The last couple of years has seen the emergence of “local”. For years the local directory space has been dominated by Thomsons & Yellow Pages, both of which have built exceptionally strong brands and customer loyalty over many years- especially Yellow Pages with their iconic brand.
However both have failed to recreate their success online, notably Thomsons who have failed to keep pace with Yell and transition their revenues from print to online. Why is this?
Firstly, they’ve had the problem most traditional print publishers’ have-the protection of existing print revenue.
Secondly, and most worryingly, they have both developed antiquated platforms built for robust revenue generation but neglecting the user experience and failing to utilise today’s web technologies such as social infrastructure. In today’s world, no UGC or community equals a struggle.
TouchLocal, who have developed a social fabric over the top of their directory are the only business besides Yell to make real money from the UK directory market- as at May 2009- (£14m turnover in 2007), but they have found it very challenging to build a user community and haven’t been able to gain engagement or build a community following the launch of a suite of social tools in early 2008.
It must also be noted that their commercial strategy leaves much to be desired and is surely not sustainable- Read what I had to say about it here.

In late 2007 an influx of local search start up’s appeared, with the trend continuing in early 2008 with new entrants such as BView developing wiki “anyone can edit” platforms.
The objective for all of these new entrants is to disrupt the Yell model with a “web 2” approach and over time grow their share of revenue. (In 2007 Yell reported online sales in the UK of £118m).

It’s a fairly straightforward space to enter with low start up costs and a revenue model that is based on low cost, high quantity of sales. (Yell.com has around 160,000 paying customers with an average sale in excess of £500 per annum).

However sites such as
Welovelocal, Tipped, TrustedPlaces, LocallyCompared and Brownbook have all realised (pretty quickly) that generating classified revenues from an increasingly sceptical SME (small, medium enterprise) market is extraordinarily difficult and the costs of deploying a sales effort often far out-way the financial return.
This inability to monetise has led to a situation where bootstrapped entities in this space are now fighting for traffic and user adoption and are being forced into raising cash pre-revenue, which VC’s in the UK just aren’t interested in.
(I should point out that WeLoveLocal were acquired by GCAP Media in March 2008 and BrownBook secured seed investment sometime in 2008, although I doubt anywhere near enough to not require additional funding without sustainable revenues).

A notable success that bucks the trend is Qype, who have managed to find a formula that has generated a highly active community and the emergance of sustainable advertising revenues. However, what Qype had that many others didn’t was time, afforded to them by two rounds of investment totalling around €13m. They claim about 5m uniques a month, which dwarfs competitors.
I’m interested to see if they are able to deliver value and ROI to advertisers, which the likes of TouchLocal have failed miserably to do. And finally, just to make the space even more interesting, competitive and over crowded, Yelp!, the dominant reviews site in the US, entered the UK market in January.

What start ups in this space are now realising is:
1) the “local” space is exceptionally difficult to monetise
2) it’s a market that is very easy to launch into and has therefore become seriously over crowded
3) VC’s in the UK want to see proof of principle around revenue before committing funds, which is why local search businesses are forced to continually fund themselves

BView have tried to differentiate themselves by becoming a money saving site, offering vouchers from chains that enable their users to save money. They are also, as far as I am aware, the only business in this space to focus on building strategic partnership deals, such as their partnership with leading search engine ASK.com, which I believe is a very smart move.

To win, or even just to stay competitive in this market, businesses need to differentiate and stop developing me-too apps. Trying to compete for the same traffic & paying customers is making a hard task even harder.
There are ways to succeed and the revenue is out there but I suspect over the 12 months only a certain few will be around to reach that tipping point……