Report: Pureplays Using Legacy Media as a Farm System for Sales Staff

Local media companies need to do something to protect their digital sales assets or run the risk of losing them to pureplay* web companies. That’s just one of the findings of a new study being released tomorrow by Borrell Associates, Assessing Local Digital Sales Forces.

The problem is two-faceted: pureplays pay higher salaries, and digital sales is still too often treated as the red-haired stepchild at some companies. Borrell has been singing the song of separate sales staffs for digital and legacy for most of the years he’s been in business, and this new report is in full harmony.

Borrell interviewed 220 local sales executives and found that those with digital-only sales reps:

• Average twice the online revenue of those without digital reps.
• Have a sales staff that exhibits greater ability to consult with and educate advertisers.
• Have a sales staff with stronger capabilities to understand and sell digital products.

As noted, the idea that local media companies do better with separate sales staffs isn’t really new, but this study also reveals that those who don’t take it seriously may be actually training their competitor’s teams.

To fully understand what’s taking place, we must go back to a couple of core premises involving the Web and local online sales. One, those who believe they are competing with only the other media companies in town are missing the real nature of the landscape. Google, for example, is actually competing with local media companies, taking enormous sums of cash from local markets everywhere. Two, local media companies have generally paid lip-service to the competitive advantage of having local sales feet on the ground. This is especially true with those companies who don’t operate with separate digital sales teams (more than one-third of all, according to the report).

It’s a bigger problem than it appears, because the pureplays are now hiring local staffs, and they’re not afraid to pay people more. For example, Web.com, one of the less obvious pureplays, is already a half-billion-dollar company and growing rapidly. They opened a direct sales force office in 8 markets last year, and opened 8 more in the first quarter this year. It’s a classic disruptor case. They were once just hosting at $10 per month but now offer an array of digital marketing.

The Borrell data displayed on the right shows that pureplays offer starting salaries in the range of $12,500 per year more than their nearest competitors, the local TV stations. The gap between starting pureplay sales people and those who work for newspapers is an incredible $21,000 more. Gordon Borrell told Street Fight by email that traditional media companies are simply too busy trying to decide if they should hire one or two digital reps to notice what’s really going on:

“There’s definitely a rugby match over hiring digital reps, but the traditional media coaches seem to be spending too much time thinking they can win by having better uniforms. The word ROI is bandied about quite a bit, because they are trying to preserve margins, not grow business — which means reducing margins to invest in the future.”

The race to hire digital account executives is a lot more intense than anyone thinks. As the Borrell report reveals, pureplays are offering 50% more base pay than traditional media companies. Gordon Borrell offers a chilling anecdote to go with the numbers:

“A traditional media manager told me yesterday they’re scooping up the reps that are abandoning ReachLocal, ostensibly because of a bad work environment. But what he didn’t know was that ReachLocal is systematically churning out reps that can’t cut it, and keeping only the best. So that traditional media manager might be unwittingly hiring the dregs.

ReachLocal hired about 400 reps last year. Yet their net growth was only 32 new reps. Their total sales force at the end of Q1 was 831 reps. Here’s the thing: Half are ‘underclassmen,’ or reps that have been on board less than 12 months. The other half are ‘upperclassmen,’ those who made the grade. Take a look at what ReachLocal said in its latest release:

‘Our largest operating expense is in hiring, training and the retention of underclassmen.’ Wow. Their strategy is to hire first-rate sales reps, and they don’t mind churning through 370 of them in a year to get the cream of the crop.

How’s a local media supposed to compete with that strategy?

The proof in how well they’re doing is in the numbers: Their ‘direct local’ sales was up 80% in Q1.”

This is serious business for anybody in local digital sales, and the ReachLocal story is indicative, again, of who the real competition is online. It’s hard enough to compete with those you know, but when you’re not even aware that somebody is eating your lunch, that’s a real stumper.

The pureplay companies will only get stronger, and soon the competitive advantage that traditional local media companies used to have will be completely gone. Digital sales is a street fight, and traditional media companies dare not be lazy in their approach to the ongoing battle.

Terry Heaton is President of Reinvent21, a consulting company specializing in business reinvention for the 21st Century. He’s an internationally-recognized creative expert on all things web-related, especially as they relate to local media.

*Borrell classifies a pureplay digital media company as one that is not tied by management to a traditional media company. Examples would be ReachLocal, Yodle, Google, Atlanta.com, MyrtleBeach.com, Patch, etc.