Dave Naffziger's Blog

Local sites have been drastically scaling back because many are realizing it is very expensive to even build a break-even business purely in local. This is manifesting in the significant changes at local online startups, and even monday-morning quarterbacking on the shift at JB. This problem is two-fold:

• Local businesses mostly do not self-serve online. Even mighty Google has outsourced to local sales forces to sell search ads (everyone from yellow page companies, to leads.com to citysearch.com). It costs $200 to $300 to sell a local business via telesales that has an average life of ~12 months. These numbers seemed to hold up across different online local sales forces.
• User passion and high value categories rarely overlap. Users love restaurants. They love reading about them and they love writing about them. They don’t really relish writing about their real estate agent or contractor. Restaurants pay Opentable $1 per reservation, and traditional methods (adsense, ypn, banners) are atrocious. Contractors pay ServiceMagic up to $100 a lead. Shopping is an exception - value and passion align nicely.

Citysearch, the most successful online local property to date, required tremendous capital to reach break even. Sure, they could have been leaner, but the reality is that their business is driven by their sales force not their website. And, their sales force is mostly selling non-Citysearch inventory (and then funneling this money into ‘citysearch’ ads on Google and Yahoo that take you to a business page on citysearch -essentially small businesses are directly funding Citysearch’s ad budget).

We intend to build a sustainable business without significant additional funds. We raised a lot of money, but we didn’t (and didn’t want to) raise enough to build a local sales force. There is still money to be made in local online - it just doesn’t involve selling to small businesses.