Is DexYP the Consolidator That Local Has Been Waiting for?

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At long last, the worst kept secret in the local space is out: Dex Media has acquired YP Holdings to create DexYP.

While the name suggests compromise, I believe that this combination holds significant potential for unlocking value and reigniting merchants’ interest in what YP companies can offer them.

Once upon a time, the Yellow Pages brand was the Kleenex of local marketing. The clear category leader. Merchants knew that to grow their business, they needed to be listed in “the book.”

A lot has changed since those glory days. For one, large printed books of local advertisements are only valuable as door stoppers. More fundamentally, the game of local advertising has been won. Google
and Facebook have long since claimed that prize.

Nevertheless, the YP companies have solved one of the biggest challenges in SMB: distribution. They have built enduring brands and reached many small businesses. Even if technology has surpassed them, there is value to be captured in that brand and reach.

On the brand side, the challenge DexYP will face is reinventing the brand to be relevant for today’s younger business owners. Millennial entrepreneurs attach no value whatsoever to the Yellow Pages brand and history. There are three million new businesses started each year. Let’s assume a meaningful portion of these are started by young entrepreneurs. DexYP will have to capture the hearts and minds of these young founders.

On the reach side, there is immediate value to be leveraged. The combined company now has over 700,000 merchants as customers. The rumored $600M purchase price for YP Holdings means that their customers were likely worth a few hundred dollars per customer. That is a solid foundation from which to grow revenue per customer.

The success of this rests on two fundamentals: team and vision. On team, the best possible news coming out of this combination is that the Dex management team remains in charge. Combining management team members from companies that previously competed head to head with each other would have been a recipe for failure. Joe Walsh is a proven operator. I expect to see great things from this team.

On vision, I am excited by Dex’s vision of being the “operating system” for SMBs. Unlike consumer and enterprise markets, the SMB market lacks a natural consolidator. Dex can leverage the brand reach of this new, combined company to get a head start on making this operating system vision come to life.

If I can offer a word of advice to Joe’s team it would be as follows: Be bold. This market is happening now. It won’t wait. The previous generation of merchants trusted established companies like Yellow Pages to serve them. Today’s younger merchants don’t care and won’t wait. They are far more likely to try out new startups. And they have far more tolerance to work with multiple vendors to help them grow rather than working with one overall provider. Work vigorously to modernize your solutions. Build them, buy them. Whatever. The market is waiting for you!

Mark MacLeod is the founder of SurePath Capital Partners, the leading strategic financial advisory firm to the global SMB software market. Follow him at @startupcfo.