Hyper Local Business Models 2010

Online advertising & digital investments are roaring back. Yet after substantial resource infusions, most local news sites and hyper-local initiatives are still struggling, or are shutting down. We recently found out why this is happening, and what the solution is to this online revenue issue. Both are simple and supported by historical evidence.

The early days of Newspaper giants such as James Gordon Bennett, E.W. Scripps and Joseph Pulitzer offered many clues that confirmed one of our earliest theories. (Hat tip to Howard Owens at The Batavian.com) These men were first and foremost, entrepreneurs and sales men. They clearly understood the need for immediate cash flow to support their journalistic efforts. They experimented with new technologies of the day, slaughtered a few sacred cows, and did whatever possible to quickly build a Newspaper business model that was self-sustaining, scalable, and NOT primarily supported by subscribers and donations.

Recently, we were approached by a group of investors looking to conduct a study on potential opportunities in the local online space. Of course they wanted intelligence on websites that showed significant editorial or traffic gains, as well as trends in local advertiser spend. But more importantly, they wanted a deeper look into the eco-system, projects & trajectories that could be considered un-discovered gems of ‘value creation’. In other words, projects of community interest that were combined with content, functionality, management teams & revenue potential…..worthy of investment.

Some findings of note:

  1. Out of 50 sites and companies that were in the study, only 6 were run by an executive, journalist, or Interactive VP with any significant sales or revenue focused background.
  2. A whopping 90% of sites we studied, primarily structured their web model from an editorial & technical perspective, with minimal revenue strategy baked in from the beginning. These sites combine technology & journalism to build readership traffic, which would then presumably attract advertisers. Advertiser support for these efforts were either limited or non-existent.
  3. Most sites are captained by journalists, pro-am bloggers, or executives with similar characteristics. Most came up through the newsroom, editorial/programming departments, or imported from Internet pure-plays
  4. Major sites run by larger organizations had a cadre of advisors and consultants that were intellectually seasoned and arguably first rate. Their board of directors were chock full of academics, journalists, futurists and research consultants. Yet, less than 10% of the sites we studied, had an advisor or board member with actual sales experience.

Initial recommendations from this study

  1. “Build it and they will come”  no longer works as well as it used to. Revenue needs to be primary consideration.
  2. Beware of using faulty data & research from sources with limited hands-on experience with ad community.
  3. The retro-fitting of revenue tactics into an online news model after reader traffic has been established, is an increasingly flawed strategy that is blindly followed by far too many online operations. While online news sites certainly must have smart editorial & content focused executives, our research strongly suggests the importance of placing a revenue focused exec, side by side with editorial, in order to work con-currently on the challenge.

Part 2 & 3 of this report includes greater detail and recommendation. Please email us for details.

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