With the print yellow pages industry in a freefall over the past few years, many carriers have divested the majority of their listings businesses. AT&T has not. The company has transitioned its dying print listings business into a profitable digital product — beginning with yellowpages.com (now YP.com) — and has spawned a mobile application as well as a local mobile ad network. With a little over $1 billion in yearly revenue, AT&T Interactive, the offshoot of AT&T Inc. that handles its digital advertising efforts, has grown substantially, leveraging the massive sales network associated with the yellow pages print business to create a handful of digital advertising products with a deep roster of local advertisers.

Earlier this month, the subsidiary announced that its YP local ad network reached 1 billion mobile local ads, which are distributed to hyperlocal news partners like Topix as well as location-based applications like Skout.

Street Fight recently caught up with AT&T Interactive’s VP of ad product management, Chung Cheong, to discuss the company’s experience in building its digital yellow pages product and the future of the local advertising stack. 

Within six months, the local ad network has quickly become a major part of AT&Ti’s product lineup. How have you leveraged the company’s existing assets – namely, the massive sales force from the yellow pages product – to build the local exchange?
There are probably three elements here worth considering. To a very large degree, our first publisher product was essentially a slimmed down version of our YP mobile app. We took the core components of the YP app and pushed it out as an ad unit. It was easy for us to understand what works in a consumer experience because we were already running one of the premium mobile experiences with YP mobile.

The other aspects of our road map, which tend to go a little less appreciated, are actually quite central. Unlike other networks, which usually start by aggregating publishers and then go and try to sell that consumer intent to advertisers, we were the only ad networks to start from the other way around. We had this entire local ad budget and we need to find a place to put it, so we began by creating our own distribution channel with YP, and expanding outwards. When you approach publishers with pre-established demand, it makes for a very easy conversation.

The third point is that we are not new to this game. Unlike others who are in the early stages of geo-targeting, we have a ton of experience understanding what works on a hyperlocal level – we’ve been selling this stuff for years through YP and YP mobile. We already have the infrastructure to take in these attributes; we know that if it’s an urban area around a bar and it’s raining, to target to say, cab companies.

Unlike others who are in the early stages of geo-targeting, we have a ton of experience understanding what works on a hyperlocal level – we’ve been selling this stuff for years through YP and YP mobile.

Borrell Associates recently released a report predicting that print yellow pages as a medium would be essentially dead within five to ten years. What role does print still play in the local marketing mix?
From the print side of the house, and you can see that the yellow pages business, and publishing in general, has been declining at a double digit rate — anywhere from the high teens to the low twenties. So, a lot of money is bleeding out from the industry.

But one of the things that we’re seeing is that the print story looks a lot worse than it really is. We’ve done a lot of internal research, which shows that what SMBs care most about cost-per-call or cost-per-acquisition, and print still beats the pants off any web media channel we know of — not excluding Internet yellow pages and search engine marketing. This may change, but when consumers really want to buy something, they still go to the print book.

Print [yellow pages] is declining, but it is far from dead.

What percentage of your current roster of local advertisers was carried over from the print business?
We’re not making those numbers public, but your intuition would tell you that the bulk of our customers are current or former yellow page customers — so yes, you sell to your install base. But, what we are starting to do is to open our inventory to other local sales teams through our premium reseller program. Super Media announced last week that they would be reselling ads on YP mobile and throughout our suite of interactive products — the first to do so.

Was the decision to outsource some of the sales efforts a change in the roadmap for AT&T Interactive?
So I think the answer is no. It’s always been part of our roadmap to be a platform (or factory) for the industry. We went about it by saying let’s start with the assets that we have — namely, relationships with local advertisers — then let’s build up the interactive platform. Now we’ve complimented our internal relationships with additional sales channels, which is what you see in the market today. We decided to do the lily pad thing — being as smart as possible by jumping from one place to the other so we can get to the other side.

In a sense, by enabling all publishing products to capture a local audience, geo-targeting strikes at one of the traditional selling points for smaller-radius media. How do hyperlocal content and hyper-location fit together?
We’ve always come from the point of view that geo is just another contextual targeting variable, so to speak. Having said that, it’s an extremely rich variable. With geo, the lag between an ad impression and an action is exceptionally compressed compared to any other type of media we’ve seen. That impression to impulse to action is much quicker than with other media.

I do think that the Venn diagram between small-radius media and geo-targeting is so intertwined, that small radius media is going to have an advantage. They’re not only providing geo as a contextual variable though latitude-longitude targeting, but as a secondary interest variable as well.

What do you think will be the biggest story in the hyperlocal space in 2012?
In the hyperlocal space specifically, I think that transactions are going become much more important. And not the way we think of it now with pre-paid coupons but something wholly more interactive with the ability to communicate directly with merchants and the ability to initiate a call from the ad. Making the local ad experience more transactional will be a key focus for the industry over the next 12-18 months.

This interview has been edited for length and clarity.