Re-posted from the Nieman Journalism Lab
Main Street is finally going digital. With the digitization of smaller business, newspaper companies believe they’ve found that elusive third leg of a business model — a model that could keep them standing, maybe even taller, into the second half of this decade.
We’ve see “marketing services” grow as a business pursuit over the past couple of years. Now — as newspaper publishers have just left the “Key Executives Mega-Conference” in New Orleans, where such services led off the weekend with a three-hour session — we can characterize it as the number one new business pursuit of many U.S. newspaper chains. It’s the new initiative they are most heavily investing in. In fact, in surveying the field, I’m estimating that marketing services revenue could equal at least 10 percent of newspaper company ad revenue — pushing $2 billion — by 2016. Aspirationally, this is the third leg of newspaper revenue — after advertising and circulation revenue — publishers know they need.
The business push goes by several names: marketing services, digital services, “becoming a regional agency.” Those terms all point to the same business, which targets small and medium-sized businesses (SMB). It’s a category of businesses many dailies long ignored — in the good times of 20-percent-plus profits, why focus on pennies, nickels, and dimes when the dollars were busting down the door? When Macy’s, Best Buy, and Safeway were subsidizing ink by the barrel, paying high rates, insertion orders were worth five figures.
I first ran across the bigger-is-better thinking when I became managing editor of the Saint Paul Pioneer Press in the mid 1990s. We had three school-aged kids, and all of them liked visiting the Red Balloon bookstore on Saint Paul’s Grand Avenue. I suggested that the Red Balloon might be able to afford a small ad in our (struggling for ad support) book section. “No,” I was told. “It would cost more than we’d take in to send a sales rep there.” The Red Balloon is 2.6 miles from the Pioneer Press offices.
In the old go-go days, larger metro papers considered only the top 5-10 percent of merchants as their customers. The other 90-plus percent were too small to care about. Even for smaller community papers, well over 50 percent of merchants fell into the “too small” category.
Well, times change. Humility is learned. Price points meet reality. 2.6 miles seems shorter.
Now the target is those much-derided digital dimes, dimes increasingly being spent by about 27 million U.S. SMBs. Almost 20 years after the Yellow Pages companies first started selling digital presences to smaller businesses, Main Street is finally ready to go more fully digital. Figure that Google has had about two million customers for its paid search, lead generation products. Figure that many of these smaller business owners now have their own personal Facebook pages, and some familiarities with Twitter and LinkedIn. Who hasn’t used Google search and seen the paid ads on the pages?
It’s not that these businesses haven’t had a lot of knocks on the door. The Yellow Pages companies, in their own print-to-digital transitions, complicated by bankruptcy and sale, keep on visiting. National companies like ReachLocal and Orange Soda make forays. Groupon, Living Social, and their deal brethren have whetted appetites, if often leaving behind heartburn.
Into this landscape, enter newspaper companies. Among those making a business of smaller business: groups including Hearst, GateHouse, Tribune, and McClatchy, and big independents like The Dallas Morning News, Star Tribune, the Buffalo News, and the Pittsburgh Post-Gazette. The latter two are clients ofGuarantee Digital, which helps newspapers gets its marketing services programs up and going. It is headed by newspaper digital ad veteran Daryl Hively. They sell the basics of what the smaller merchants now understand they need:
- A better site presence, and, increasingly, a mobile presence. In 2013, many have some kind of site — with the tech support of a nephew or kid next door — but not much of one. Marketing services providers offer professionalization through digital services, in look, feel, and basic information.
- Findability: Basic search engine optimization (SEO) on Google and Bing and search engine marketing (SEM) to buy leads.
- Social connections: Primers and services in using Twitter, Facebook, and LinkedIn
- Reputation management
- Content marketing
- Daily deals
The pitch, increasingly, includes showing the merchant how well each of their marketing programs is working in and of itself — and comparatively. It’s a work in progress. One of the most intriguing new products addressing the problem, isTapClicks. COO Jeff Herr, a digital exec with Lee and MediaNews experience, says his company is focused on doing precisely that for marketing services. Earlier testers include MediaNews, Lee, and the Star Tribune. Marketing services companies make a higher profit margin on services they themselves provide, like site building and social setup, than on reselling products like Google AdWords. In all, it’s a business that can produce good margins, with a ramp to real scale.
Let’s look at the newsonomics of selling Main Street:
- Well over a thousand new dedicated-to-marketing-services salespeople are roaming Main Street. The strategy espoused by Hearst-owned market leader LocalEdge: Hire a sales staff separate from the newspapers’ ad sales group, and use a different brand in the marketplace to differentiate the marketing services offer from that of traditional advertising sales.
