When hyperlocal news and community site Topix was founded in 2004, the company’s plan was to take all the local news out there and aggregate it into niche news Web pages around hundreds of thousands of topics. The site’s algorithm sorted through 50,000 news sources and created feeds around all kinds of subjects, creating niche content aggregation. But in 2007, the company shifted gears after finding what it thought was an even more compelling product: harnessing the flood of user-generated commentary and debate around their topic areas. Today the company is profitable and boasts 9 million unique visitors per month.
Street Fight spoke with Chris Tolles, one of the site’s founders and the current CEO, about how hyperlocal has evolved, Patch’s place in the pack, and how journalism is actually just a means to an end.
Tell me a little about where hyperlocal has been and where you think it’s going.
So, the way I look at it, hyperlocal has sort of evolved in the past six years [since Topix launched]. First off, there’s a lot more people who tried things both successfully and unsuccessfully. I think that you’re sort of seeing two different areas emerge. One is e-commerce and things like the daily deals segment of hyperlocal. And then on the other side of it there’s the media side. And I think that from there, there’s been two different approaches: One is to go after a very small town or try something that is actually sort of probabilistic in its approach.
If you look at, say, what Howard Owens is doing in Batavia [New York], that’s one town, one guy trying to build out the next-generation local news source. Alternatively, if you go look at — whether it’s Patch or the lamented, late Backfence.com and things like that — it’s folks who are trying to create something that is hopefully to franchise themselves across a larger set of communities.
For us, we started off as a local news aggregator here at Topix and aggregated local news to begin with across every single town in the United States. Then we provided local comments on the news, and then eventually local forums with original stories.
So, I think that there are different ways to skin a cat. Clearly, the e-commerce portion has made some people a lot of money. I think that what you’re going to see is that folks who have enough of a footprint are going to start making a reasonable amount of money on the media side as well. What we found is that local [information] and a local context has a higher uplift in value to advertisers. And so I think that’s what’s coming out right now for the next phase of this evolution.
Can you do an alternative weekly-style network of reporters without having the alternative weekly print publication? I think that Patch is probably the leading contender to prove or not prove that model.
Does it make sense to spend money on professional journalists to create hyperlocal content?
Well, we’re definitely pegging the needle on the other side of that. We’re basically saying that we’re going to spend nothing. Like, zero. And I think, so far, that’s actually been a relatively reasonable bet. I think that on the other side, you’ve got, let’s say, the Batavian model where you’ve got a couple of people, or Baristanet, and you’ve got a small group of people who can make a website profitable with a couple of people and maybe an ad sales guy.
Patch is trying to scale that model out. And I think that they’re showing that you can actually at least grow traffic. I mean, the interesting thing here, two years into [Patch’s] model, is that they spent a fair amount of money, anywhere up to $120 million. Now they have almost 800 different Patches or whatever you call it. And, so I think that it really is kind of interesting to see what they’ve actually come up with. And they’ve gotten growth. They’re not like the former folks who have done this — whether it’s Backfence or others — who just went out and failed; they didn’t get any traffic. Patch has actually been able to — with presumably a fair amount of help from AOL — they’ve seen solid growth.
So now the question is whether you could scale that journalist model across 800 different communities. Let me point out the Examiner is doing something very similar but they actually also have print — essentially giveaway print publications. As well, if you also look at, let’s say, the alternative weekly-type folks, if you put those in there, they’re essentially a profitable, cash-flow-positive business. And really the question is: Can you do an alternative weekly-style network of reporters without having the alternative weekly print publication? I think that Patch is probably the leading contender to prove or not prove that model.
For us, we’re a little bit chicken, right? We actually said, “Hey, we’re Silicon Valley people. I’m not in the business of trying to get reporters. I’m in the business to try to get audience.” I have more people doing community management — as opposed to journalism — to try and moderate the commentary and the community. We’re in the middle of having that play out.
It’ll take a lot of money to boot up what they’re doing in Patch. It might take a few years for it to pay off. It may be something that turns into a pretty big cash machine in five years — but it’ll take three, four or more years to pay it out. And then all of a sudden, they will have made the investment required that no one else will have done, which will be pretty cool. But, I don’t think you can say that one way or the other yet. My suspicion is they’ll have to figure out ways to generate a fair amount of money to pay for that, which they have not done yet.
Do you think there’s any future in paid hyperlocal content?
People read the stuff. There are newspapers that make a fair amount of money. Clearly, and more importantly, they have a fair amount of people coming to them. So, what you really need to do is make sure that you have some sort of business model behind it.
Journalists never like to think of Groupon‘s ad copywriters as journalists, but really they are. As a Silicon Valley person, journalism is just writing copy. Journalism isn’t a profession. Journalism is, in fact, merely the pretentious part of the ad copywriter role in some ways. Paying writers to write words — and when they’re good they make more money — is kind of the name of the game here. And I think that Groupon is a better model for paying people because it’s worth a lot more money than most of the hyperlocal sites at the moment.
But, the other side of it is, I think, as you are able to monetize hyperlocal content more effectively, I think that you’ll actually have a niche there, or there’ll be a hole there which can get filled by good writing and good journalism. So, for example, as national advertisers realize that local advertising in a local context works four times as well, which is what all the surveys say, what all of the studies have indicated. Wow, it’s actually worthwhile, providing good local copy to hang advertising against. And that means that there’s a place to have writers do it.
Where is Topix at these days, and how are you looking to evolve?
We started off as a news aggregator back in 2004. And we grew into a local community site after we realized that there wasn’t enough local stories to really power the aggregation site. You start doing the math and there’s 1,400 daily news sites — or daily newspapers, rather. There’s 4,000 TV stations, 3,000 radio stations and all of them do three to six articles a day. You take that and you’re also going to realize there’s 20,000 local pieces of journalistic content that’s locally focused on the Net. And you divide it up by the 20,000 cities and towns in the country and there’s not enough to fill out an interesting site for every single zip code. News aggregation doesn’t work very well as a standalone business, which is what my guess is some of the local blog aggregators might have found over time.
But what you do find out is that people really love the local content. So, what we did is we gave people the ability to comment on the existing content and then turned those comments, aggregated those to the forums and gave people the ability to write original stories or essentially start their own threads in the commentary. And that worked out incredibly well. … Since 2007 when we really turned on the gas in the model, we tripled page views and tripled traffic. So, we’re now, depending on the month, we are a bit of a seasonal business, anywhere between 8 million and 9 million Comscore uniques. So, that puts us at about double what Patch has today. That’s 10 times what all the other aggregators and hyperlocal sites have, put together, beyond those guys.
And, again, we spent a lot of time getting to profitability. In 2010, we were profitable, which is for us a big deal. So, 9 million Comscore uniques, profitable. It took us about two years to build a direct sales force, so now we have ad networks and a direct sales force. And we’re monetizing our local content which is primarily user-generated at around $4.00 CPM, which is a pretty good business.