The small business marketing industry is on the verge of massive influx of competition, as a range of businesses with historical ties to local merchants look to expand into other services. Legacy media are look looking to make use of their sales forces; web services firms GoDaddy and Wix want to upsell users to marketing services; Yodle and ReachLocal are trying to defend their businesses; and Comcast, the cable king, sits on the edge testing the water.
Last week, the Wall Street Journal reported that local marketing firm Yodle was shopping for banks to underwrite a potential public offering. A Yodle IPO could accelerate an already heavily capitalized war within the small business marketing industry, which could pit a number of public, or soon-to-be-public, pure-plays against a handful large legacy business looking to build a healthy new business in their small business relationships.
In an interview with Street Fight, Court Cunningham, chief executive at Yodle, declined to comment on the IPO reports, but talked about the the evolution of the small business marketing space, the rise of local marketing automation, and the subsequent push by these companies to bundle services into an integrated product.
Talk a bit about the company’s strategic thesis, and where it sees the local marketing industry heading over the next two years.
What we see is this evolution from point providers — website building, SEM, SEO, mobile, et cetera — to a provider that can package all of that in a single interface at a single price point that’s affordable for the small business. We’re heading to is the emergence of a local marketing automation product category. And more importantly, these marketing automation products are becoming operationally embedded, so rather than just being a siloed, these marketing products are becoming tied into their practice management or point-of-sale system.
For one, it’s about risk reduction for the small business. Even at a low budget, if you’re tied into their POS system you can easily prove return on investment. There’s no risk. The other thing is that you can build product, when you’re operationally embedded, which you couldn’t do otherwise. For instance, with OpenTable, you can now tell a consumer when a table is open, and by reducing that friction the consumer is more likely to book at that restaurant.
There’s an effort among a bunch of different companies to start bundling a range of small business services — from marketing to operations — into a single package. Talk a bit about where Yodle stands competitively.
If you look at GoDaddy, for example, they’re pursuing a somewhat similar strategy. They’ve got millions of domains hosted and starting to upsell websites and they’re upselling some marketing services like email and some non-marketing service like office productivity applications.
I think they announced a partnership with Microsoft Office 360. I haven’t heard them articulate why that makes sense but to me, you can’t be everything. So, you need to have a core DNA. Our core DNA is we make marketing work better for the small business and we automate it and we make it simple and easy for him to consume.
A number of these companies — namely, Yodle, YP, GoDaddy and ReachLocal — are either public or quickly approaching it. Can this industry support that level of capitalization?
I think there are now thousands of companies serving the small business marketing needs. Most of them are mom-and-pop agencies. Over time, as you need a more comprehensive platform, and you need the data to make it relevant, these smaller agencies will be removed from the equation first. So what is email replacing? What is a website replacing? It’s just coming from their general marketing budget, which might be an agency, it might be yellow pages, it might be newspaper.
But even when you get up to the larger players — companies like Wix, Web.com and GoDaddy and Weebly and Endurance, just in the website space and then you go category by category and there are sort of five or ten people in every category. The world does not need 50 companies doing this. If you go back 15 years ago, there were eight or 10 big companies that dominated local advertising, mostly newspaper and yellow pages companies and they’re in various states of transition. I think you will see a group of five to ten leaders emerge over the next ten years.
Can you talk a little bit about the push to marketing automation and the subsequent verticalization that’s happened in the local marketing industry over the last couple of years?
On the consumer side you’ve got Yelp and Google who are sort of horizontal search engines and then you’ve got the emergence of all these vertical marketplaces like Uber, Handybook, and OpenTable.
So we think on the B to B side you will start to see that as well. You haven’t seen as much of it yet, but I think as people realize that the depth of data by vertical adds value that people will start to become more vertical. As you get deeper into a vertical, you know what works, you know what doesn’t, and you’ve got the data to back it up.
Marketing automation has swept through enterprise over the past few years, and left a number of large vendors. Why does small business need its own provider?
From a business model point of view, you could say why are we differentiated from Marketo who does email or Morin who does SEM, bid management or any one of the high-end products. To me, we’re different because those products are for power users who understand marketing concepts, have the time to learn them, and the time to use them.
But by putting email, SEM, analytics and the lot in one package you can create automation across the entire marketing suite. When you launch with our product you don’t just get here’s the email tool, you have at it all. You get here are the types of campaigns that we find work for your business. Which of them do you want to deploy? Great. Here’s the types of content that we see work for your account business. Do these fit with what you’re trying to do? Yes.
Is this level of consolidation a sign of industry maturity or something unique to local marketing industry>?
What happens in many industries is that early on there are lots of problems to solve so all kinds of creative startups solve piece of them. But over time the challenge is how do I get my little piece of functionality to market? I need a sales channel. It’s expensive to build. They don’t have it so then they partner, they end up getting bought. Over time, as the platform solutions get deeper and richer, it becomes harder and harder for the small guy because I could go buy these five point solutions or I could just go buy Yodle. We think we’re entering inning two or three.
Inning one is about what are the pieces that add value. Inning two is sort of starting to scale those. Inning three is like they’re better together. As these things come together, who are the emergent leaders going to be?
Steven Jacobs is Street Fight’s deputy editor.