In Yellow Pages, the Competition Isn't the Other Fellow

At the Directory Driven Commerce conference we held in 2006, the theme was “Adapting to a Shifting Marketplace.” In my opening remarks, I noted that Ford Motor Co. had been the second-largest automobile company in the world behind General Motors for 70 years. In September 2006, Ford’s chairman said that it would give up its No. 2 spot to Toyota in order to try to become profitable by cutting models, jobs and plants.

Yesterday, Ford posted its 12th consecutive monthly decline. Its market share is now firmly ensconced in third place at 14.7 percent (vs. 25 percent at the beginning of the decade). A year ago, an industry analyst said of the automobile business: “All the old rules of the game are gone. The challenge is now to play by the new rules as dictated by the foreign competitors.”

In those comments, I incorrectly tried to compare two entirely different businesses: cars and Yellow Pages. Yes, the market place is shifting, but in automobiles the reason is more related to design, cost and extras. Despite rising gasoline prices, people are using their cars just as much as they always have. There is very little in the way of disruptive technology as there is in Yellow Pages, newspapers and other media. As Peter McDonald said on the R.H. Donnelley earnings call, the problem isn’t competitors since they tend to dilute one another.

The challenge for the industry is more one of usage of the traditional print product. More people are using IYP, local search and verticals to find the products and services they need. Both Idearc and RHD reported that their print volume was down. Idearc said that Internet volume was way up but, like the newspapers, the revenue from Internet is not replacing revenue from print advertising sales. Donnelley doesn’t break out print vs. Internet volume yet. Both companies took big hits in the stock market this week after their earnings announcements. Coincidentally, both companies are worth approximately $3.5B today. In my view, the Street is overreacting since both companies reinforced their guidance for all of 2007.

Meanwhile the advertising-based tech stocks are showing strong growth and the market is supporting them. The directory companies need to make their numbers in the fourth quarter or they’re going to find themselves making cuts like the automobile industry.