls together some other advertising data and estimates, including…
Most interesting to me in the MerchatCircle survey is the finding that most SMBs aren’t willing to spend more than $100 per month on online, whether or not they believe print YP to be an effective ad medium. That’s $1200 per year. Compare that with a rougly $3500 average annual print YP spend. ReachLocal, by comparison, says it’s getting a minimum of $1000 per month from advertisers, but it’s going after the bigger print YP spenders.
Anecdotally, Front Porch Forum is finding each small business it deals with to have a different story and approach to buying online ad space. Some won’t take a freebie while others will spend in excess of the $1000/month mentioned above without hesitation.
A detailed posting about Smalltown.com‘s status today including its acquisition of Local2me.com… worth a read (comments too for a little fun).
While I’m uncertain if Smalltown’s approach has enough juice to keep people tuned in (it’s a souped up yellow pages with some social networking running through it), I am fascinated by their authentically local approach… town by town growth with real people on the ground.
Front Porch Forum is a small start-up business that my wife and I have self-financed to date. We’ve been blown away by the incredible reception this free service has received from the more than 7,500 local households who have subscribed so far… better than 30% of Burlington, VT, our pilot city, is on board!
We’ve recently begun selling ad space on FPF to local businesses and nonprofits and this is going well, and we’re developing other revenue streams too. All told though, the business requires more income than it’s generating so far, so we’ve set up a contributions page for any and all who would like to support this ongoing effort financially. Donations to date have ranged from a few dollars to a few hundred… any amount is helpful in furthering FPF’s mission and is genuinely appreciated.
“We are delighted to support Front Porch Forum with a financial contribution, and feel we have seen firsthand the many benefits it brings to our neighborhood and the wider community. It is our pleasure (and responsibility!) to lend a hand.” —Siobhan Donegan, ONE Central Neighborhood Forum
Some particularly pleased members have elected for our monthly contribution plan… sign up once and your credit card automatically pays whatever sum you indicate each month… a kind of voluntary subscription fee.
G. Patton Hughes writes about his experience operating a hyperlocal news site called paulding.com… one focused on the network and the other on advertising. Some excerpts (well… lots of excerpts)…
Key to this success in the hyperlocal environment is the audience… For myspace it is the peers of the tweens and teens; for facebook, college peers constitute the largest draw. Frankly, one of the main reasons both sites are a success is that most there are probably on the make.
While there is some of that on paulding.com, the draw is infinitely more community minded. Many come to this hyperlocal community because they need the knowledge of those who live and know the community.
The point is each kind of social network targets a different demographic group – and most are places where ‘people like me’ congregate. That the large national social networks seem to target the youth is unmistakable. What is equally obvious is that in the hyperlocal sphere, it is geography rather than the common angst of being pubescent that is at the core of the social mortar.
This meas the hyperlocal network naturally targets adults living in a community. The prom is decidedly less an issue than is deciding the communities future by passing a fire tax. The challenges they face are politics, dealing with government, dealing with the schools, dealing with fulfilling the needs of the family to shelter, feed, clothe, educate, entertain and keep its children safe. All of these processes are at the core of adult involvement in a community. It is their interests, presence and experience and their willingness to share that knowledge that are at the core of the value proposition of the hyperlocal social network.
And…
The power of this network is that as it forms and grows it begins to write the narrative of the life of the community. In doing so it naturally challenges the schools, the newspapers, the politicians and the business community – any and all who previously controlled the public debate. The authority of those who head local institutions will likely find themselves in the midst of unanticipated conflicts.
I just can’t see adults with family and community responsibilities spending all day “poking friends” on Facebook. Seems I’m not alone…
Remember the Gail Sheehy’s book “Passages?” Consider that people in the Internet age are going through one of many stages in life. As they age they will not so much change their media habits as adapt them to the new demands they face. I’m pretty certain they will move on from these national peer group networks and with the nesting instinct, instead turn to tend their gardens in their own backyards. My gut is they will migrate to a hyperlocal social network if one exists in their community and that migration will be an element of their passage from being kids to adults…
I fully believe that hyperlocal networks will become integral to the communities. Part virtual tool, part social network and part news, their function is to aggregate the knowledge and understanding of the adults in a community. As in all networks, it is the people who are the most valuable resource. It is their local knowledge that adds value.
However I question the next point… I think the glue is connecting with those around you rather than local news.
Local news is the glue that brings these largely disparate elements of community life together and only a fool would expect the result to be quiet order. Strife and conflict are as natural an element of the network as are death and taxes. Those who create these hyperlocal social-networks will have to be adept at managing them.
Managing that and bringing together a new kind of community that has more cohesion than dissention is the challenge of the hyperlocal community network builder.
For those who might say, but it is the sales, stupid, I can’t over-emphasize that commerce is the life-blood of a community network and permeates all aspects of the community. The task of the 21st century hyperlocal publisher is to build a virtual social, economic, political and spiritual network that transcends the conflicts of individuals and ultimately unites all elements of the community by telling their individual stories.
The tool is radically different from a newspaper. There will be hundreds or thousands of individual writers conversing. Still, when it is all distilled, the product of the hyperlocal network is just a new kind of journalism.
I can see how this looks like a new kind of journalism to a journalist… but I see it more as a new kind of citizenship… one where lots of people are involved in a open conversation with those around them about issues large and small… a huge departure from the individualism and isolation so in vogue today.
And about ad sales…
The secret of good sales is a good salesperson… give a good salesperson a product like Paulding.com with our average 10,000 daily visits, average 15 pages per visit and 13 minute plus average visit and money will come.
Yes, I’m celebrating a bit because we’ve had our best month yet. Not great but we’re now at about 20 percent of target in revenues up from about 12 percent. Our target revenue is $25,000/mo.
[Also] for a hyperlocal site to get national advertising revenues they’re going to have to either go with Google adsense or find some other kind of national representation.
The first is http://www.thenewsroom.com. This is generating about $250-300/month with my traffic and has given me access to those local stories… The second national site is http://www.adsdaq.com which is serving the purpose of a national advertising representative… They are selling about 25 percent of that inventory and and I’m netting over $300/month from the arrangement.This helps me establish a value the value locally for these front page banners at about $1400/month which, while they don’t sell for that locally, makes for good conversation with locals over the value of advertising on Paulding.com.
And do know that establishing that value proposition is a critical task in local sales… but not nearly as important as a good salesperson.
Great stuff… congratulations and thanks to Paulding.com
Congratulations to Smalltown.com… it launched its seventh small town website today. Some lessons…