I’ve grown to the believe that there is a huge opportunity in the area that ReachLocal is targeting… there is so much advertising money floating around in the local markets and until recently so little attention being paid to servicing brick and mortar retail folks who just have a few thousand dollars a month to spend on digital advertising.

While Google is now up to something like 1.5 million advertisers, and has done a great job of servicing the long tail of online oriented advertisers. It’s the long tail of offline advertisers, which is proving to be a bit tricky to convert to online, not just because they’re the long tail and there are tens of millions of them, but they don’t live and die by traffic to their website… heck many don’t even have websites and can be pretty ambivalent toward the whole thing!

One of the newest companies to pop up on my radar screen in this area is a company called Paper G recently started by some Yale and Harvard students.  Paper G is focused on the digital display advertising space and one of their products PlaceLocal is trying to solvea familiar problem for this market which is how you make it super easy for folks with very little time, digital resources and digital wherewithal to develop and run digital display ad creative. 

The PlaceLocal product greatly simplifies the process of making an online display ad. I gaveit a trial with a popular burger joint, Five Napkin Burger, that opened a new location on the Upper West Side a few months ago.  Essentially all I had to do was type the name of the business and the city andPlace Local did most of the rest.  After typing in “Five Napkin Burger” and  “New York” PlaceLocal first found the business (ok so it was really the old location in Hells Kitchen, but I give them credit there anyway) and one click later it was busy scraping the web or hitting various APIs to find stuff to  put into the ad. While I waited a minute or two for it to do its thing, I must admit that I was pretty skeptical that it could be this easy and still be good, but I must say the result was pretty damn impressive.

After more than a few minutes of whirling ‘working’ icons… woo hoo it had found a bunch of content to use in the ad!  At this point you get to pick some VERY basic components to put in your ad like the logo, the design style and click through URL and PlaceLocal populates the rest with a slick flash movie full of restaurant images, menu images, and snippets from reviews from popular restaurant review sites like Yelp. 

There were a few hiccups with my trial run with Five Napkin Burger… PlaceLocal couldn’t come up with a logo so I had to crop the company name out of another image, but it was super easy to do with the tools provided by PlaceLocal.  And while at first pass most of the reviews selected were stellar there is one looping through that disses the endive leaves on their burger, and another Yelp snippet which simply says “a perfect side for this perfect burger” with no reference to what that side may be.   Fortunately they have great tool so you can easily get back in there and see the whole review and then edit what appears in the snippet in the ad.  In fact their tool for messing around with the assets that go into the ad were pretty good… you can add various photos and change things like business category and hours etc… and the whole thing is vey well designed to make it powerful enough to change many of the things you wanted to change without introducing too much complexity to the process.

Once the ad is created you can buy into three simplified buckets of media buying with spends ranging from $300 to $1,000 at what works out to about a $15 CPM.  

I am not sure how much traction they’ll get as a stand alone place to create and run local advertising but as a tool for easily creating local oriented ads the product does very, very well.  So it’s not surprising to see local newspapers and folks like Time Out New York flocking to check out their service as a valuable tool for their sales force selling their own owned and operated sites.  Over time too many of the similar format of intertwined user reviews and photography in a flash movie may begin to get old, but I suspect that they can develop some new templates to keep the ad creative options fresh and flexible.

It shouldn’t take long before folks like CitySearch, ReachLocal and others take notice and try to rip it off or partner with these guys.

A company called HelloMetro was busy trying to build up city oriented sites to compete with Citysearch… although it sounds like they’re still a long way off for the moment in terms of size.

The biggest booths seemed reserved for folks trying to create local business directories for consumers like Local.com and Localpages.com and also ReachLocal.com which is trying to create a platform for buying and selling local ads across the existing and search, directory and display ecosystem.

In the current age of search and with all the innovations that the existing search engines are doing to infer local intent (Google 10-pack), the idea of going back and creating a local directory seems so old school, but there they are.

Here is a drill down on what I picked up about Local.com

There are a couple of different components to their business:

Part 1 Local.com the consumer portal.
So not surprisingly people aren’t consulting the Yellow Pages as much anymore to find a businesses in their town… and in the ideal world of the folks at local.com, you’d now simply go to local.com to find your neighborhood plumber or window washer. And if that were to happen en masse local.com would be getting a nice chunk of the current $12-13 billion or so spent in yellow pages advertising every year.
It makes sense, except that folks are generally turning to traditional search engines like Google and Bing as the first place they go looking for local business information… and those search giants have most notable stepped up their local search game in the past year instead.

Local.com triple dips with every search query (see presentation at end of post)  first presenting Yahoo result followed by Superpages and finally their own internally sold business listings. And it’s important to note that over half of those search queries aren’t happening organically… Local.com spent $19 million in ads on other search engines in order to bring in $39 million in gross revenue (before rev shares/commissions). So lets say for example that they can buy the term “San Diego Florists” for $1 per click on Google but can then turn around and earn 75 cents from the Yahoo listing on Local.com and another 50 cents from the Superpages listing and an additional 25 cents from a Local.com direct deal with San Diego area florists… that’s not a bad scheme… $1 going out and $1.50 coming in.

Part 2. The Local.com Syndication Network.
The local syndication network is essentially the same offering as on local.com but instead provided as a white labeled solution to local media companies like newspapers and radio stations. So the local newspaper in Little Rock can offer the local search capability on their site and also presumably leverage their ad sales connection in the local community and profit from bringing in new clients.
Local has some patents in this area and has struck a few licensing deals related to helping improve local search… but the revenue from this is quite small so far.

While I would agree with the company that this is not purely a search arbitrage company, there is a fair amount of organic traffic coming directly to the site and its network… but you can’t help but wonder what will happen as folks like Google continue to improve on their ability to deliver local oriented search result… will a stand alone local business finder still be necessary? Is this company just providing a stop gap solution to solve a temporary problem caused by the shortcomings of the major search engines to effectively handle local oriented searches?
One very telling stat in my mind is that the company currently makes just 27 cents per unique visitor, this is compared to $4-5 in ad revenue for a good quality vertical content site, and the double digits figures that someone like Google makes. In theory the highly targeted local searcher with a strong pre disposition for actually going on to make a purchase should command a huge premium… and the fact that its not is a little worrisome.

There is a huge future in connecting the local customer to local businesses using various types of technology, it will be interesting to see where local.com can take it from where they are today.