Saturday, December 12, 2009

Online Community News: Can It Work?

The online community news space is heating up. But until someone figures out an effective sales strategy, it won't catch fire.

There are several startups trying to figure out how to make hyperlocal news on the web profitable.

--There is Growthspur, which was launched with the slogan, "You Cover Your Community—We Help You Make a Business Out of It" and provides "tools, training, and networks" to local community news sites.
--There is Totalpaas, which is marketing its technology as a platform for use by community web sites.
--CNN just invested in a startup called Outside.In, which feeds neighborhood information to news sites.
-- Last summer, MSNBC acquired Everyblock, which feeds data like crime statistics to web sites.
--AOL owns the local news network, Patch.

Two weeks ago, I attended a conference at USC "Entrepreneurship and the Community Web" . In attendance were folks from more than a dozen community web sites across California. They ranged from the parent company of the San Diego News Network, which has raised $2 million to launch 50 networked local nets sites across the country, to a one man operation called Coastsider, where Barry Parr covers the community around Half Moon Bay, California, sells advertising, and even invites readers over for his annual holiday party.

It was exciting to see so much hands on experimentation and innovation going on.

The market is ripe, or so everyone seems to believe. There are certainly plenty of former unemployed newspaper journalists looking to become entrepreneurs, lots of online readers interested in news about their neighbors and their community, and loads and loads of local merchants who want to drive new customers to their outlets.

But is there a business model that works?

Can a local web site be profitable driven solely by traditional advertising dollars? I don't think so. Community Web publishers will have to be much more creative on the revenue side.

Most of the community news sites represented at the USC conference are barely breaking even, many are losing money.

Jonathan Weber, the former editor of defunct B2B magazine, The Industry Standard, and keynote speaker at the USC conference, was one of the early pioneers in local online news. He launched his New West site, covering portions of the Rocky Mountain states back in 2005. After four years, the company is now at breakeven. He drives significant revenue and profit from the event side of the business, sponsoring about four conferences a year. The events include continuing education credits in certain fields like real estate. But, local advertising, he said, is a "tough, tough game... We haven't cracked that yet."

Weber's experience in the B2B world taught him that revenue can come in all shapes and sizes, not only advertising: conferences, trade shows, webinars, rental of email lists, custom publishing, Continuing Education credits--these are all things that the B2B world routinely includes in its panoply of services, but are strangely absent or low priority in the B2C world of newspapers and magazines.

There are tens of billions of dollars being spent by local retailers on "traditional" products: direct mail, newspaper inserts, bus bench advertising, hand-delivered coupons, yellow pages, and specialized print publications. All of this money is up for grabs, and everyone is going after it--Yahoo, Google, restaurant.com, online coupon companies like savings.com and bogopod.com, or user review sites like Yelp. (Just today WSJ's All Things Digital reported that Google was in talks to purchase Yelp for more than $500 million.)

No one has quite figured out how to move all that revenue from print products to digital products. Keyword, cost-per-click advertising is certainly taking a big hunk of it already, and that has the advantage of being a "self-serve" advertising buy, with vendors bidding for spots online. But for the rest of it to move to community news sites, or restaurant review sites, or online couponing plays, there is one crucial element: SALES.

It's all about sales. Sales, Sales, Sales.

With small and medium size businesses, the owner is often the marketing director, the sales manager, and the HR specialist all in one. For example, a restaurant owner probably works most nights in the restaurant, and can't afford the time to do a serious analysis of the most cost effective marketing efforts. So that person buys an ad in the local throwaway, or a newspaper or a coupon magazine. If it works--whatever that means--they stay with it for awhile. The critical ingredient in all this is the sales person representing the media outlet. The sales person becomes the marketing consultant, the adviser who helps the business person sort through the options.

All those print outlets use sales people,usually both "inside" and "outside" representatives. The sales cost is high (as a percentage) but the price of the advertising is high also so it works. On the web, the price of the advertising is low, and it's difficult to make the sales equation work. That's the real challenge all these community news sites will face--not gathering local news, not collecting crime statistics, not finding good writers to contribute--but making sure the sales operation runs well and is cost efficient.

So here are a few tips from my years of overseeing advertising sales organizations:

--There is high turnover of sales people. It's a difficult job, and the good ones often leave for greener pastures;
--Relationships are important. Even with the enhanced measurability of response from the Internet, you are still selling an intangible, and the buyer needs help understanding what he's getting;
--Use the telephone. A lot of selling can get done on the phone. You don't have to always meet in person.
--The only way to sell a lot is to sell a lot. You've got to make a lot of calls and be prepared for a lot of rejections.
--Advertiser churn is a given. Advertisers stop spending for a while, begin again, change advertising vehicles, try something new, and come back. That's why relationships are so important.
--There is a lot more to sell than advertising. You are educating the advertiser about how advertising works, the most effective way to market, the right pitch, and even the need for marketing in the first place.

Great sales teams and creative ways for local merchants to spend money--not just relying on traditional banner advertising--will be the key to success.

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