So, I’m cruising around the Web, minding my own business and catching up on some reading when I find this article, asking the question: “Will NYTimes, AOL Finally Prove that Hyperlocal News Works?”
Whaa? If you believe the hype, “hyperlocal” sites that deliver local news (often from bloggers) and other local information are the “next big thing.” So, now AOL and The New York Times are going to “prove” that it “works?” I thought we were already there?
It turns out that while hyperlocal may be the “next big thing,” it’s been that thing for at least three years now…with very limited success. And while AOL and the Times are getting ready to jump into the fray, big time (or perhaps bigger time…AOL is expanding its already existing Patch as part of its hyperlocal initiative), the Web is littered with hyper-failures, including the much ballyhooed (and now dead) Backfence.com, Bayosphere.com, and The Washington Post’s Loudoun Extra boondoggle. As much as “hyperlocal” news seems like it should be a hit, few have been able to make money in the space, at least not at the scales that would justify the hype.
But why hasn’t hyperlocal taken off? After all, Borrell Associates predicts that 2010 local ad sales will top $14.9 billion. Maybe, but that number seems kind of high, representing about half the total ad revenue for Google, Yahoo, Microsoft, and AOL in 2009. Mark Potts, founder of the defunct Backfence, boasted in his farewell blog post that Backfence had “sold ads to more than 400 advertisers, more than any other similarly sized hyperlocal effort that [he’s] aware of.” There’s a big gap between 400 advertisers and $15 billion…unless those advertisers pay a lot more than ones I’ve encountered!
That statistic itself reveals a big problem for hyperlocal: the economics just aren’t there. By definition, hyperlocal means fewer readers, and fewer readers means lower revenues. In addition, hyperlocal sites are directly competing with local newspapers and free weeklies for the same advertisers, advertisers who have less money to spend now than they did before.
But there actually may be deeper issues: the advertisers, the consumers, and how ads work. And they may be problems that are going to take a long time to overcome…if they can be overcome at all.
First, the advertisers. One of the biggest issues with local advertisers is their lack of sophistication when it comes to online media. Now, before you go jumping up and down, saying that I’m a snob, take a moment to think about it: how many contractors and hair salons and other small businesses do you know that have a sophisticated-enough understanding of the complex world of online media to be able to navigate the rate cards and technical details that many of us deal with on a day-to-day basis? This isn’t to say that they’re not smart people – they are. It’s just that the “overhead” that often exists with buying online ads – developing the creative, building a Web site for the ad to link to, etc. – is greater than the overhead involved in putting a print ad in the local free weekly.
Secondly, consumer behavior itself may be a stumbling block for hyperlocal models. Local people searching for local goods and services search for those local goods and services; they don’t go looking for them by browsing around their hyperlocal Web sites. Granted, the search might result in a pointer to the hyperlocal site, but that consumer’s attention is going to be on the results they were looking for, not the ads on the page. Yes, they might encounter ads while reading the local news, but the performance of those ads (based on the amount of traffic the story might get) is probably abysmal, simply because of the numbers. How? Well, if a local story gets 1,000 readers and we use an average click-through rate of around 0.1 or 0.2 percent, you’re looking at maybe one or two clicks. And that’s just clicks…conversions are a whole other story. Even if the advertiser is paying a $3 CPM, that’s not going to be an attractive proposition for a small local advertiser.
Finally, comparing advertising rates and effectiveness for hyperlocal sites versus local newspapers is wrong. Why? Because people read them differently. Local newspapers (especially free local papers) are typically read as a whole – people browse through them looking for interesting stuff. They don’t just read one article and then dump the paper in the trash can. On the other hand, Web sites are rarely read “cover to cover” and are often consumed in quick hits, where readers jump in to read one article, check the weather, or look something up. Getting them to see one particular ad is tougher than in a paper where someone might just come upon it by chance.
Yes, there may be a viable business model based on aggregating a large number of hyperlocals together (AOL’s strategy), but it’s going to have to run lean and mean and is going to have to deal with the way people consume information. I hardly think we’re looking at the death of hyperlocal, but we’ve got a long way to go from a business-model standpoint to make hyperlocal sites work.
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