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There is lots of coverage today of the acquisition of Insider Pages by CitySearch. My first job in the internet industry was at CitySearch, in 1996, and some of the lessons I learned about how difficult it can be to build an online local media company have been seared into my brain.

In 1999 CitySearch bought Microsoft’s struggling Sidewalk cityguide business so this is not the first time that it has acquired a competitor. CitySearch is the dominant online cityguide business today, but it hasn’t all been beer and skittles along the way. Although quite profitable now, some have quoted that over $200m was invested into CitySearch before it ever turned cash flow positive.

There are two reasons that the online cityguide business is difficult.

The first is that the cost of building fresh, high quality local content is quite high, especially if it is done by professional editors. The new generation of online cityguides (Yelp, Insider Pages, Judy’s Book as well as CitySearch itself, Google, Yahoo and Ask, have all been addressing this problem by turning to user generated content over the last couple of years. While some models (Yelp in particular through its use of social networking incentive mechanisms) seem to be better tuned for producing high quality user reviews at volume and at low cost, this problem seems to be solvable.

The second problem is the cost of sales problem. This is a harder problem. An outside sales force tends to be too expensive a channel to use to sell online local advertising given average price points and churn rates. (It can work for high end advertisers, and for cross selling to local advertisers who already advertise in another medium).

The self service model that works so well in search advertising is harder to implement in local advertising. Unlike in search, there is often no clear link between advertising and transaction in the local space. Despite your best efforts of tracking, the vast majority of local offline transactions can’t be tracked back to a marketing source (whether online or offline). This makes self service CPC models difficult to implement for local merchants. (There has been some innovation on cost per call models and lead gen models in this space). Furthermore, many local merchants don’t have the time, nor the inclination, to actively manage their marketing budget. They prefer a predictable flat monthly fee. This also works against the mindset of many self service models.

This leaves inside sales (telemarketing). Most local online companies have settled on this model. The key challenge in local ad sales is always “getting to the decision maker”. The owner of a local business is often very busy, and talking to sales people on the phone is not high on their list of priorities. This is a viable sales channel, but it isn’t easy. Companies that have an advantage in their ability to get to the decision maker will find the most success in selling to local merchants. This is not about the value proposition of variable costs vs. fixed costs – you need to get to the decision maker to even be able to make that distinction! As this problem hasn’t changed much in the past 10 years, this isn’t about better sales training or tactics, but usually requires some fundamental shift in the marketing/sales message.

Insider Pages has healthy consumer traffic (2m UU/mth according to Comscore), a strong management team and reasonable review density across the verticals that it focused on (mostly services). Although I have no Insider Pages Insider Information, I suspect that it ran into trouble on the cost of sales problem. CitySearch can likely help with this issue given its scale and experience in the space.

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