As Gannett Acquires ReachLocal, Some Lessons From Its U.K. Exit

As news filtered out earlier this week that media giant Gannett had bought ReachLocal for $156 million, it capped off several years of speculation in the local marketing industry about where the public company would end up.

As a former ReachLocal employee (2010-2014) now living in Norway, I’ve watched the company as it has faced steep challenges both in the U.S. and abroad. Earlier this year, the company had its own Brexit, abandoning efforts to expand into the U.K. and selling off its British assets and customer contacts to Fat Media. Looking at how Fat Media has fared over the past few months in converting those assets might shed some light on what likely awaits Gannett as the media company takes over ReachLocal’s 16,000 remaining customers.

Before the sale was announced, I spoke to Fat Media CEO David Durnford about the process of taking over ReachLocal’s U.K. assets and what that had revealed about the quickly maturing SMB digital market. Here are a few lessons he says that he’s learned both in competing with ReachLocal, and now in working to convert the company’s customers to his platform.

‘Closed-book Platforms Are Not the Solution’
Durnford said that one of the first things Fat Media did was to scrape the ReachLocal campaign management software that they were given access to as part of the acquisition.

Durnford said he ditched ReachLocal’s proprietary paid search platforms for Google and Bing PPC campaigns in favor of another U.S.-based search company, primarily so he can clearly show his agency fees separately from publisher spend.

“SMEs today are a lot more savvy,” Durnford said, adding that ReachLocal’s undisclosed margins on search campaigns are higher than most others in the industry. “Closed-book platforms are not the solution and are looked upon with suspicion.”

Earning Trust Takes Time and Patience 
After hundreds of sales calls, proposals and presentations to merchants, Durnford said his company has made some steady progress in stabilizing relationships by offering a no-cost trial period during the transition, plus a large portfolio of complementary online services that provide value and save time for the customer.

But whether it is PPC, SEO, web design, video production, social media and copywriting, the days of simply picking up the phone and closing an SMB sale are over, he said. According to Dunford, building and maintaining trust in online marketing does not just take an investment of time and money, but also patience, dedicated customer service and hand-holding along the way.

Be Prepared for the Competition
ReachLocal’s departure from the U.K. was part of a series of aggressive moves that CEO Sharon Rowlands hoped would get the SMB search giant back on track. In her comments to investors late last year, Rowlands said ReachLocal’s strategy would be to focus “only on markets with the potential for positive, sustainable economics and contribution margin.”

Despite Rowlands’ comments, however, digital marketers in the U.K. say their market is quite vibrant, resilient and even wide open at the moment. Companies like iProspect, Yell, Wix, and Fat Media continue to acquire overwhelmed and underserved do-it-yourself SMBs, along with a flood of smaller mom-and-pop Google resellers.

Part of ReachLocal’s problem in the U.K. was that the competition was relentless in capitalizing on the company’s missteps — and swooped in on the resulting churn during a time of turmoil in its overall business.

Finding The Right Customer Fit
In taking over ReachLocal’s assets, Fat Media is dealing with a customer list that, in many cases, does not have the revenue to support a full-service marketing agency

Durnford says that in looking at ReachLocal’s business, he decided it was best to focus on what he describes as “mid-market” customers, as they have the resources to be long-term partners. While the SMB digital marketing agency space remains relatively young, he said, these bread-and-butter customers are highly sought after and becoming more astute and demanding, even more so in England’s bustling market.

The Early Days of Search
In the early days of selling search to SMBs, ReachLocal was a pioneer. The strategy of budget bundling gave ReachLocal a scalable way to package Google and Bing pay-per-click campaigns. By tracking calls, form submissions and web events, the customer’s attention was focused on their return on overall investment from the leads they were receiving. For the target group of advertisers whose digital needs were either being managed by less competent providers at the time — or not at all — the solution worked, and continues to work for its 16,000+ customers.

In many cases, the ReachLocal feet-on-the-street salesforce and bundled platform has helped customers pull away from traditional, less-profitable mediums (print, radio) and gave them a taste of online advertising in a much more efficient system than if they were managing campaigns on their own.

With Google’s recent call for better third-party reporting, increasing churn and ReachLocal’s missteps in the U.K., ReachLocal had to reposition its sales approach following CEO Rowlands’ statement in a Forbes article “I know that we as an industry can do better.”

While ReachLocal’s struggles overseas have already provided clear lessons for Fat Media as well as the next generation of online marketers, it will be interesting to see how the new owner takes on the new challenges of providing local digital marketing services to SMBs. For myself and for so many of my former ReachLocal colleagues who fondly “bled orange” for years, it is a challenge well worth the fight.

Charlie Flora is founder of Oslo, Norway-based Northfarm Studio which provides digital marketing services in Scandinavia. He worked at ReachLocal between 2010 and 2014. Connect with him on LinkedIn.