The Star Tribune’s chief revenue officer Jeff Griffing explains why he hires non-ad salespeople — like former 3M salespeople — to sell marketing services: “They are used to walking into businesses and being truly consultative.”
LocalEdge is a Buffalo-based Yellow Pages company that Hearst bought 10 years ago and has made into the newspaper industry’s marketing services leader; it now syndicates its platform and training. CEO Jeff Folckemer says that there are 1,000-1,200 full-time marketing services salespeople pitching its products. The Star Tribune (Radius) and the Dallas Morning News (508 Digital) have each hired more than two dozen full-time marketing services salespeople for their big 2013 push; both use the LocalEdge platform. Other LocalEdge affiliates include Morris Communications, Wehco Media, Newsday, and the New York Daily News.
- Price points range from $300 to $3,000 a month, depending on the degree of customization offered. Griffing offers this early snapshot of the Star Tribune’s developing business: “More than 90 clients as we speak, but that number changes daily. Average price point to date is $426 per month. Category learnings so far: 85 percent services, 15 percent retail and restaurants. Services trend so far: home improvement (gutters, roofs, landscaping, plumbing, etc.), professional services, dentists, financial services, tax services, etc.” The Morning News’ 508 Digital has passed the 600 client mark.
- Custom work fetches higher rates. In Chicago, Tribune’s Bill Adee has built Tribune 435 as a custom marketing services house. Tribune 435 focuses on five-figure engagements to help merchants get their strategies up and running. In Dallas, the Morning News has also invested in a second marketing services business, Speakeasy. Specializing in site building, content marketing, and social, the 12-person startup works a terrain of $1,300-$12,000 a month. The average client pays $3,600 a month, says Speakeasy president Mike Orren.
- It could add up to a $1.6 billion business within the next three years: My own forecasts of this emerging business look to a newspaper-owned $1.6 billion local marketing services business by 2016. That forecast (a part of a recent report, “The Local Marketing Services Revolution,” I wrote for Outsell) assumes that newspaper companies take about 25 percent of the local marketing services market by then.
It makes sense that newspaper companies are well-positioned to be winners in this emerging market. It’s easy to tick off their advantages:
- a big brand in the market that is universally known — and associated with commerce
- both print and digital promotional megaphones
- the ability to convene events, cheaply, to educate and sell marketing services
- an ad salesforce that can be appropriately leveraged — after the marketing services sales staff establishes the business
So is this the almost mythical third leg? Newspaper math is increasingly simple (“The newsonomics of zero, and The New York Times”). The upswing in circulation revenue can make up for the loss in ad revenue, but it’s probably not enough to provide much growth. If it can’t, newspaper companies need a third leg to find growth.
Marketing services clearly could be that third leg. We’ll have a sense of how much revenue — and profit — it provides, within two years. Newspaper company revenue reports typically have three lines: advertising, circulation, and “other.” If marketing services becomes an actual line, separate from “other,” you’ll know it’s a real third leg.
Groundwork for success is being well laid, based on a lot of painfully bought experience from the last decade. I have no doubt that the needs of local businesses, stores and services alike, will grow. There are few businesses that will be able to prosper without some kind of digital strategy. If newspaper companies can really change their stripes — getting away from selling print and digital space— and really put merchants’ results at the forefront of this new business, they’ve got a real shot at success. That’s why most are hiring new, separate sales staffs; execution and changing at least part of company culture will decide marketing services’ fate.
It’s curious. Marketing services looks like an advertising business. But the Star Tribune’s Jeff Griffing says its not. He associates marketing services with the Star Tribune’s (and daily newspapers’) other big initiative: all-access, print/digital circulation. “It’s an annuity business, if you do it right,” he says.
Like subscribers, merchant buyers of marketing services may provide a recurring revenue stream. Griffing’s notion: Merchants will always need help sorting out a constantly changing stream of marketing opportunities. If his company is truly in the business of providing ongoing consultative help, it can retain its customer long-term.
Marketing services, of course, isn’t going forward in a vacuum. Main Street is experiencing its own disruptions, digital and otherwise. A little company called Amazon believes that it can supplant some share of local goods sellers, with same-day delivery, now moving forward strongly in at least a dozen markets. How local merchants will be affected, and how they will respond, are unknowns. Fear — and opportunity — may both propel marketing services forward.
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