Citysearch officially rolled out its CityGrid publisher network this week. The network moves Citysearch away from an exclusive focus on its individual sites (“Citysearch.com,” “Insiderpages.com,” “Urbanspoon”). Instead, it works on a distributed basis with partners (i.e., “SuperPages”) to marry local content and advertising.

In the short term, CityGrid represents the new face of Citysearch and the next evolution in the local market. It allows the company to leverage its existing infrastructure and content, and reach down into the distribution channel with a more automated and cost-effective option versus a focused business development effort. For its publisher network, and its 500,000 local advertisers — projected to jump to 750,000 by year-end — it also represents a real alternative to Google.

Overall, our enthusiasm for the product is as high as it was when we were first walked through it some 14 months ago. Here’s why we like it. The local market fundamentally suffers from two broad problems. First, it’s hard to make money without a substantial investment in sales. Even then, success is not assured. Second, content is expensive to create. Yes, user reviews can be acquired, but there are still large swaths of categories that still lack deep engaging content.

In theory, CityGrid addresses both problems. It gives small and large developers local content and local monetization together in package. The power of this cannot really be underestimated since both of these are hard to come by, not to mention expensive. Urbanspoon used this to great success and eventually was acquired by IAC (Citysearch’s parent). Nearly every review and ad on Urbanspoon was from Citysearch.

We have seen some reports that this product is a reaction to other companies in the field entering the space. It’s not. If anything, it simply takes the winning strategy of opening up an API to developers and letting them build products on robust infrastructure. Think Google Maps, for example.

To our knowledge, there is no one else doing this model with the same scale and focus. Indeed, 100 developers signed up to work with the API within the first two days of its release. We expect, however, that more people will enter this market quickly. But not before Citysearch gets a major head start, if Citysearch CEO Jay Herratti gets his way.

“My vision is [that it will become] the leading content and ad network for local,” he told us, adding that it is no longer just about Citysearch.com as a destination site. “This is Citysearch,” he says. “It isn’t distributed in one place. It is part of many places, all around the Web.”

The result also provides an alternative to Google. “We look at what Google is doing with local as a major competitive threat,” says Herratti. “It controls access to the Internet.

“Last year, we were building and rebuilding,” Herratti notes. “This year, we are very, very focused on execution.” Still, the current product is relatively primitive and will be rapidly evolving. “Right now, we are talking about version 1.0” he says. “Twelve months from now, there will be new geotargeting solutions, new ways of creating content. We’re taking all of these pieces and putting them together. The next thing is to optimize, and optimize.”

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It seems appropriate to revisit this comparison, given some of the dialogue I’ve recently seen in print and online. Everyone knows the ad market has been bad. The more interesting question is whether we have entered a fundamental shift in spending behavior. For some time, I have been telling people that we will see a change in advertiser spending patterns. The change in spending will be driven by de-leverage or debt financing (mortgage refinancing, etc.) coming to an end. No more easy money.

In local, a specific example might be a kitchen remodeling contractor. To get work, during the cash-out re-fi boom, the hardest part was answering all the demand. There was so much work that a contractor could pick up job after job with out much extra effort. The result is that these verticals did not move spend to interactive as quickly as others. The reason: too much work and no reason to change. Now that is over.

When things are going well, people tend to do the same things the same way as yesterday. In the case of the hypothetical kitchen remodeler, it kept advertising in the same places during the boom. According to psychologists, there is certain predictability to such behavior. When the environment changes radically (e.g., the economy falls off the cliff), people change their behavior and start to act differently. In a couple of quarters we’ll know for sure if this is the case here when we update Q3 and Q4 numbers across media.

Next week, Kelsey clients will get to see data at BIA/Kelsey’s Orlando conference that showwhere SMB spend is going based on more recent research (completed last month). Guess where?

Net/net: We expect interactive advertising to start to gain momentum over the next year as advertisers reevaluate their spending behaviors.The following is a financial summary of the Q2 ad market across media.

1Q and 2Q Results

Using major publicly traded media companies as proxies for the media industry as a whole, we see there was an overall reduction in advertising revenues in the first quarter of 2009 compared with a year ago. Radio groups were the hardest hit with a 22 percent fall, followed by television with an 18.6 percent decline, and newspapers with a 15 percent decline. In Q2, radio groups were down 20.6 percent, television declined 20.4 percent and newspapers decreased 7.5 percent.

