David: Hey Mike, a little birdie (well, our mutual friend Aaron’s Twitter account) told me you were at a company retreat in Boston last week. Such a great city, and a perfect time of year to be there.
Mike: Boston is pretty incredible. We ate at one of the best seafood restaurants I have EVER eaten at last night, and tonight, God willing and if the creek don’t rise, going to a Red Sox game.
David: The “Sawks!” Never been to Fenway but even for a non-sports guy like you, I’m sure the ambiance will be worth the price of admission.
You and I were both struck by this interview with GateHouse Media CEO Mike Reed where he goes through the company’s digital evolution and strategy. Few media companies have their scale to see what’s working and what’s not across small businesses of so many shapes and sizes (219,000 according to Reed).
Mike: That really did hit a nerve for me. They have done what you and I have been saying YP.com needed to do years ago … train their feet on the street to sell services instead of ads. While they are functioning at huge scale, they offer a lesson for smaller agencies and newsrooms everywhere.
David: Yes. I referred to GateHouse in my newsletter as one of the few traditional media companies—let alone digital agencies—that seems to “get” where the market is, and where it is heading.
That said, I was dumbfounded to see that digital made up only 6% of their overall revenues! I’m well aware of the “print dollars to digital dimes” phenomenon, but that seems like an incredibly small percentage.
As a strong proponent of DIY SaaS products, it also warmed my heart to see their target market was the SMB with fewer than 20 employees—which so many companies in our industry ignore.
Mike: While there are certainly problems, as we have both learned, targeting the smaller SMBs in terms of retention, it is a market that offers huge opportunity. And when you do find the ones with 10-20 employees, they are usually growing and have intense need for great SaaS services.
I was also impressed with their churn numbers … it’s hard to validate, but getting down to the 2-3% monthly churn they report is impressive.
Churn is an interesting number that too often becomes the focus for service companies rather than a measurement of whether you are meeting client needs. And their numbers indicate that they are to a large extent doing so.
David: It’s pretty hard to describe traditional media companies as “innovative,” but companies like GateHouse do have an innovator’s dilemma of sorts, in terms of displacing the golden goose of print revenue.
In terms of churn, there’s no question that poorly sold and poorly fulfilled digital services can sink the whole ship. But Google and Facebook are actively sinking their ships anyway, so they may as well go down swinging.
Mike: We have been ringing that bell for a while, too. Google has every interest in creating ad products that just work and that don’t really need a human to either sell or create.
Adwords Express finally started to achieve that about a year ago. As we are seeing with Google’s newest Smart Campaign products targeted to small and local businesses, Google is claiming that they are three times more effective than Adwords Express. This iteration is starting to offer bells and whistles like A/B testing and landing pages as well.
David: Smart Campaigns are a different product than Local Service Ads, but the implications are the same: There’s basically nowhere for an agency or media company to add any value on top of what the business can do for itself.
Mike: Another point raised in the article is that GateHouse doesn’t limit its view of “services.” Most newspapers and Yellow Pages (and Yelp?) are basically ad-selling machines. GateHouse, in selling HR, IT, and financing services as well as digital services, understands that once you know how to sell one service, you can sell (or more likely upsell) any service.
It’s critical for these legacy organizations that have shifted from print ads to Facebook or Google ads, to bite the bullet and figure out services.
David: Much as consumers in developing countries are skipping computers entirely and going straight to mobile, traditional media companies that have NOT made the switch to digital should skip the ad reseller phase entirely and jump right to services where they can still add value.
The inertia of existing product lines makes it incredibly challenging to adopt new frameworks without a full-throated commitment from executive leadership.
One strategy these companies should look at is funding internal digital skunkworks to at least start to develop some expertise in digital service bundles—similar to what GateHouse is doing with UpCurve.
Mike: All too often it seems that it takes an existential crisis for marketers to make that commitment to change.
If they haven’t been testing out new ideas like you mention, they may not be nimble enough or have enough capital to make that big of a shift from products to services before the clock runs out.
After more than a decade in local search, David Mihm now runs Tidings, an email newsletter platform for small businesses that leverages their everyday social media activity, and his own weekly newsletter, Minutive. In 2012, he sold his former company GetListed.org to Moz, helping over 3 million businesses get better visibility in Google and other search engines. Along with Mike, he’s a co-founder of Local University.