Idearc Buys Switchboard

Idearc Media announced today it is buying the Switchboard online directory asset from InfoSpace for US$225 million. This is the latest in a series of moves by Idearc to own more elements of a comprehensive IYP/local search platform. The overarching strategy is to own more pieces of the value chain, increase the amount of organic traffic it generates, and improve the margins of its online business.
Here is an excerpt from the press release:

The addition of Switchboard.com and other InfoSpace directory assets will significantly increase the scale of Idearc’s online directory platform, Superpages.com, and benefit Idearc advertisers who will be seen by more consumers. Idearc plans to leverage its existing infrastructure, advertiser base and product demand to more fully monetize the quality organic traffic acquired from InfoSpace.

“This transaction is consistent with our strategy of driving revenue generation across multiple platforms,” said Kathy Harless, President and CEO. “With the addition of Switchboard.com and its associated networks, we are increasing the scale of our fast-growing local search platform, enabling our advertisers’ content to reach even more consumers and boosting our high-quality organic Internet traffic base.”

The company held a conference cal this morning to discuss the rationale for this acquisition. Here are some highlights:

• Idearc has a target of 30% EBITDA margin on its online business. One of the challenges the publisher currently faces is having enough traffic to fulfill advertiser demand. Getting more organic traffic helps Idearc with this challenge, and according to CEO Harless, “it will incrementally help our margins.”
• Switchboard.com is currently powered by YellowPages.com. That arrangement expires shortly after the Idearc acquisition is expected to close, at that point, Idearc can begin using that traffic to monetize its PPC advertisers.
• Idearc’s Eric Chandler noted that Switchboard only relies on SEM for 5% of its traffic, the rest is from organic/SEO, which means the publisher can monetize that traffic at a higher margin. “We can control more of our destiny going forward,” he said.
• Chandler also said the Switchboard deal has no implications on Idearc’s search engine deals, though it seems clear that the more Idearc can generate organically and through SEO, the less it will relay on search engines.
• A questioner noted that Switchboard had a very low match rate on its traffic (search matching with a paid ad). Chandler said Idearc is in a position to greatly improve on the match rate based on its much larger base of paid advertisers (200,000 advertisers).

There was more, but these are some highlights.