Datasphere’s Cowan: Hitting the Hyperlocal ‘Sweet Spot’

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Hyperlocal blog platform Datasphere Technologies has been growing at a rapid clip over the past year. Last fall the company raised $10 million in a third round of funding, and it has added partnerships with Gannett and others. The company’s technology allows established local media players create hyperlocal websites so that they can push their content to specific neighborhoods and towns. The idea is to leverage aggregation and news that has already been produced by these stations, and collect it in a vehicle to attract small local advertisers.

Street Fight recently spoke with Gary Cowan, the company’s SVP of product and marketing (who will be joining us at the Street Fight Summit in October) about the company’s content strategy, the future of the banner ad, and why Datasphere’s sites aren’t “cookie cutter.”

Tell me a little about what Datasphere does and how your content strategy works.
Datasphere’s focus is on working with established media companies to open up the small business market to them. Our specialty is in creating and monetizing ad placements that are focused on small local businesses.

We started with Fisher Communications — they have a dozen or so TV stations up here in the Northwest. As part of our relationship with them, we built out a network of neighborhood level websites. Here in Seattle we have 54 neighborhood-level websites. We split out the regional market into a patchwork quilt, if you will, of neighborhoods and allow our media partners to publish news that’s relevant to those individual neighborhoods.

The challenge is that there’s news relevant at a neighborhood level about what businesses are opening and closing, what’s going on at the library, that has no interest at the regional level. TV stations, newspapers, and folks like that have a big advantage in that they have a constant stream of inbound press releases and requests for exposure and so forth from these small local organizations. About 80% of that falls on the ground because they can’t make any use of it. It’s just not relevant at a regional level.

By providing this network of neighborhood sites which we power and host on their behalf, we provide an area where that content can be used.

Part of the challenge of hyperlocal has been trying to figure out how to make it cost-efficient enough for sites to solicit ads from small local advertisers. How do you negotiate that?
When we look at the market we see a spectrum. On one end, you have this purely automated aggregation-type model along the lines of or Topix, or something like that. Then on the other end of the spectrum you have this heavy, expensive, manual model which is more like the Patch model, that is, in effect, a couple of dedicated heads per neighborhood site.

At one extreme, your costs are very high, so you better figure out how to monetize it quickly. At the other end of the spectrum, you’ve got an experience is not that compelling, so the costs are low — you don’t have to make as much money, but it’s going to be difficult for a site like that to become the center of a neighborhood community.

So, what we’re trying to do is pick the sweet spot in between those, and leverage partners who have access to content. We help them with aggregating other content that’s relevant to that neighborhood and so forth. So, we create a product compelling to local neighborhoods, but in addition to that we go out and provide the sales team that goes out and monetizes it.

Tell me why a New York website needs a different layout than a Los Angeles? What is so fundamentally different between those two markets that you would want a layout that’s completely different?

How difficult is aggregation in small markets? For a lot of places without much other media, there isn’t that much to aggregate.
It does vary significantly depending on the particular market. There’s areas where there’s a lot of other content delivered. For example, if you’re in the Seattle area there’s a bunch of interesting, local sources of content that we make use of. Obviously, we direct traffic back to them. So it really is an ecosystem — it’s not a one-way flow at all.

But in other areas there’s less of that, so you make use of what’s there. If it’s not there, then you work harder in terms of generating original content and there will be more expense involved.

A lot of indie hyperlocals feel strongly that larger corporations can’t really connect with local communities if they come into markets and recreate sites on a cookie cutter. What’s your response to that?
We have great respect for the folks out there doing individual neighborhood blogs. There’s a lot of great sites out there and we have learned a lot from them. It’s not a one-size-fits-all solution.

People throw out the word, “cookie cutter,” but what does that actually mean? Does it mean you have a website laid out in a way that makes sense and you use that layout across the board? Tell me why a New York website needs a different layout than a Los Angeles? What is so fundamentally different between those two markets that you would want a layout that’s completely different? That’s the only thing I can draw from the cookie cutter comment, and it doesn’t make a whole lot of sense to me. Why would you recreate the wheel and spend a lot of time having nonstandard layouts when certain layouts are more effective than others? I’d flip it around and say that having a consistent layout and experience is something that helps people from multiple perspectives.

One is it keeps the cost of the technology down and it allows you to advertise it across a large number of sites. The other thing is much like many other businesses have found, people may have a desire to look at different sites, maybe work versus home, and if there’s a consistent layout and experience, they know where to look for things across those different sites.

From an economics perspective, the benefit we have here is these local news organizations [that we work with] are already heavily investing in generating content, and they have a brand that attracts in bound submissions of press releases, and other sources of content. So, leveraging that once again allows you to amortize the cost of creating content across a much broader basis from which to generate revenue. It just makes all the economic sense in the world.

The other thing is, when you look at the challenges of running a small local blog as one off that is a standalone small local business. So, the people who run it have to be capable of not only generating the content, but also going out and selling ads, and so forth. That’s a hard thing to do. Once again congratulations to those people that are doing it. But we offer the chance to focus on what they do best, which is generate content associated with those neighborhoods, and we’ll provide them with dedicated people who enjoy what they do and they are very effective at selling to those local businesses.

Looking forward to next year and the presidential election, how much do you anticipate political advertising will be directed to hyperlocal-level sites?
We are still working on the specifics of that model. One of the differences between political advertising and the standard advertising model was that political advertising has an end date. So, when you’re selling advertising into that market, you have to be cognisant that, unlike an ongoing advertising program here, it’s going to be a specific chunk of advertising.

We will have ad packages specifically targeted at political candidates and incumbents, but it will be an add-on strategy. Not, “Oh, look we expect a replacement of 20% to 30% of our ad dollars by political.” This will be an add-on on top of what we’re doing.

Do you think straight banner advertising will work for hyperlocal business models? How necessary are other sponsorship or events businesses for local sites. Can on-site advertising really hold the day for smaller community sites?
I think it’s always going to be a combination. I think it will be a question of what the mix is rather than one or the other. There’s no question that there is a place for those sponsorship models, because there will be advertising which benefits in terms of brand association and all of that that you can’t necessarily quantify by number of clicks and so on.
The other thing frankly is a lot of the matrixes used by certain types of ad placements like CPCs and so on are just not relevant to small, local businesses. So, we see that the ad banners are going to continue and continue to be a strong aspect of the marketing and sponsorship type basis. But I do think there will be a strong evolving component of direct result advertising.

You already see that in the market today. It may not be with the one advertiser, it may not be media company X offers the portfolio of different kinds of things, but clearly they are out there and exist, everything from SEM to Groupon, if you will, where you have a great performance matrix associated that. Are people going to migrate more to that? Probably to some extent over time.

This interview has been edited for length and clarity.