The Upcoming Bubble in Local Search

Yodle and Ambassador, both out of NYC, were featured in a Kelsey Group press release.  Yodle was founded by a friend of a friend of mine and just raised $10MM.  And ReachLocal’s $300MM valuation is insane.  Funny that these guys, Orange Soda, Webvisible, LocalLaunch, Marchex, and other folks are getting into the local advertising game, but that the engines and yellow pages themselves aren’t making significant innovations here.  It’s still early and it may be years before any one of these companies, Content Factory included, has a full suite of offerings that truly helps local companies get more leads– not just on the web, but via any channel.

The risk of trying to grow quickly in a new market is hiring over-aggressive sales people, hiring too quickly, spending your newfound venture capital money, and putting growth ahead of true success.  I’ve seen big players put market share ahead of both profitability as well as client success.  The result of that, as discussed by the major players at the Kelsey Conferences, is high customer churn.  You can automate the creation of websites and pay-per-click marketing campaigns, but it will take a lot more than that to truly deliver results to local service businesses that they can appreciate and understand.

It will be interesting to see who the leaders are 6 months from now or even 3 years from now.  The tightening economy will only accelerate losses that “fast growth” companies are experiencing, plus reveal flaws in the business model.  I anticipate a bubble in local search within the next year, though it won’t be on the scale of the dot-com bubble.  Business fundamentals, my friends– you have to make money at some point.  And you have to do it while still providing superior results to your small biz clients and compensating your people.  Doing that is ultra hard– client acquisition is easy.

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