Hyperlocal 1.0 Heavy Bob Smith: ‘The Way It Was’
Hyperlocal “city guides” are on the cusp of an explosion in popularity, ready to gobble the lunch of local newspapers and demand attention of all conscious online consumers. They’re going to conquer advertising and connect every parent directly to their child’s teachers and report news of the ‘hood as well as the old guard reports the world. After all, everything is local, right? At least, everything that matters.
Fast-forward 15 years and the same claims — or pretty close — are being made about hyperlocal. However this time they’re true (really).
It’s difficult to pinpoint when online hyperlocal came into being. The idea was there with BBSs (electronic bulletin board services) since the early 1980s or even earlier, when local dial-up services allowed callers to access files, games, chat and so on. Long distance charges caused many to dial in to local boards. And thus local communities developed, with some system operators focusing on delivering local information and news. A few local newspapers tried getting into the game with bulletin boards of their own, or via Usenet Newsgroups.
Then in the early 1990s the hyperlocal experience began to take shape, with a few pioneers trying to bend the limits of the technology of the day to their wills, some taking a closed proprietary approach and others an open one. But all scrambled against scalability headwinds, challenges of resource allocation, skeptical advertisers and an utter lack of available content.
Street Fight spoke with Bob Smith, Founder of Digital City — considered by some to be the “founding father” of local — about what it was like conceiving of local online back then. (Check back later this week for more interviews with hyperlocal pioneers.)
How was Digital City conceived?
Bob Smith: I started working on it in 1993. I was AOL’s biz/dev guy for dealing with the newspapers (New York Times, Chicago Tribune, San Jose Mercury News etc.) at the time, and Prodigy and — believe it or not — AT&T were getting traction with the papers. And it was tough getting papers to play ball with us.
I first mentioned to my bosses (including Steve Case) that there was a way to do local without having to work with the newspapers and that we could build an actual local affiliate network of our own. … No one thought, correctly, that it was a priority at the time. I was shopping the concept without much luck, but in early ’94 David Cole (head of AOL’s New Enterprises Group) gave me a shot at trying to develop the concept as part of work I was doing with TeleTV — the consortium of RBOCs for online at the time. I did that as a sideline to running the general interest forums at AOL until folks agreed to a small trial that we launched in October 1995 in D.C. and Boston, then Philly. We then got Tribune to invest $20M alongside AOL and rolled out the national network. The network was largely built in 1998, before I left.
So Digital City was the first nationwide local network?
Bob Smith: It was. Others, like CitySearch had built out, I think, four or five cities. And Microsoft Sidewalk had two or three — we had 10 primary and 250 or so communities. The primary cities had sales and editorial staff, but the 250 “aggregated” cities were largely links, forums, and scraped content. We later did a strategy where local “guides” populated content and kept links up to date that pre-dated About.com and today’s content farms. We had the advantage of a large amount of traffic [thanks to AOL’s backing] with a national reach, so going broad quickly made sense for us. I think CitySearch made a correct move in their approach because they had to build direct relationships with local vendors in order to build their content and all traffic had to be generated directly. Microsoft was in the same situation. CitySearch later did more ‘franchising’ (like selling rights to the The Washington Post) and more partnering later on, but they didn’t start that way. There was a meeting I recall with Charles Conn of CitySearch where we compared models and he to some degree dismissed the partnering strategy we used. He later told me he ultimately got that religion.
How is this a “correct” move? Seems labor-intensive and unscalable…
CitySearch lacked our natural distribution advantage (and also many of our limitations). We built DCI as a national network from the start because we had audience. In fact, the early markets we went to were specifically chosen because they had higher indexes for computer usage and were high penetration AOL cities.
CitySearch chose their cities as smaller cities they could effectively cover with a migratory sales force. They leveraged a great central services group managing remote sales teams to tackle sales of essentially enhanced directory ads. Charlotte and (I think) Sacramento made total sense for them. They could deploy small teams and get great bang for the buck in their sales efforts. We, on the other hand, could sell Autobytel a $2M ad deal because we were the only local service with a large national reach right out of the box.
So, while CitySearch was building vendor relationships, earning early revenues and proving their model, we got scale very quickly to prove we could sell national advertising. When we moved to selling directory advertising we did a deal with RH Donnelly because we saw that as the quickest way to get scale with low cost and risk. Local ad groups could then supplement directory sales (by creating featured advertiser relationships), prospect for national advertising and create other categories unique to the locals.
What was the initial goal of Digital City?
Bob Smith: Digital City was largely conceived as a local affiliate network for AOL, and I envisioned using the AOL model of content partnering and community/forum participation as the central theme [in those days online community organizers were paid for the number of minutes they could keep people online]. We did an enormous number of deals with local media firms. We also did an enormous amount of member-programmed content, including ‘live’ coverage of events, meet-up events and crowd-sourced journalism — all way before those things were popular. We also did some really cool ‘firsts’. We did the first online traffic cameras with Shadow Traffic in Philly, San Diego and LA among others for one — we also did surf cams in SoCal, but later gave that to an AOL Greenhouse property (AOL’s early incubator project). We also built one of the first national entertainment guides. Jim Davidson led the effort to ‘scrape’ content from various entertainment databases across the nation to create our entertainment database. (Local Digital City sites got permissions from the venues.)
