CityGrid’s Herratti: Local Is Becoming More and More Fragmented

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Jay Herratti has been working in the local interactive advertising space for over a decade. A veteran of IAC-owned destination guide CitySearch, he currently serves as CEO of CityGrid Media, a “location-aware” advertising network that aggregates local advertisers and extends them across a network of 300+ publishers, including Urban Spoon, Insider Pages, and many others.

Street Fight caught up with Herratti recently to talk about the fragmented nature of the local online advertising marketplace and why the Groupon phenomenon is an example of the kind of “closed-loop” advertising model that small businesses love.

What does “hyperlocal” mean these days?
It’s about the ability to get information — and for businesses to deliver an ad — where consumers are right now. So, local and hyperlocal has been an evolution, but the opportunity has been here for a while. It’s just that hyperlocal is now becoming more prevalent, and more fragmented, and obviously, with mobile, a lot more local.

The interesting thing with mobile… [in the past] in order for consumers to be exposed to hyperlocal — and for advertising to be exposed to hyperlocal — you had to be on a hyperlocal website. Today, by contrast, no matter what app you are and no matter what you are doing on your phone, you are doing a local thing. You might not be doing a local query, but you are local. You can be targeted locally, because we know where you are. In that respect, the word “hyperlocal” is now so much more exciting, even though we’ve been playing in the space for quite a while.

Where does CityGrid Media fit into the hyperlocal ecosystem?
Our view of the [local advertising] marketplace is that it has been fragmented, and it’s actually becoming even more fragmented. So, there’s an opportunity we believe we’re leading in the space right now to aggregate demand and supply. … We aggregate advertisers and advertising budget on one side, and on the other side we aggregate consumers through a variety of publishers. And our ad engine is in the middle is making the right connection.

So, where we play is by first aggregating and second by better matching of advertisers and consumers, because we have a lot more coverage. … One of the challenges of hyperlocal when it comes to advertising is finding the right ad for the right consumer. By the time you start cutting it by the category, and by the geography, I’ve got to deliver you a very relevant ad. Therefore, I need coverage of advertisers. So, the fact that we aggregate also creates another benefit, because we’ve got better coverage. Therefore, our ad engine is able to do better matching and targeting.

What kinds of sites are in your network?
It’s a very wide variety in a mix. So, if I bucket them for you — let me talk about the principal bucket. We work with some of the major search engines. So, we have a relationship with, Yahoo, Bing is our largest search engine partner, et cetera. We have a different relationship with Google, so it doesn’t fall in the same bucket for us. Then we have what I would describe as directories. So, these are the, Superpages, RH Donnelley, all of these historical yellow pages. Then we have a variety of local Web sites. Those are the likes of CitySearch, MapQuest and and Angie’s List.

Then, the last bucket — which is now the fastest growing — is the mobile apps. Literally today, actually, my marketing guy he told me last week he came in and said, “I’m now looking at some of these mobile apps that are using CityGrid to power their data or their ad,” and he said, “It’s amazing the long tail that’s now emerging.” They are very specific, right? They literally go to a sliver of the geography and the customer group. So, probably out of the 300, probably 200 are very small. … Beyond the top 50 that you would start recognizing the name, it starts getting really fragmented. Consumers are starting to go to Web sites that before long you and I won’t recognize.

Do you think it’s fragmenting more and more as people are able to publish on their own?
There is the emergence of places API from Foursquare, from Google, from SimpleGeo, right? There’s a bunch of them happening. So, it’s going to get easier and easier for mobile developers to build local experiences extraordinarily inexpensively. So, if you think about when CitySearch started 15 years ago — how expensive it was to build that Web site. In the next 12 months, it’s going to become extraordinarily easy.

Now, the question becomes: if you’re a mobile publisher and you just built a great new app. … Let’s say you get 500,000 downloads. Now the question is how are you going to monetize it, right? This is where we come in. So, our premise was: These folks are going to very motivated to find a place where they can get the data to build an app, but also get the ads and ad coverage to actually monetize the app. So, we see the fragmentation, but we also see that need, which is where we play.

Promotions have been an integral part of local businesses doing business. It wasn’t new. What was very powerful about Groupon was the rapid creation of a consumer brand — which has been phenomenal — and the ability to provide a closed-loop experience for small merchants.

Why is there such a focus on location-based services and advertising right now?
Well, location has always been important. It’s just that we’ve historically relied on the consumer to input it into their search box, right?  At first it was like, “I’m looking for Italian restaurants in New York.” Then we gave them the possibility to put in the zip code or neighborhood. Or you would say “New York,” and we would say, “Okay, we have 50 neighborhoods in New York. Pick one and we’ll deliver you more relevant results.”

Now, the key is that the app can determine that. So, you can begin to serve relevant information without actually asking the consumer anything. So, the minute that the consumer comes into the app or – the first thing you can show them is the five businesses that are closest to them. Or the first thing you can show them is five businesses that they may be interested in that are within a certain distance. So, you can show them offers from merchants that are sitting around within 10 minutes, and they’re idle, and are making these crazy offers about something – you know get 50% off a pedicure and I’m five minutes away. That’s where the difference is. The fact that location provides this information and you can start by making these very relevant offers.

How do you think the “Groupon phenomenon” is affecting the way people approach local advertising?
Promotions have been an integral part of local businesses doing business. It wasn’t new. What was very powerful about Groupon was the rapid creation of a consumer brand — which has been phenomenal — and the ability to provide a closed-loop experience for small merchants. Meaning the small merchants — whether it works for them or not; some people love it, some like it less — they could really see how much it worked and they could see it through the cash register. There are a couple of other businesses that do that very well. Open Table is another example of a business that’s closed the loop, because you can take it to the register.

Those fundamentals will remain and therefore deals will be attractive, but I don’t think that the deals are sustainable as a way of… if you’re a small business advertiser, you cannot rely on deals as a way of driving all of your marketing dollars. Obviously, by the time you give 50% off and you pay half of that commission, if that’s your main motive of marketing I think you’re going to have a problem. That probably doesn’t apply to all merchants, but it applies to most merchants.

I think these businesses have huge potential, but I think there’s going to be fatigue both by merchants and consumers. I think deals will be part of the marketing mix, I don’t think they will dominate, just because you can’t. Deals will sway and sometimes influence, but it is not the primary driver of how you choose businesses and I know this for myself. Once in a while, I’ll change my behavior based on deals, but most of the time it’s based on my need and a recommendation.

This interview has been edited for length and clarity.