Radio and television ad spending typically see a bump in the second and fourth quarters, as was the case in second-quarter 2009. While some ad revenues lifted in the second quarter, the numbers were still far below the same period in 2008. Radio and television saw the largest declines: 20.6 percent and 20.4 percent, respectively.

The Internet Results

Over the past 18 months, the Internet category overall has held up fairly well, and is virtually unchanged, as can be seen in the chart below. Television and radio revenues, on the other hand, have dropped precipitously. As we have stated previously, when spending returns, interactive will disproportionately benefit.

Quarterly Revenues Index of Publicly Traded Media Companies

Sources: BIA/Kelsey, Company filings, Capital IQ (2009)

In the second quarter of 2009, the Internet category shrank 3.4 percent relative to the same time last year. However, there are signs of deceleration in the slide down. From the first quarter to the second, the decrease was only 0.2 percent, compared with 7 percent from fourth-quarter 2008 to first-quarter 2009.

The post Interactive Will Get More Ad Spend in Recovery appeared first on BIA/Kelsey - Local Media Watch.

Financial terms of the transaction were not disclosed. Typically, however, these distribution deals involve a minimum guaranteed payment in exchange for traffic guarantees. The top payment on traffic referrals is usually capped.

The Idearc deal, which this deal replaces, was rumored to be worth more than $20 million per year to Microsoft. We would therefore expect the AT&T deal to be within that range.

The Yellowpages.com announcement is more bad news for Idearc, Microsoft’s current local provider. On top of the distribution loss, Idearc recently had a string of high-profile executive departures that include: two CEOs (the last one eight days into the job reportedly leaving for health reasons), the CFO, the chief legal officer and the president of the Internet group. The company also reported lower than expected earnings weighed down by heavy debt service. Finally, it means that Idearc reps will face off against Yellowpages.com reps touting valuable logos in their sales kits.

The Microsoft deal means AT&T has now closed exclusive distribution agreements with all the major portals (AOL, Microsoft and Yahoo!). The company also has a reseller agreement with Google.

Yellowpages.com CEO Charles Stubbs expects the MS deal to add an incremental 35 million monthly searches on top of 125 million currently reported. Stubbs was pleased that this deal brings the company even more reach “across all 50 states.”

What’s the point of specifically mentioning all 50 states? Well, Yellowpages.com has been aggressively adding “white space” sales reps (areas where AT&T does not operate with a print book). We estimate the company has added more than 1,000 Internet sales personnel over the past year. These reps predominately sell in locales where Idearc operates print and online. From AT&T’s perspective, this means that all sales are truly incremental dollars with little fear of print cannibalization.

We will offer more detailed analysis of this deal in an upcoming Kelsey Group Advisory.

Update: Idearc Media has issued the following statement on the AT&T-Microsoft agreement:

“Our agreement with MSN did not meet our expectations and did not perform as effectively as we had hoped. We are continuing to pursue other opportunities for our advertisers — given that we have a performance-based model and a different strategy than MSN.”

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“… Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.

“Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets … “

Read the entire letter on the official Google blog.

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Intuit has announced that it will acquire Homestead Technologies, a company that provides a suite a Web creation and e-commerce tools, for US$170 million in cash. This acquisition continues Intuit’s march into what we term a “connected services,” or combined software and Web services, business.

We have been believers in this concept for some time now. In fact, we ran considerable analysis around the acquisition of StepUp Commerce for US$65 million and the Google-Intuit deals last year (for example, please see: Intuit Deals With Google, StepUp to Have Major Impact on SMEs). Kelsey was the only firm pre-briefed by these companies ahead of the acquisition and partnership.

A lot has been written on this topic and we disagree with the naysayers. Intuit has proved it can drive self-registration of SMBs with product lines as diverse as payroll. The advertising products will get there as the assets are consolidated and programs fall into place. We expect that this will take time since integrating changes into software products takes longer than changing Web sites.

We still believe Intuit’s software and services model is where we’ll see a strong competitive advantage with regard to the SMB market emerge. Again, Intuit is the company to watch for this software and services model.

If it were not for U.S. and European regulators, we would add Microsoft here as well. As it stands, it’s hard to know with certainty how much cross services bundling will cause the various agencies to slow the process with regard to the software giant.

No doubt, Allison Mnookin will tell us more at the following ILM:07 session, Friday, Nov. 30:

9:30 am – 10:00 am
Keynote Address
Allison Mnookin, Vice President, Small Business Division, Intuit
For Intuit, the publishers of Quicken and Quikbooks, nothing is more important than engaging the small-business owner, and leveraging that relationship –something Intuit is effectively doing with Google and others. This keynote by Intuit’s Small Business leader Allison Mnookin addresses the challenges of winning strategies for small-business services and advertising, and Intuit’s success strategies.
Moderator: Neal Polachek, CEO

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For a while now, we have been saying that the inclusion of call tracking is the inevitable conclusion of a true multi-platform business where usage is distributed across mobile, print and the Internet.