How much focus was put on delivering local advertising vs. local content (soccer scores and hyperlocal news)
Bob Smith: I really saw DCI as a way to create directory and classified advertising and publish it in context. We actually sold the first national advertising deal on AOL for Digital City — Autobytel. That didn’t make us many friends, because AOL had not really geared up its own ad operations yet, but we had more ad revenues than AOL for a short while — very short, in fact.
We created topical content related to leading YP and classified categories and then sold exclusive advertising contracts around it. The folks in the Philly [SF: competing at the time with The Philadelphia Inquirer’s anemic local online efforts] and LA offices led the charge on this stuff. We also had, for a while before they shut us down, the largest personals section on AOL and the largest employment section next to Monster — we were starting to make good money selling featured spots to companies to feature their employment listings around the time I left.
We did the first yellow page deals on AOL and were one of the largest players in YP before AOL took it back. Our deal with RH Donnelly generated $3 million in the last year it was active (a big number in 1997) and we’d just penned a deal with GTE to work with us that would have doubled that. We also were instrumental in getting Switchboard to integrate with Mapquest to create map-centric YP results, thanks to Dom Stirpe, Beth and Fred Singer; Fred Singer is now Chairman of Grab Networks.
The editors in the Philly office spearheaded our local restaurant reviews and related monetization efforts as I recall. All those efforts gradually got killed as AOL started implementing the model of selling large chucks of AOL’s commerce efforts to the highest bidder. You can’t argue with that strategy in terms of building AOL’s market cap, but we were already generating $24 million in 1998 on the efforts combining our national ad sales and directory programs combined with local ‘Guide’ advertising efforts.
What were your biggest challenges?
Bob Smith: Mostly it was internal resistance. ‘Intrapreneurial’ efforts are always tough because you are invariably butting heads with everyone and constantly stepping on toes. Many of my former colleagues at AOL saw us as either a waste of time or a needless duplication of effort. Even Case was very skeptical initially. I remember when I showed him the Digital City Washington prototype he was surprised that we could build a credible local offering without a newspaper partner.
The second challenge was holding the network together. We had a pretty small corporate staff and multiple local affiliates (10 at the top) all of which were launched in less than one year, and all with no proven model. We hired ‘mayors’ for their ability to be local general managers who could quickly develop their businesses, but that meant a lot of independent people going in 10 different directions and not wanting to necessarily listen to ‘corporate’. Rick Blair (now CEO of Examiner.com) and Paul DeBenedictis ultimately pulled them together.
Being tethered to AOL … didn’t help in fundraising. The general feedback seemed to be: if you fail we own you, if you succeed AOL takes you back — we must have been successful.
The final challenge was co-existing with AOL. Ultimately we lost that one and were reabsorbed into AOL. There was always a huge battle to stay separate. Many always wanted it to just be another part of AOL. Ted Leonsis led an effort to spin out Greenhouse, Gaming and us into a new separate entity. The struggle was always to find the most efficient way to maximize value on these properties. Also, as the Bob Pittman-led advertising juggernaut got into gear there was continual conflict between us and ‘The Brand’. In many ways it played to our favor, but AOL was always going to win as they looked for more and more inventory to sell. It made sense from a corporate standpoint, but wasn’t great for DCI as a separate entity. I spent most of my last year there fighting these fights.
When did you become aware of CitySearch / Sidewalk Digital City and were they competitive?
Bob Smith: CitySearch from the beginning. In fact, there was a push to just do a deal with them right out of the blocks and not do DCI. They were perceived to be ‘smart’ and to have a better platform and model [SF: CitySearch was Web-based and Digital City was on proprietary technology behind a paywall in the early days]. Charles Conn (CitySearch lead) and his crew were top notch but our model proved to be easily as good and they were forced to completely rebuild their platform after their Java platform proved unworkable. Still, those guys were great with a great system.
Sidewalk, on the other hand, was never a serious threat. Microsoft did their usual deal of trying to freeze the market by announcing plans way out ahead of their ability to execute and then spending huge sums of money on their original markets. I don’t ever recall them being a legitimate threat anywhere though.
CitySearch had the advantage of being an independent ‘pure play’ backed by some big players. They were incubated at Idea Lab in Pasadena and when I first met them they were housed at CAA, the international talent agency. Also, they were funded by some well-regarded VCs. I remember (I think accurately) Ted Leonsis telling me that he’d talked to Barry Diller about DCI when we were raising money in 1996-’97 and he said ‘no,’ that he thought CitySearch was the better deal. He ultimately bought them and integrated with IAC.
Being tethered to AOL also, in my opinion, didn’t help in fundraising. The general feedback seemed to be: if you fail we own you, if you succeed AOL takes you back–we must have been successful.
How did being rolled into AOL help/hurt Digital City?
Bob Smith: It killed it as a separate company and culture, but, paradoxically, helped it grow bigger. DCI was able to build a separate culture and its own advertising relationships and deals. There were real advantages to having this separate asset. However, you can’t argue with what AOL did. As an AOL shareholder I was happy. Rolling it back into AOL allowed for maximizing advertising revenues and creating programming efficiencies. However, I do think that a separate business allowed for a means of extracting revenues from the local markets that AOL wasn’t able to really get at without us. Sometime after I left I was told by a senior executive that analysts put the Digital City property value at about 10% of AOL’s pre-Time Warner market cap. At the time that was about $12 billion. So even though we never saw the dream of a separate DCI come true, I think we can feel good about our contribution to AOL.
Disclosure: I helped found Digital City Philadelphia and later was content and product lead for the DCI network.