Socially Networked Start-Ups Challenge Big Boys in Local Search

  |  October 15, 2004   |  Comments

High profile backers hope to propel grassroots local search players into the big leagues.

Think Yahoo Local and Google Local are the only games in town? While the big portals are attracting the majority of local search attention, several start-ups with impressive pedigrees and innovative approaches are angling for the local market, too.

Combatants include Seattle-based Judy's Book, which recently banked $2.5 million in venture capital financing; and Insider Pages, an idealab-incubated start-up based in Pasadena, Calif. Just this week another player surfaced. Yelp! is a San Francisco-based start-up, reportedly backed by PayPal co-founder Max Levchin. Other entrants include the Boston-based local-i, focused thus far on compiling restaurant reviews. All the players are in the earliest stages of building their businesses, but competition is mounting.

An approach many of these new search start-ups share is the integration of personal recommendations and social networks. They're operating on the theory consumer reviews are an indispensable element of local search, and such reviews are more credible when they come from friends, or friends-of-friends.

"The premise of the newer players is that social networking helps the relevance of the search," said Niki Scevak, an analyst at JupiterResearch. "Search engines realize that having that knowledge helps the relevance of each search." (JupiterResearch shares a parent company with this publication.)

Stuart MacFarlane, CEO of Insider Pages, agrees. He says the social networking aspect is critical to getting such a company off the ground.

"It's hard to get people to talk about their plumber or their photographer. It's not like a restaurant or a movie, where it starts to feel like entertainment," MacFarlane told ClickZ News. "People are much more willing to share information if they're sharing it with someone they know, rather than just an anonymous group of people online."

Getting people to share that information is one of the biggest challenges facing this new breed of search start-ups. Industry-watchers agree that building a critical mass of members and reviews is crucial. The fact Yahoo added business reviews to Yahoo Local is a spur behind the race to get both reviewers and reviews.

"The success of social network-related local search companies is dependant upon the scale of content that they can build," says Jupiter's Scevak. "Obviously, once one of the local firms achieves a certain scale, people are going to contribute to that rather than starting at a new one. The race is certainly just beginning. Even Yahoo doesn't yet have that scale."

Once people have come, the rush to bring advertisers aboard begins. These players' dependency on local advertising means putting together effective sales efforts is another challenge. Insider Pages' MacFarlane hasn't ruled out partnering with a yellow pages company, another type of firm working to get local businesses online.

"This space is so crazy right now, it's hard to tell who is a competitor and who is a potential partner," said MacFarlane. "They [yellow pages players] have the huge asset of the sales force, and the relationships with so many of those local businesses."

Though Insider Pages has only been in beta testing for a few months, MacFarlane says initial signs are encouraging. With no marketing, the company so far has signed up 1,600 members in the Los Angeles area. These folks have written more than 3,000 reviews on the site, MacFarlane said. Advertisers have been pleased, too.

"Advertisers can deliver on a very narrow geographic basis and in a very narrow category basis. A plumber in Torrance, California, can deliver ads for people searching for plumbers in Torrance, California," said MacFarlane. "The conversion rates from those people seem to be high, and it even seems to be made higher because they're making their decisions off of personal recommendations. If I see a plumber recommended by a friend of mine, I'm much more likely to use that recommendation."

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Pamela Parker

Pamela Parker is a former managing editor of ClickZ News, Features, and Experts. She's been covering interactive advertising and marketing since the boom days of 1999, chronicling the dot-com crash and the subsequent rise of the medium. Before working at ClickZ, Parker was associate editor at @NY, a pioneering Web site and e-mail newsletter covering New York new media start-ups. Parker received a master's degree in journalism, with a concentration in new media, from Columbia University's Graduate School of Journalism.

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