Our view is that call tracking provides a sort of “portfolio optimization” of lead delivery. For example, if the Internet cannibalizes consumer usage traffic from print, call tracking can make up for the declines via mobile or search.

This is easier said than done. But we have viewed this outcome as a foregone conclusion for some time.

Some will say this acquisition is defensive posturing. We disagree. If you take AT&T and list the company’s portfolio of assets, you quickly realize that it maintains a leading position in every key market in which it operates save one: the Internet. Even with the latter, we’re talking about overall usage and not the ability to successfully sell SMBs into the channel, per se.

Market fragmentation is making advertising more complex, time intensive and accountable. But advertisers want accountability and simplicity. This gives it to them.

In our view, Ingenio is a good acquisition for AT&T for a few reasons:

It’s profitable, with revenues rumored to be north of US$100 million.

• It has key distribution with key portals like AOL.
• It has substantial technical experience in pay-for-performance, call optimization, call tracking and lead tracking.
• It’s rumored to have hundreds of key patents around call tracking, pay-for-performance and cross-media lead optimization.
• It has deep experience with PFP bidding engines and placement.
• It has a strong management team with big ideas about multi-platform lead optimization.

This shows that AT&T has enormous plans across all the company’s business units. In our view, this includes print directories as well. There are numerous categories, for example, where prices have risen to such an extent that many advertisers have left the print book. Value-based pricing opens the door to bring back advertisers, sell new ones and retain more of the current ad revenue base.

In the end, value-based advertising is what this is all about. This means simple and accountable results for advertisers. If AT&T can successfully employ this strategy across the company’s diverse set of assets (print Yellow Pages, Internet, mobile, directory assistance and ad-sponsored DA), it will have managed to push to the forefront of the strategic landscape.

We’ll have more to say later.

The post AT&T Buys Ingenio appeared first on BIA/Kelsey - Local Media Watch.

For a while now, we have been saying that the inclusion of call tracking is the inevitable conclusion of a true multi-platform business where usage is distributed across mobile, print and the Internet.

Our view is that call tracking provides a sort of “portfolio optimization” of lead delivery. For example, if the Internet cannibalizes consumer usage traffic from print, call tracking can make up for the declines via mobile or search.

This is easier said than done. But we have viewed this outcome as a foregone conclusion for some time.

Some will say this acquisition is defensive posturing. We disagree. If you take AT&T and list the company’s portfolio of assets, you quickly realize that it maintains a leading position in every key market in which it operates save one: the Internet. Even with the latter, we’re talking about overall usage and not the ability to successfully sell SMBs into the channel, per se.

Market fragmentation is making advertising more complex, time intensive and accountable. But advertisers want accountability and simplicity. This gives it to them.

In our view, Ingenio is a good acquisition for AT&T for a few reasons:

It’s profitable, with revenues rumored to be north of US$100 million.

• It has key distribution with key portals like AOL.
• It has substantial technical experience in pay-for-performance, call optimization, call tracking and lead tracking.
• It’s rumored to have hundreds of key patents around call tracking, pay-for-performance and cross-media lead optimization.
• It has deep experience with PFP bidding engines and placement.
• It has a strong management team with big ideas about multi-platform lead optimization.

This shows that AT&T has enormous plans across all the company’s business units. In our view, this includes print directories as well. There are numerous categories, for example, where prices have risen to such an extent that many advertisers have left the print book. Value-based pricing opens the door to bring back advertisers, sell new ones and retain more of the current ad revenue base.

In the end, value-based advertising is what this is all about. This means simple and accountable results for advertisers. If AT&T can successfully employ this strategy across the company’s diverse set of assets (print Yellow Pages, Internet, mobile, directory assistance and ad-sponsored DA), it will have managed to push to the forefront of the strategic landscape.

We’ll have more to say later.

The post AT&T Buys Ingenio appeared first on BIA/Kelsey - Local Media Watch.

The participants echoed findings from our research that small businesses need help with Internet advertising. The panelists widely agreed. But there were a few interesting deviations around who would actually be the best seller of local ad inventory.

