Re-evaluating partnerships with online newspapers

During the Internet boom of 1997-2000, online service companies and vendors aggressively sought to piggyback on top of online newspapers to reach local audiences. Local commerce accounts for $2.6 trillion in transactions every year in the United States, according to The Kelsey Group. As more and more of these transactions move to the Internet, online service companies are anxious to get a share of it, with newspapers as a principal channel for doing so.

The companies came from such disparate segments as online yellow pages, city guides, Web search engines, online coupon providers, online ticket agents, local business news services, online real estate referrals, Web search services, online auctions and even newfangled categories such as small business schedulers and retail sales aggregators.

To be certain, these companies have proved more anxious to work with online newspapers than traditional advertisers, who have concentrated mostly on reach. Online service companies and vendors, on the other hand, were looking to specifically tap into online newspaper users, who were presumably primed to use local services on the Internet. Most were willing to offer license fees, commissions and even warrants for the privilege of partnering (especially in the Top 50 markets).

All the solicitous attention didn't hurt the egos of newspaper business development executives. It also created a cottage industry for consultants who found that vendors were even more interested in their newspaper industry contacts as in their research and analysis.

Fast-forward to mid 2002.

Many of the companies hoping to piggyback on online newspapers to reach local users have failed, including such fodder for trivial pursuit as Shoppinglist.com, NextDoor Networks, Placelinks, MyCity.com, Nextron and BigBook.

Those that got their deals and are still alive have realized that online newspapers aren't likely to be their saviors. They deliver just a fraction of the audience of their print counterparts. They haven't formed effective local networks. Their users don't usually come to the sites in a commerce frame of mind. And in most cases, their sales channels have been shown to be too inflexible to add non-newspaper products to the mix.

The results have forced a re-evaluation of online newspapers' value to vendors and service providers. To be certain, many still place significant value in partnering. Switchboard, for instance, has done very well in partnering its Internet Yellow Pages product with newspapers in 14 of the top 25 markets, and in 68 smaller markets as well.

"We feel the newspaper channel has what local merchants need," Switchboard Business Development Manager Vance Gorke told us. But the terms offered by many companies have become decidedly less generous. Indeed, many service companies don't view their partnerships with online newspapers as being much more important than deeply entrenched firms with local outlets, such as computer manufacturers, software companies, utility companies, banks and national accounting firms. Sites such as Office Depot, Kinkos and Mail Boxes Etc. could be their partners.

Did online newspaper executives ever think they'd be discussed in the same breath as Mail Boxes Etc. two years ago? And perhaps, disparagingly? Indeed, some pay-for-placement search engines and Internet Yellow pages have apparently told newspapers that they'd only get the off-the-shelf rates for lead generation that have been previously reserved for ad hoc affiliates, such as college student groups and small businesses. In some cases, this would be two cents per lead, or a fraction of the 10 to 20 cents offered to portals such as Yahoo! or MSN for the same local customers.

But as the old saw goes, out of disappointment comes the opportunity. Online newspapers can still salvage relationships with vendors and earn new sources of income from them.

NewsFuture Recommendations

The key is for online newspapers to recognize their limitations and start thinking about how they can help vendors who want to use them as a gateway to online business. Here are four observations that we've made at Borrell Associates:

1. Vendors and service providers want to be presented in context on the online newspaper site. Given the limited amount of traffic on a newspaper site, giving a vendor a "click here" button at the bottom of the page somehow doesn't cut it. Switchboard reports vastly higher usage in areas where its Yellow Pages offerings have been integrated with newspaper content.
2. Newspapers have local sales forces, but they haven't been willing to train them to sell non-newspaper products as part of their sales portfolios. Yellow Pages sales forces such as Qwest Dex and Verizon SuperPages have begun to sell for partners such as Respond.com and ServiceMagic, which both provide request for quote services. Newspapers should figure out a way to leverage their sales forces as well.
3. Many national vendors and service providers want the opportunity to sell locally, but on a national basis. During the Internet boom, many made deals with smaller titles owned by newspaper giants such as Knight Ridder, Tribune and Advance in hopes of upselling later when they established a good track record. But many newspaper companies have allowed their individual titles to operate with autonomy and have never developed such a logical line of succession. Now they have an opportunity to correct that situation.
4. Online newspapers presumably have a relationship with their print counterparts. If they can provide promotional space in the print paper, some leads, or perhaps even some in context pairing of ads and content, partners are certain to find such combinations to be too good to resist. Indeed, vendors are often surprised that such combinations are not proffered to them.

It doesn't strain the imagination to see how newspapers can work with vendors and service providers to form lasting partnerships. If they put their mind to it, online newspapers have a new chance to provide their partners with win-win situations. Looking at the state of the online newspaper industry, they probably shouldn't let these opportunities slip from their fingers.