The SMB Trojan Horse: Operational Lock-in

We’ve been watching a growing trend in Local Media where advertising providers are facing the SMB “fragmentation” challenge by finding clever back door ways into their wallets.

This isn’t necessarily new but it’s taking on new forms, and finding more fertile ground in today’s mobile environment. One way it’s happening is by offering other services that are more in need and less flooded by competition, compared to local advertising.

Angus Davis, CEO of Swipely articulated this at our Leading in Local Conference in Boston. His particular flavor of this “operational lock-in” is POS payment services — in need of disruption and increasingly conducive to local marketing (i.e. card-linked offers).

This will be a key theme at our SMB Digital Marketing Conference in Austin in September (more on that soon). Meanwhile, my monthly Street Fight column outlines the topic, latest happenings, and what could be next. An excerpt is below and you can read the rest here.

Despite lots of excitement and investment rushing into the local advertising market, one longstanding pain point quickly realized by newcomers is SMB fragmentation. It’s a killer.

Given that the majority of SMBs don’t “self-serve” (despite the common assumption otherwise), how do you fulfill low ad budgets with the high-touch sales and hand holding they require? And by the way, you have to preserve some margin, and then scale it nationally.

“The customer acquisition cost is too high relative to revenue being too low,” said Swipely CEO Angus Davis at last month’s Leading in Local Conference. You need to be paid $200 per month or more to support a local sales force. It’s not just cracking the code on product, but how do you sustainably sell to local merchants.

This of course is nothing new (to most), but we’re seeing some interesting ways of dealing with it. There have always been creative side channels to SMB wallets — things like chambers of commerce, ISPs and even places like Home Depot (see RedBeacon) or Costco.

There are also paths of less resistance to SMB marketing budgets like CRM systems, payroll, back office management, reputation management and payment processing. From there, local advertising can be unveiled as a “one-stop-shop” upsell.

Versions of this have come and gone. OpenTable has nailed this “operational lock-in.” Service Magic and others are tied in with scheduling. And Intuit made an early move (via Google partnership) to position SMB marketing along with QuickBooks.

But there are a few reasons we’re entering a more fertile environment for what I’ll call the SMB advertising “Trojan Horse.” Part of this comes down to a saturated market of local advertising: Competing against a smaller batch of operational vendors is just easier.

“SMBs have seven or eight marketing relationships — places like Yelp, Google, Yellow Pages,” said Davis. “But they only have one payments vendor. Do you really want to go in and be their 9th local marketing provider.”

Read the rest.