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Friday, July 20, 2007

Seeing Through the Bearishness About 'Hyperlocal'

Whether it's just cyclical investing fads, journalistic boredom, or recent business failures of startups like Backfence, I'm noticing a strange lack of enthusiasm for local and so-called "hyperlocal" online content and listings business models.

Meanwhile, in the offline hyperlocal space -- the one our friend Om Malik likes to laugh at -- business is booming. Or at the very least, many small media businesses are booming to the extent that the flow of offer books, business profiles, neighborhood newspapers, etc., far from drying up, continues to increase.

My neighbourhood, Bloor West Village, supports approximately five neighbourhood (hyperlocal) newspapers, with three of them being actually delivered to the doorstep with some regularity. The flow of other free magazines, offer books, and "opportunities for advertisers to reach homeowners," continues to mount. Someone's got to be selling these ads, and someone's got to be buying.

Meanwhile some of the online plays in the local space are facing a tougher sell, ostensibly because either there is too much competition in the space, or because "businesses don't get it". And as a result, buzz about these companies is mixed at best, in the investor and analyst communities.

Meanwhile, some unknown is making a million bucks or ten million bucks a year for his little flyer or offer book company.

The source of the negativity, of course, is mainly based on sky-high expectations for these online plays! The "boring" offline ad companies fly under the radar, don't have to be cool, aren't ashamed of overstating the value of their ad space, and most of all, are more than happy not to scale beyond their own private ambitions. VC-backed online plays, and those owned by huge conglomerates, have to be big enough to create homerun-type returns, or to move the revenue and profit needle in significant ways within the bowels of $10b media or telecommunications conglomerates.

The astonishing thing is that quite a few of these will succeed to that improbable extent (see: Craigslist, Server Logs)... if they're willing to push through The Dip and stay true to what makes them far superior to the overstated, overrated, offer book and me-too community newspaper crap that flows to the doorstep. Certainly, belief is a big part of this scenario. If analysts like Malik are openly contemptuous of old media, perhaps that's healthy because the online crowd need something to build on their sometimes-wavering belief. You have to believe you're fighting to wrestle ad dollars away from a silly, wasteful, overrated old hulk of an industry.

However, that irrational fervor -- always useful in starting a new order of things -- clearly needs to be tempered. Many successful businesses are being built through partnerships with traditional media companies. And if you're looking to get acquired, as most startups are, you need relationships as well as an underlying threat to established models. Pure threat just incentivizes the old money to try to crush you - and certainly doesn't do much to encourage needed distribution partnerships.

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