Zorik Gordon stated: “Self enrollment doesn’t work. We have 10,000 customers and we’ve had four self-enroll. The jury is out in the long run, but I can tell you that putting a button in QuickBooks after someone files their taxes is not going to work.”

He went on to claim that “the incumbent Yellow Page publishers are economically disadvantaged. We get 50x sales efficiency vs. a print rep.”

Horowitz disagreed, saying that “incumbents should not be counted out.” We have heard, but have yet to confirm, that some of his incumbent partners are pushing very high billings through Marchex.

Horan, meanwhile, suggested that while IAC has a bunch of “Premier 1.0 Brands,” he envisioned a day when media partners would sell CPA-based advertising on the company’s behalf. Horan drove IAC to lead the MerchantCircle investment “to increase the lead flow of our operating businesses.” Most of the businesses that sign up with MerchantCircle do not return, so it will be interesting to see whether Horan’s thesis bears fruit.

There were two interesting differences in sales strategy from The Knot, which is the leading Wedding portal, and Web.com. The Knot’s Liu said “95 percent of the businesses we sell have Web sites.” Conversely, Web.com’s Stibel suggested that most of its customers are new to the Internet. In fairness, Stibel’s Web.com is the largest independent seller of Web products with more than 250,000 merchants. It claims more than 4 million accounts in all.

Liu summed up his top sales representative’s strategy for closing business. She told him, “David, I only need three words to sell: Sugar, Honey and Darling.”

Most participants agreed that selling was easier than retaining. Everyone agreed that delivering value to the advertiser was really the only thing that mattered.

The post Piper Jaffray Global Internet Summit appeared first on BIA/Kelsey - Local Media Watch.

The liberal open source license means developers will be able to build applications for mobile services worldwide much like they do for the Internet today. Updates and new applications will be managed through a publicly accessible repository where each platform module is assigned an owner who validates developer contributions.

The consortium lacks some big names such as:

• Other Internet portals like Yahoo!, currently one of the leaders in the mobile space
• Microsoft, which likely views the open source consortium and, especially Google, as competitive to the company’s internal efforts
• AT&T and Verizon, two dominate carriers with the majority of U.S. mobile phone subscribers
• Nokia, now the owner of NAVTEQ, which provides Geographic Information Systems (GIS) data that powers the routing information for most Internet and mobile mapping applications
• Apple, which has deep relationships with both AT&T, via the company’s iPhone, and Google, where Eric Schmidt is a board member

So, What Does All This Mean?

First, we are reiterating our U.S. mobile forecast through 2012. The forecast breaks out usage and revenue into the three ad segments: Ad-Sponsored Voice Services, Mobile Search and Browse and Multi-Modal Applications. Today’s announcement gives further indication that this is indeed the correct lens through which to view this nascent ad market. Our U.S. forecast calls for these three segments to grow from $33.7 million to $1.42 billion, a 116 percent CAGR, through 2011. We should start to see mobile services via Android in 2008 in Europe, the U.S. and Pacific Rim.

Importantly, we were very adamant (much to the disappointment of many stakeholders with embedded applications and walled services) that the mobile market would evolve to become an extension of the Internet. Today’s conference call and announcement indicated that “Android will include a full browser experience and that no special development effort for mobile browsing will be required.” Again, in our mobile forecast we made note of the fact that existing advertiser networks and subsequently current Internet ad economics would play a crucial role (clients and those with our U.S. mobile forecast, please see slides 36, 38, 40 and 41, which outline Internet ad economics and compare our forecast assumptions).

Next Date to Watch: Nov. 12

On that day, the Software Development Kit (or SDK, if you like acronyms) will be released. This will give the first look into the state of interface and tool set that has been developed. “With devices built on the Android Platform, users will be able to fully tailor the phone to their interests. They can swap out the phone’s homescreen, the style of the dialer, or any of the applications.”

And of course, my personal favorite from the consortium Web site, “Applications are not set in stone, and differentiation is always possible. For example, if you want to include Hotmail instead of Gmail, it will not be an issue.” The person who added this line has a keen sense of humor.

The Lingering Questions …

On the conference call, Google sidestepped the rampant rumors of a Gphone prompting Jeff Graham of USA Today to compare Schmidt’s comments to a political campaign by asking, “What’s the deal?” Schmidt would only say that there would be thousands of Gphones and that Google does not preannounce any products. Net/net: Expect more speculation about the Gphone.

