Local On-Demand Economy: What Does it Mean for Local Media Companies?

This post is the latest in a weekly series of excerpts from BIA/Kelsey’s recent report on the Local On-Demand Economy (LODE). The series will lead up to BIA/Kelsey NOW, a conference on LODE that will take place June 12 in San Francisco.

The Local On-Demand Economy (LODE) is dominating tech headlines and VC funding, not to mention our own coverage. But what does it mean for existing local media companies and to BIA/Kelsey’s decades-long sphere of local influence?

It’s a key question considering that LODE could displace local marketing to some degree. But we see it as more opportunity than threat. As we’ve examined, LODE’s lowered barriers for SMBs and “micro-entrepreneurs” makes its addressable market considerably larger than the existing local ad market.

Is it therefore a greenfield area? And if so, are existing local media companies better positioned than LODE startups and pure-plays to capture it? So far the latter are winning, but the play for local media companies will be to bundle LODE offerings to diversify and find new sources of SMB spend.

Following a roundtable discussion on this financial outlook last week (video embedded after the jump), a related excerpt from our LODE white paper is below.

LODE: What Does it Mean for Local Media?

— Companies currently selling media or advertising to small businesses should gain an advanced knowledge of LODE — both its fundamentals and ongoing evolution.

— Best practices, current and evolving, will develop quickly and require a keen eye to learn winning strategies. This education by immersion is the first step towards devising and deploying LODE products.

— Given the possibility discussed in this report that LODE services could displace marketing in some situations, an early lead for local media companies could offset any potential losses to core products caused by new LODE entrants.

— If LODE is indeed a threat, media companies who embrace it can own their destiny, versus those who ignore it and are forced to realize too late that it is causing attrition to core revenue streams, such as SMB-oriented ad products.

— Similar lessons have been learned by industries facing disruption; and faced with the decision to embrace a new — albeit threatening and potentially cannibalistic — channels.

— Moreover, LODE should be viewed more as opportunity than threat. This can come about by embracing it and uncovering its potential sources of new business growth.

— For example, LODE’s customer acquisition efficiencies make it tenable for service providers who can’t afford traditional marketing. Therefore, its addressable market could exceed local advertising’s current boundaries to a larger SMB universe.

— LODE’s potential for new business growth is coupled with potentially increased average revenue per advertiser (ARPA) among existing SMB advertisers.

— It can also boost retention, given that many LODE services also fulfill SMB operational needs (demand aggregation, scheduling, payment processing, etc.). These have higher switching costs for businesses than advertising and marketing.

— In incorporating LODE into service bundles, local media companies have an advantage over LODE pure plays. This is due to existing sales channels, economies of scale, and compatibility with existing advertising and marketing offerings.

— There is also a one-stop-shop appeal in that SMBs and 1099 operators can save time with a single provider for both marketing and LODE-based customer acquisition tools.

— Early integration of LODE services by traditional media companies can establish familiarity and education. This will be required during LODE’s beginning stages when an early mover advantage can be gained in building knowledge, brand, and network effect.

— Media companies should carefully consider the pros and cons of building versus partnering. The former requires greater investment and reward. The latter, via API integration, can involve little risk and utilizes best or breed functionality in a given area. The cost for this fast-tracked functionality is a revenue share with the API’s owner.

— Based on the speed at which LODE is moving — a component of the speed and nimbleness of app development environments — any LODE strategies and product rollouts will need to happen much faster than is typically done by local media companies. The innovation cycle will be a function of weeks, not months.