DexYP (and Other Publishers) Transition to Digital, But Limited Revenue Suggests Bleak Long-Term Prospects
David: Hey Mike, I can barely hear you this week over the dull roar of your air conditioner. Must be as hot back east as it is in the Northwest.
Mike: It’s a hot one for sure. Although I live “in the mountains” above town where it will be five degrees cooler when I get home… and despite a humid 85 now, it will drop to the mid-60s by midnight. A relative paradise, I think.
David: Sounds like we are both ready for fall. This week I thought we might tackle a slightly different topic from our usual FAANG fodder. I happened to notice that DexYP announced its quarterly results this past week, which I found interesting on a few fronts.
Mike: You know that I have long had an “obsession” with the YPs and have regularly reported on their print decline—before it became just dead-carrion beating. In fact, part of my original fascination with Google Local in 2005 was the secret wish that the YPs would get their comeuppance for all the abuse they had served me when I ran a small(ish) retail operation in the 1990s.
David: How’s your annual book looking this year?
Mike: Just received the “new” consolidated book, and it’s looking slimmer than ever. I was thinking of holding the funeral next week.
David: Ha! Down to magazine thickness then, I’m guessing? That’s amazing.
Not having been around for the Yellow Pages’ heyday, I don’t take any particular pleasure in the decline of their print business. But it has certainly been remarkable to follow their disruption.
At least from its public statements, it feels like DexYP is a reasonable barometer for the overall industry. Print revenues were down 20% year over year but still over $200 million for the quarter! That’s a lot of revenue.
If the company’s self-reported 435,000 print customer number is accurate, its average print/multi-product customer is still spending $2000/year. Which feels like it might actually be worth it in certain industries and certain geographies? Have we reached a bit of an equilibrium?
Mike: Yes, rurally and in certain verticals the print edition still has legs, but at 20% decline year-over-year that doesn’t leave much runway before they hit $0. In my research with Barbara Oliver, who was spending $1200 a quarter, the actual return was almost nil. I think some advertisers get value while others are still there out of inertia.
I assume that they are making it up in digital?
David: The numbers don’t imply they are making it up in digital, actually—digital revenues also declined by 18%. As with print, though, the number is a not-insubstantial $245 million ($3200/year average customer value).
There’s something weird with these numbers, though, since their Thryv product is only responsible for about 11% of their digital revenue ($27 million).
They’ve made a big bet on that product, but a huge chunk of the remaining $218 million in digital “revenue” must be going to Google and Facebook advertising. It’s unclear from their statements just how much, but I’d view any digital revenue from reselling Google and Facebook almost as a Cost of Goods Sold at this point.
As you and I have reiterated many times in this column, the margin on that revenue is trending rapidly to zero due to the difficulty of adding value on top of ads with no creative, no landing pages, no keyword research, and automated bid management.
Mike: The only good news, besides the 50% y/y growth in Thryv revenues was the fact that they didn’t have a net loss of ‘digital-only’ customers (pg 15 of their presentation). But the number of digital-only customers was not growing significantly either.
It isn’t clear that the uptake of Thryv can offset their significant declines elsewhere.
David: Yep. I applaud the initiative and risk-taking behind Thryv, but I worry for DexYP’s sake it might be too little too late. Particularly since the price points for Thryv ($700, $1200, and $2400/year) are well under the average value of their current digital customers—let alone their multi-product customers.
Mike: Thryv is priced on an inbound SaaS model starting at $59 and going to $199 a month. That isn’t really enough margin for outbound sales force let alone feet on the street. And if their SOCI announcement is an indication, some of the $199 is to pay for outsourced services.
The numbers don’t add up in my mind for long-term success.
David: DexYP seems to be doing as many things right as one can expect from a huge Yellow Pages entity. But somehow they, and other publishers, need to transition to a more consultative higher-price point position.
The reality of the small business SaaS world is that typical price points do not support a feet-on-the-street sales force—historically DexYP’s biggest asset—without some form of concierge service or consultative value-add.
Not all print customers (in fact, a small number of print customers, probably) are likely to be good candidates for Thryv. And even with a radically trimmed sales force, it’s going to be a tough sell for investors to favor you over a pure SaaS play showing equal, if not more dramatic, growth.
Even if they’re not profitable, it feels like someone will buy DexYP for its customer base at some point. But it probably needs to be an acquirer that’s already mastered inbound sales and/or has a much higher average revenue per customer.
Mike: This is one time we don’t need a bet. I am with you on the likely outcome and will be in awe of Joe Walsh if he is actually able to make the transition successfully. I am just not sure how long his runway is.
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.