And Apple? Schmidt praised the iPhone, mentioning that he is in fact an iPhone user. Later, a Telegraph reporter mentioned that the Apple Runs LS 10 and comes out this week in Britain and probed for a connection. Andy Rubin, founder of Android and now the Director of Mobile Platforms for Google (the company acquired by Google and the namesake of the mobile effort), said to that question many companies will build on top of this platform.

Reading the Tea Leaves (Purely Speculation, for Fun)

Given:

• AT&T is the largest U.S. wireless carrier
• Apple’s partnership with AT&T
• The historic competition between Apple, Microsoft and Google
• Microsoft’s statements around the importance of the mobile ad market and the company’s computer operating system market share
• The SDK release next week, which, depending on how one reads into the release, may or may not include at least some touch screen application development tool kits

It sure looks like Apple sits in one of the most important positions in this nascent market.

The post A Closer Look at Google's New Mobile Consortium appeared first on BIA/Kelsey - Local Media Watch.

The liberal open source license means developers will be able to build applications for mobile services worldwide much like they do for the Internet today. Updates and new applications will be managed through a publicly accessible repository where each platform module is assigned an owner who validates developer contributions.

The consortium lacks some big names such as:

• Other Internet portals like Yahoo!, currently one of the leaders in the mobile space
• Microsoft, which likely views the open source consortium and, especially Google, as competitive to the company’s internal efforts
• AT&T and Verizon, two dominate carriers with the majority of U.S. mobile phone subscribers
• Nokia, now the owner of NAVTEQ, which provides Geographic Information Systems (GIS) data that powers the routing information for most Internet and mobile mapping applications
• Apple, which has deep relationships with both AT&T, via the company’s iPhone, and Google, where Eric Schmidt is a board member

So, What Does All This Mean?

First, we are reiterating our U.S. mobile forecast through 2012. The forecast breaks out usage and revenue into the three ad segments: Ad-Sponsored Voice Services, Mobile Search and Browse and Multi-Modal Applications. Today’s announcement gives further indication that this is indeed the correct lens through which to view this nascent ad market. Our U.S. forecast calls for these three segments to grow from $33.7 million to $1.42 billion, a 116 percent CAGR, through 2011. We should start to see mobile services via Android in 2008 in Europe, the U.S. and Pacific Rim.

Importantly, we were very adamant (much to the disappointment of many stakeholders with embedded applications and walled services) that the mobile market would evolve to become an extension of the Internet. Today’s conference call and announcement indicated that “Android will include a full browser experience and that no special development effort for mobile browsing will be required.” Again, in our mobile forecast we made note of the fact that existing advertiser networks and subsequently current Internet ad economics would play a crucial role (clients and those with our U.S. mobile forecast, please see slides 36, 38, 40 and 41, which outline Internet ad economics and compare our forecast assumptions).

Next Date to Watch: Nov. 12

On that day, the Software Development Kit (or SDK, if you like acronyms) will be released. This will give the first look into the state of interface and tool set that has been developed. “With devices built on the Android Platform, users will be able to fully tailor the phone to their interests. They can swap out the phone’s homescreen, the style of the dialer, or any of the applications.”

And of course, my personal favorite from the consortium Web site, “Applications are not set in stone, and differentiation is always possible. For example, if you want to include Hotmail instead of Gmail, it will not be an issue.” The person who added this line has a keen sense of humor.

The Lingering Questions …

On the conference call, Google sidestepped the rampant rumors of a Gphone prompting Jeff Graham of USA Today to compare Schmidt’s comments to a political campaign by asking, “What’s the deal?” Schmidt would only say that there would be thousands of Gphones and that Google does not preannounce any products. Net/net: Expect more speculation about the Gphone.

And Apple? Schmidt praised the iPhone, mentioning that he is in fact an iPhone user. Later, a Telegraph reporter mentioned that the Apple Runs LS 10 and comes out this week in Britain and probed for a connection. Andy Rubin, founder of Android and now the Director of Mobile Platforms for Google (the company acquired by Google and the namesake of the mobile effort), said to that question many companies will build on top of this platform.

Reading the Tea Leaves (Purely Speculation, for Fun)

Given:

• AT&T is the largest U.S. wireless carrier
• Apple’s partnership with AT&T
• The historic competition between Apple, Microsoft and Google
• Microsoft’s statements around the importance of the mobile ad market and the company’s computer operating system market share
• The SDK release next week, which, depending on how one reads into the release, may or may not include at least some touch screen application development tool kits

It sure looks like Apple sits in one of the most important positions in this nascent market.

The post A Closer Look at Google’s New Mobile Consortium appeared first on BIA/Kelsey - Local Media Watch.